Offshore Logistics: Winds of Change

The very remoteness of an offshore site, weather conditions and the difficulty of marrying the, “just in case,” and, “just in time,” elements of a complicated supply chain can be a smooth well-thought out operation or descend into chaotic panic as supply chain integration and communication fails.

High oil and, previously, natural gas margins have enabled energy companies, their contractors and suppliers to pay whatever is needed to get the job done. Post Deepwater Horizon, and with the ensuing National Commission report, which implicated an incorrect grade of cement and other logistical mistakes as the cause of the disaster, getting materials wrong is no longer an option.

Key offshore logistics challenges

DHL’s energy sector senior vice president Steve Harley believes that visibility of assets is just one of the key logistical challenges for offshore oil and gas installations.

“I would focus on visibility. Keeping visibility of material movements, keeping visibility of movements of vessels, helicopters as well,” said Harley.

“I think it’s also the reach, the access to sites, which are increasingly hard to access. Consequently the implementation of new projects in these locations is a particularly grave logistics challenge to mobilise materials, people and equipment. If it’s very difficult to react to a problem, people perhaps don’t take the right steps if the logistics are complicated. If the logistics are easier people probably can take more precautions more easily.” Harley said.

The industry post Deepwater Horizon has experienced its fair share of changes according to Harley. “It is quite a conservative industry but I think it has produced some changes. Those are really focused around more priority given to health and safety.”

“HSSE (Health Safety Security Environment) is more a case of being aligned with the international oil company’s (IOC) or the operator’s standards rather than operating to your own standards. I think everybody is being brought more in line with IOC standards, said Harley,” I think it’s a case of further vetting of contractors. I think contractors are being much more closely reviewed before they are being taken on for new pieces of business and probably a rationalisation of suppliers as a whole is taking place.”

Harley also said that he has noticed an upturn in enquiries lately and said that DHL is reacting to the oil and gas industry’s demands. “The fact that there is increased efficiency doesn’t necessarily mean, in our case, reduced profits because we are a very broad-based company offering solutions across the whole supply chain.”

“As there is more consolidation we are able to offer a broader range of services and bring efficiencies but also bring an increase in the range of services to the customer. We’re applying the technologies which we have, for quite some time, used in other sectors. Our use of control towers to manage movements from different suppliers for example, is something that we can see increasingly being applied to the upstream industry.”

Digging deeper: new frontiers, new challenges

International supply chain consultancy LCP Consulting Chairman Professor Alan Braithwaite believes that the limitation in global supply is driving exploration and production into deeper, more dangerous and more hostile places.

“Supply chain logistics is going to have to cope with a more physically challenging route to service these places,” Braithwaite said.

“At present there are a number of categories of supplies and, as we saw with Deepwater Horizon, the number of players that cluster around a wellhead in exploration and production. They tended in the past to maintain their own logistics networks – the implication of that is there are a number of contracts servicing any given location where there may or may not be a convergence on a single supplier.”

Braithwaite pointed out that for offshore oil and gas supply chains, “The cost of failure is higher than any incremental stock or logistics cost.” The LCP chairman added that there were little or no incentives to be efficient in an industry with such high margins and individual organisations have tended to protect their own piece of the operation.

“Cost has not been a concern,” said Braithwaite. “You have a big opportunity cost to failure, in a more difficult place with little or no coordination. What I’ve seen is that the big oil companies are now saying, this is completely crazy, because to them deeper and harsher also means more expensive, which means that their (oil companies) margin gap versus what they can realise for the oil is declining,” said Braithwaite. “Given that the oil price is now rising, they (oil companies) are much more concerned with supply costs.”

Braithwaite has noticed recent changes, “What we’re seeing is initiatives to try and bring this together under single service umbrellas of various sorts. That challenges the providers because that is attacking an area of high margin for their business,” he said. “It also requires a level of planning and visibility if you’re going to try and integrate and leverage scale that hasn’t hitherto existed.

“It’s not rocket science but actually it’s difficult because there are a whole range of hidden barriers. If you did do it better, then at the operational cost level, supplying the wellhead or whatever it is, there is anything up to a 20% to 30% cost saving available.” Braithwaite cited an example, “We did a piece of work in the North Sea on the supply of piping and just by standardising the piping specification at the highest specification and changing the supply route there was something like a 40% reduction in potential.”

While there is change afoot there is some way to go for an industry so large, “All the tools and techniques in top quality supply chain and logistics are available but mostly they’re not applied,” said Braithwaite. “We’ve seen some signs that some of the really big oil companies are saying, we’ve got to start off here,” said Braithwaite who concluded with an opinion on safety. “The other issue is safety following Deepwater Horizon. Improved performance of supply chain ought to generate better safety.”