Professional Documents
Culture Documents
LUBRICANTS/FUEL ADDITIVES
● Market megatrends
S U P P LY C H A I N M A N A G E M E N T
● Best practices and new logistics models
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his month’s issue takes a closer look at E&P activi-
ties in Africa, and asks whether the exploration
potential of the Sub-Sahara region is still being
61 New Cavendish Street, London W1G 7AR, UK underestimated by some industry observers due to the
current relatively low level of proven reserves and
Chief Executive: Louise Kingham OBE FEI production. Outlining four recently successful play types,
Editor: Kim Jackson MEI we assess where the next E&P successes in the region are
likely to be. The magazine also notes the need for opera-
t: +44 (0)20 7467 7118 tors in Africa, and elsewhere, to have a clear risk awareness and management
e: kjackson@energyinst.org strategy, with the recent attack at the In Aménas gas facility in Algeria
having led to a closer scrutiny of in-country insurance cover in recent months.
Deputy Editor: Louise Hunnybun
In addition, we review how the use of supply chain management best
t: +44 (0)20 7467 7142 practices and third-party and fourth-party logistics (3PL and 4PL) providers
e: lhunnybun@energyinst.org can help operators maximise profit margins.
Looking at the global lubricants sector, we reveal 2012 was a year of
Production Officer: Yvonne Laas change and uncertainty, and outline the key trends driving the sector now
t: +44 (0)20 7467 7117 and going forwards. We also introduce the Energy Institute’s new ‘knowl-
e: ylaas@energyinst.org edge strategy’ and explain how continued professional development can
help you ‘stand out from the crowd’ as you look to develop your career in
Editorial enquiries: General enquiries: the energy sector.
Kim Jackson, Editor
t: +44 (0)20 7467 7118 t: +44 (0)20 7467 7100
e: petrev@energyinst.org e: info@energyinst.org
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NEWS & REGULARS
2 PERSPECTIVE
For advertising opportunities please contact: 3 UPSTREAM
Nick Ackroyd, ExCel Publishing 6 DOWNSTREAM
t: +44 (0)161 661 4182 9 INDUS TRY
e: nick.ackroyd@excelpublishing.co.uk 11 GOVERNMENT
12 ENERGY INSTITUTE
MAGAZINE SUBSCRIPTIONS 44 EVENTS CALENDAR
Chris Baker t: +44 (0)20 7467 7114 f: +44 (0)20 7255 1472
e: cbaker@energyinst.org
F E AT U R E S
MEMBERSHIP 14 AFRICA – SECURITY
Check those insurance policies
For all membership enquiries please contact 16 AFRICA – SUB-SAHARA
e: membership@energyinst.org or visit Exploration potential still underestimated?
www.energyinst.org 18 AFRICA – LEGAL
Libyan oil contracts
ABBREVIATIONS
20 AFRICA – ETHIOPIA
The following are used throughout Petroleum Review: Ethiopian exploration points to significant reserves
mn = million (106) kW = kilowatts (103) 22 A F R I C A – A LT E R N AT I V E F U E L S
bn = billion (109) MW = megawatts (106)
tn = trillion (1012) GW = gigawatts (109) Urban biogas for South Africa
cf = cubic feet kWh = kilowatt hour
cm = cubic metres km = kilometre 24 E N E R G Y I N S T I T U T E – K N O W L E D G E S T R AT E G Y
boe = barrels of oil sq km = square kilometres Adding knowledge services to professionalism and good practice
equivalent
b/d = barrels/day 26 CCS – INTERVIEW
t/y = tonnes/year t/d = tonnes/day
Putting the ‘S’ in CCS
No single letter abbreviations are used. Abbreviations go
together eg. 100mn cf/y = 100 million cubic feet per year. 28 IP WEEK – PROFESSIONAL DEVELOPMENT
Standing out from the crowd
30 OIL AND GAS – EMPLOYMENT
Printed by Geerings Print Ltd
MEMBER OF THE AUDIT BUREAU OF CIRCULATION
North Sea investment to lead to a job boom
32 S U P P LY C H A I N M A N A G E M E N T – B E S T P R A C T I C E
Front cover: Developing the latest lubricants to meet market
demands Lessons learnt
Photo: Image courtesy of Shell International, visit 34 S U P P LY C H A I N M A N A G E M E N T – M R O
www.shell.com/lubricants for more information
Optimising operations
Terms of control: Petroleum Review is circulated free of charge to all paid-up mem- 36 S U P P LY C H A I N M A N A G E M E N T – L O G I S T I C S
bers of the Energy Institute. To libraries, organisations and persons not in
membership, it is available on a single subscription of £270 for 12 issues in the UK and Your flexible friend
£440 for overseas subscribers. Agency Commission –10%. ISSN 0020-3076. Energy 38
Institute Registered Charity No.1097899, 61 New Cavendish Street, London W1G 7AR, LUBRICANTS – TRENDS
UK. Change and uncertainty
© Energy Institute 2013. The Energy Institute as a body is not responsible either for
the statements made or opinions expressed in these pages. Those readers wishing to 41 LUBRICANTS – TRENDS
attend future events advertised are advised to check with the contacts in the organi-
sation listed closer to the date, in case of late changes or cancellations. To view the Megatrends matter
full conditions of this disclaimer, visit http://www.energyinst.org.uk/disclaimer.pdf
PERSPECTIVE
the deep-pocketed oil and gas majors,
Africa’s role in ‘Golden Age of Gas’ their big international E&P counter-
parts, and the well-known African oil
Elias Pungong, African Oil & Gas and gas specialists. Opportunities will
Leader, Ernst & Young extend in most areas to the smaller,
local E&P players as well, most often in
partnerships with the larger, more-
I
n a thought-provoking report
published in June 2011, the experienced players.
International Energy Agency (IEA) The ramp-up in E&P activity of course
asked ‘Are we entering a “Golden Age brings opportunity for the oilfield
of Gas”?’ That report described a new services (OFS) segment; but again, not
positive outlook for the global future necessarily just for the big international
of natural gas. This positive forecast OFS players, but also for local and
was based on four factors – ambitious regional companies that can contribute
assumptions around natural gas use in to the supply chains and to the associ-
China; greater use of natural gas in ated upstream support infrastructure
transportation; slower growth in build-out. The broader infrastructure
global nuclear power; and, most criti- build-out may also include massive
cally, a more optimistic outlook for export facilities, as in the case of LNG,
natural gas supply, chiefly driven by but also smaller projects such as
the increasing availability of uncon- led by Nigeria and Angola. While the pipelines and gas distribution networks
ventional natural gas at competitive West African gas growth will continue to support local/regional domestic
prices, and by the expansion of global as flaring is reduced and local gas infra- gas demand. All of this build-out can
supply capabilities for LNG. In its structure is developed, the big future bring substantial local and regional
report, the IEA predicted a growing for African gas will feature yet another opportunities. Certainly the associated
role for natural gas in the world’s move – this one to the east and centred development or expansion of a domestic
energy mix, with natural gas the only on the most dynamic recent develop- gas demand sector could bring substan-
fossil fuel whose share was growing. ments in the African natural gas sector, tial commercial opportunities in the
Importantly, the development of nat- the massive offshore gas discoveries in power generation, industrial and even
ural resources – oil and natural gas in East Africa, particularly in Mozambique transportation sectors. Indeed, many of
particular – is a ‘foundational’ element and Tanzania. the gas flaring reduction efforts are tied
of economic growth and development. Just 10 years ago, East Africa was a to domestic gas use projects.
In developing countries, it typically ‘non-story’ as far as oil and gas went. African governments and local and
accounts for a significant part of the Today, however, it is now seen as the regional NGOs will, of course, have crit-
state’s revenues and, more importantly, ‘new promised land’ or the ‘next epi- ical roles to play – first and foremost,
it represents a ‘prime mover’ for centre’ for global natural gas, the developing a meaningful and practical
employment, infrastructure develop- newest ‘new frontier’. With the recent master gas development plan, one
ment and the improvement of the massive discoveries, East Africa repre- that addresses the upstream tax and
broader social well-being. sents the growth engine for Africa’s licensing models, as well as the
natural gas sector – maybe not the next necessary infrastructure issues and
Qatar or Australia, but certainly a poten- investments, and local training and job
Bright prospects tial LNG heavyweight on par with creation issues. Collaboration and part-
With its rapidly evolving natural gas Nigeria. East African LNG is expected to nerships with the international oil
sector, Africa is seen as likely to play an be very competitive into Asian gas mar- companies (IOCs), both big and small,
increasingly important role in the kets, and the main questions are will likewise be critical.
coming ‘Golden Age of Gas’. The conti- concerned with the number of LNG pro- Risks throughout much of Africa are
nent is currently a small but growing jects that will go forward, and whether still quite high, but in many of the key
part of the global gas industry, and its or not they will be unitised or combined. countries the ‘risk trend’ is improving.
prospects are even brighter still. Natural gas development holds Most importantly, though, the opportu-
As it has grown, Africa’s gas industry tremendous opportunity for Africa. It nities for Africa presented by the
has also evolved geographically. The can be a primary driver of economic ‘Golden Age of Gas’ are enormous and
continent’s gas industry was historically growth and broader social develop- the challenges and risks can be
dominated by the North African pro- ment, as well as a major spur for local addressed and mitigated, if not fully
ducers – in particular Algeria and Egypt. employment growth and infrastructure overcome. ●
More recently, the sector’s growth has development.
been concentrated in West Africa, with Africa’s ‘Golden Age of Gas’ will be The opinions expressed here are not
the huge associated gas resources that more than just headline opportunities necessarily endorsed by the EI.
accompanied the deepwater oil boom, for the national oil companies (NOCs),
Join now at w w w. e n e r g y i n s t . o r g
JANUARY 2013
FEBRUARY 2013
Energy World, the monthly sister publication to
Petroleum Review, covers the whole energy scene, from
MARCH 2013
€70mn to help it upgrade and expand its gas distribution networks in the Veneto
Ethiopia and another across Kenya to ● The European Investment Bank (EIB) is planning to lend Italy’s Ascopiave Spa
companies to bid for exploration Kommersant-Ukraine that he would welcome the creation of an international con-
licences from May 2013, an energy sortium running Ukraine gas pipelines involving EU partners, Gazprom and
official is reported to have said. Ukraine’s distributor Naftogaz.
IN YOUR AREA
Yewande Abiose
Obituary – Lionel Downer joins EI Nigeria
In February, Yewande
It is with great sadness that we report the loss of Lionel Downer Abiose was appointed
who passed away in February after a short illness. He was a key as Business Develop-
figure in petroleum measurement and made significant contri- ment Manager for EI
butions to the EI’s technical work in this field.
Nigeria. Yewande was
Lionel had a long and distinguished career with BP and his
educated at the
most far-reaching contribution to oil measurement stemmed
University of Surrey where she gained
from a paper published jointly with Fred Inkley in 1972. This demonstrated that the
measurement tables which had been used since the 1940s for correcting crude oil a BSc in Economics in 2004, followed
and petroleum product volumes to standard conditions for trading purposes were by an MSc in Energy Economics and
not a good representation of the crudes and products actually being traded. This Policy in 2005. During her career,
work led to a joint initiative by the then Institute of Petroleum (now the EI), API Yewande has been employed by
and ASTM, and subsequent liaison with ISO, with Lionel leading the EI effort and Deloitte West Africa, and Total
providing significant input. New tables were published in 1980 and, with very Nigeria. As a graduate member of the
minor amendments, are still in use worldwide today. EI, she has volunteered on the
He was an original member of the EI’s Oil Industry Liaison Committee which committee of the EI’s Nigeria branch
evolved from the joint work on measurement tables and drew in international since January 2008. She will be
experts to meet under the EI umbrella to discuss measurement issues. The committee working closely with the branch
developed into the current HMC-4 Oil Transportation Measurement Committee, one committee in Nigeria in order to
of the largest and most international of the EI’s technical committees. support the activities of their mem-
Lionel was always willing to share his experience, and good humour was bers and volunteers, and further
always a key ingredient to any exchange. Some 200 people attended Lionel’s develop the EI’s presence in the
thanksgiving service in Stroud last month, an indication of the impression he made country.
and the fondness with which he is regarded. Our thoughts are with Lionel’s wife
and family.
Check those
secreted into the south to bring out staff
and provide charter aircraft to small air-
fields on the coast after the Algerian
government closed down all airspace
into the main airports. The In Aménas
attack has significantly ratcheted up the
Risk awareness
The industry must not rely on govern-
ment to provide both intelligence and
strategic assistance when the need
arises. Compass Risk Management,
which deploys consultants with long-
standing experience of hostage
negotiation both on land and offshore,
has prepared a summary briefing into
the In Aménas terrorist operation, com-
menting on the UK government
response. On the positive side, the
Foreign and Commonwealth Office was
quick in sending consular teams to sup-
port repatriation, it reported, but the
government had only limited experience
in the region, unlike France and Spain.
The savagery of the recent attack at the In Aménas gas ‘This lack of experience was reflected in
some of the statements from the gov-
facility in Algeria has led to a closer scrutiny of in-country ernment,’ the company concluded.
Critically at risk is the downstream
insurance cover, reports Nigel Bance. sector, where ‘often, there is a complete
lack of awareness of the risks’, as noted
by the underwriter when commenting
‘I
am constantly surprised that some rent for the well-armed Jihadists, who on how the industry should react to the
companies don’t have specific also looted Libya’s arsenals during the carnage in the desert. Premiums for all
kidnap and ransom cover,’ states an uprising. Insider knowledge was a major sectors across the region into Mali and
insurance underwriter in London that contributor in the assault, which began surrounding areas are high, and cover
specialises in high-risk oil and gas with attackers in Sonatrach-liveried SUVs comes with conditions. Aggregate com-
provinces. His company has seen a surge moving against two buses carrying pany limits on ransom payouts is a
of enquiries since the attack on Algeria’s workers to the facility’s airport and then feature for most policies, with $1mn to
In Aménas gas facility in January, which on to the living and recreational area in $5mn the norm. No member of staff
resulted in the deaths of hostages from the compound where most of the should ever carry on their person any
Algeria, Colombia, France, Japan, hostages were taken. ‘No amount of due certification of insurance where kidnap
Philippines, Romania, Norway and the UK diligence on staff can ever provide perfect is mentioned as, if they did, any such
and US. The plant managed by BP, Statoil security,’ confirmed the underwriter. cover in a hostage negotiation would be
and Sonatrach, which covers 10 sq km, In-country cover is available in the immediately invalidated. Companies are
was a high profile target as it accounts for underwriting market – but it comes at a also instructed by underwriters to keep
a tenth of Algeria’s gas exports. price. The Libyan uprising in 2011 had knowledge of such company cover to a
The complexity of the attack by Al- been a wake-up call to the industry to select few. All staff need key numbers to
Mulathameen, a splinter faction of reappraise security arrangements, after call in the event of crisis.
Al-Qaeda in the Islamic Maghreb (AQIM), many employees had been forced to use A recent addition to kidnap for
has given risk underwriters a major their own initiative in order to evacuate ransom policies is cover for hostage
headache in writing new business in to the coast for rescue or to the borders. extension, quickly gaining currency in
North Africa and the Maghreb region. Those companies with evacuation cover certain oil and gas provinces. Local man-
Some 1,140 km south-east of Algiers, and as part of their policies fared better. agers or foreign expatriates can find
30 km from the Libyan border, the Armed protection from the mainly themselves taken hostage by disgruntled
facility’s very remoteness proved no deter- British and US security companies were staff that have grievances over working
conditions or lack of promotion. There
have been incidences where expatriates
Iraq-style armed security has become the norm in much of North Africa and the have been held in their hotel rooms and
Maghreb forced to contact their head offices to
Energy Institute
Process safety survey (EIPSS)
www.energyinst.org /eipss
AFRICA Sub-Sahara
Exploration potential
still underestimated?
The opportunity to add reserves through Sub-Saharan nies to better view sub-salt strata since
the mid-2000s. In 2006, BG discovered
Africa oil and gas exploration is both very large and the giant pre-salt Tupi oil field in deep-
water, offshore Brazil, which Petrobras
underestimated, writes Dr Stuart Amor, Head of Oil & Gas estimates has recoverable reserves of
between 5bn and 8bn barrels. Following
Research, RFC Ambrian. this and other giant pre-salt petroleum
discoveries in Brazil, interest in African
west coast central pre-salt potential has
S
ub-Saharan Africa political risk, reg- becoming much more positive. The April increased dramatically (the Brazilian and
ulatory risk, graft and security issues 2012 USGS World Petroleum Assessment African tectonic plates were joined as
have caused the region to be less estimate of Sub-Saharan Africa mean part of Gondwana before moving apart
explored than its geologic potential undiscovered conventional petroleum in the early Cretaceous period and thus
warrants. Furthermore, new technology resources was 2.2 times larger (or 146bn they share a similar geologic history).
has made possible exploration of plays boe) than its 2000 assessment. This was Cobalt is believed to have been the
that were previously difficult to access. by far the largest increase of its eight first company to have found a giant pre-
As more world-class discoveries are main assessment regions, in both salt reservoir in Africa, with its Cameia-1
made, interest in the region will only absolute and percentage terms. The well (in block 21, offshore Angola). The
increase. Below are outlined four change in sentiment towards Sub- Cameia-2 appraisal well confirmed a
recently successful play types, and where Saharan Africa’s frontier exploration lower oil water contact and confirmed
RFC Ambrian believes the next successes regions (as opposed to Nigeria and the aerial extent of the field; a drill stem
are likely to be. In terms of the size of Angola, which have to date attracted test is planned for 1Q2013. The opening
resources likely to be discovered, the the vast majority of industry exploration, up of deepwater pre-salt plays in Brazil
West African coast pre-salt play is likely appraisal and development spending) has transformed the Brazilian oil
to yield the most positive results over has been driven by large, new discoveries industry. Both the scale of individual
the next few years. in previously underexplored territory. petroleum discoveries and the economic
Many observers continue to underesti- rent available from their development
mate the scope for new oil and gas West African coast pre-salt are enormous. Brazilian proven oil
discoveries in Sub-Saharan Africa as the Following improvements in seismic tech- reserves increased from 8.5bn barrels in
region’s (current) relatively low level of nology it has become possible to view 2001 to 15.1bn barrels at the end of
proven reserves and production unduly the strata below salt layers. Salt attenu- 2011. We believe a similar transforma-
influences them. Only Nigeria and ates seismic waves and its structure tion is possible offshore Angola, Gabon,
Angola saw oil production of more than often contains overhangs that are diffi- Congo (Brazzaville) and DRC. Indeed,
0.5mn b/d in 2011. However, the scope cult to image. Improved computing Cobalt alone plans some four to six fur-
for new discoveries depends not on cur- power and the wide-azimuth towed ther exploration wells and three more
rent reserves and/or production, but on streamer survey have allowed compa- appraisal wells over the next two years.
the geological propensity of a region to
produce oil and gas fields and the
amount of historic exploration con-
ducted in the region. The US Geological
Survey (USGS) has looked at the latter
factors and has produced two World
Petroleum Assessments – one in 2000
and the other in 2012. If you are a Sub-
Saharan African oil and gas explorer, the
results of the most recent assessment
were highly encouraging, with over 15%
of the world’s undiscovered petroleum
resources estimated to be in the region.
Sub-Saharan African total mean undis-
covered petroleum resources are 267bn
boe according to USGS’s 2012 report.
This means that the opportunity is com-
parable in size to that of the Middle East
and North Africa (299bn boe), North
America (296bn boe) and South America
and the Caribbean (260bn boe).
The consensus view of the petroleum Figure 1: World mean undiscovered prospective oil and gas resources
Source: USGS, RFC Ambrian estimates
potential of Sub-Saharan Africa is
T
here are times when contracts, par- majeure clause – for example on timing the product being sold should comply
ticularly long-term contracts, lose or notice – have been complied with with contractual specifications. An early
their appeal. This may be because exactly. Several oil majors operating in problem in one of these areas could
of a specific change of circumstances – Libya are known to have declared force leave the door open for another party
for example, oil companies withdrawing majeure on contracts as a result of the legitimately to terminate the contract
from operations in Libya following the uprisings in 2011. later on. The same applies in relation to
overthrow of the Gaddafi regime and A force majeure clause often contains notice provisions. If a notice of termina-
subsequent uprising in 2011. Or it may examples of events that fall within its tion or force majeure is not sent in the
be because of a downturn in the local, scope, together with a catch-all provi- correct form to the correct address, for
or global, economy, of the sort we are sion such as ‘any event beyond the example, this could make it invalid. If a
currently experiencing. control of the parties’. Examples of force contracting party does appear to be
This article briefly considers whether, majeure events can include war, civil walking away from its obligations, it is
and how, a party may withdraw from its commotion, terrorism or changes in leg- important to respond cautiously.
contractual obligations in circumstances islation. Given the current unstable Reacting too soon could result in a
where performance of the contract is no situation in a number of areas of the breach by the innocent party due to pre-
longer attractive – and what can be world, often areas where oil and gas mature termination. A party hoping to
done to prevent parties on the other exploration is occurring or is targetted, avoid its obligations will be quick to
side from doing the same. parties operating in those regions who seize on this as an easy escape from the
The general position under English are keen to ensure that a contractual contract.
law is that parties are not allowed to exit route is available if necessary should Next, it is important that any conces-
withdraw from a contract because it consider including appropriate force sion made, such as an extension of time
now seems a ‘bad bargain’. One possi- majeure provisions in their contracts. for performance, is granted under a
bility, however, may be that the parties Parties trying to avoid their contrac- reservation of rights.
will be able to declare their contract tual obligations typically rely on one or The natural temptation when a
‘frustrated’. This will relieve them of all more of a number of arguments to default occurs is often to seek a com-
their contractual obligations. Frustration effect their escape. They may try to mercial resolution. Any commercial
occurs when an event happens after the claim that the individual who signed the settlement discussions should be under-
contract has been agreed which changes contract was not authorised to do so; taken on a without prejudice basis. This
the nature (not simply the cost) of per- that the party who entered into the con- enables the defaulting party to be held
formance so fundamentally that it tract did so as agent and not as in breach of contract whilst settlement
would be unjust to require continued principal; that there has been a breach discussions continue so that if they fail,
performance. Given the dramatic conse- of the contract which allows it to be ter- the innocent party is still in a position to
quences for the contract, it is rarely minated; or that they are unable to rely on its contractual rights.
possible to show that frustration has perform due to changed economic cir- There are circumstances in which it is
occurred. It is usually only found where cumstances (sometimes described as possible to walk away from a contract. It
performance has become impossible. ‘price majeure’). There are a number of is also possible to minimise the risk of a
A second option for exiting contrac- ways to minimise the risk of these argu- contractual counterparty doing so
tual obligations is force majeure. This ments being successful. simply because the contract no longer
will only be available if the contract con- appeals to them. The decision to take
tains force majeure provisions and, even Step by step steps to avoid contractual obligations is
then, a party seeking to rely on them The first step is to ensure that the con- not one that should be made lightly –
will have to show that the force majeure tract terms are evidenced in writing. If the consequences of getting it wrong
event falls within the scope of the provi- they are not, all correspondence with can damage both a company’s finances
sions and that all aspects of the force the other contracting party should be and its reputation. ●
Ethiopian exploration
points to significant reserves
block drilling programme in the Ogaden
Basin. Tewodros Ashenafi, the com-
pany’s Chief Executive Officer, told
Petroleum Review that the company
plans to drill its first well at the end of
2013, and a further two wells in 2014
and 2015. It is estimated that the three
blocks could contain a total of between
1.5bn and 3bn barrels – although,
according to Ashenafi, this is a ‘conserv-
ative estimate’.
The company also has the rights for a
block in the Gambela Basin, adjacent to
the South Sudan border. It estimates
that the block has reserves of between
600mn and 1bn barrels. South Sudan has
proven reserves of 900mn barrels in an
area that lies just 100 km from SWE’s
Gambela block, Ashenafi noted. He
explained that SWE is adopting a par-
allel strategy for the financing of the
projects. The company is in the process
of raising private equity of $100mn and
is in discussions, reportedly going well,
A growing number of oil and gas exploration projects are with potential partners. Other smaller
oil exploration projects in Ethiopia are
underway in Africa’s second most populous country, currently being undertaken by
Ethiopia, as interest in its hydrocarbon reserves increases Netherlands-registered Pexco Explora-
tion and US-based Afar Exploration.
from both overseas and domestic companies, writes In addition to its growing oil discov-
eries, Ethiopia already has significant
Jonathan Dyson, in Addis Ababa. natural gas discoveries in the Ogaden
Basin, with the initial gas-in-place
reserves estimated to be 4.7tn cf,
A
ccording to the country’s Ministry Canada-based Africa Oil in 2010. A according to Dr Ketsela Tadesse, Head of
of Mines, there are five distinct Tullow spokesperson told Petroleum the Petroleum Development Enterprise,
sedimentary basins in Ethiopia – Review that 1,002 km of seismic lines a body within the Ministry of Mines set
the Ogaden Basin, covering 350,000 sq have been recorded in the basin and the up to develop oil and gas resources in
km in the south-east of the country; resulting data could indicate significant partnership with private companies. The
Abay (Blue Nile), a 63,000-sq km area in hydrocarbon deposits. The company will government is expected to unveil plans
the central north-western plateau; announce the results of the geological for the development of its gas fields in
Mek’ele, which covers 8,000 sq km in the drill tests in South Omo when the well is the coming months.
north of the country; Gambela, a complete and the data has been inter-
17,500-sq km area within the Central preted, likely to be in 2Q2013. ‘We are Investment opportunities
African Rift System; and the Southern planning two more wells in Ethiopia this As Ethiopia’s sedimentary basins are
Rift Basins, covering 70,000 sq km within year, but that could increase or decrease explored, the oil and gas industry is
the Rift Valley. depending on results,’ the spokesperson bullish about the potential extent of the
Tullow Oil, based in the UK, began said. He added that while it is too early country’s reserves, despite some sugges-
drilling work on its concession in the to give an indication of the potential tions that they will be disappointingly
South Omo Basin, within the Southern reserves, the gross pre-drill estimate for small and that Ethiopia’s geology does
Rift Basins, in early January. The com- the first well, Sabisa-1, is 70mn boe. not lend itself to the large-scale oil and
pany purchased a 50% operating Meanwhile, Ethiopian company South gas production seen in West Africa or the
interest in the South Omo Basin from West Energy (SWE) is planning a three- Middle East. Dr Tadesse said: ‘The
existing gas discoveries are the largest in
the East African region for more than 30
Traffic in Addis Ababa – 72,000 km of new roads are to be constructed in Ethiopia by years. While there have been large
2015, which will improve access to the country’s oil and gas exploration areas recent oil and gas discoveries in other
Source: Jonathan Dyson East African countries, the main reason
A
lthough biogas is a popular form ment outside Cape Town. Cynthia Nkqayi,
of fuel in African countries such as a group leader at the garden, believes the
Ethiopia because of its long-term biodigester is a great addition to its oper-
affordability and relatively low set-up ation because they use gas for cooking
costs, the South African government has every day. ‘We used to buy about R300
focused on developing other forms of [$33.67] worth of gas every two months
renewable power until recently. Now for cooking, so it is a big saving for us to
though, Africa’s largest economy is inves- have the biogas here, as it is free,’ said
tigating whether it should supply biogas Nkqayi. The raw materials and labour cost
as a cheap fuel to the growing number around R10,680.
of poor people migrating from rural to
urban areas, especially the informal set- Other projects
tlements that spring up around South There are similar projects underway
Africa’s cities and towns. across the country. A Johannesburg-
According to the latest census results based company Bio2Watt, for instance,
released last November, Gauteng aims to build and operate large
province, South Africa’s industrial heart- Engineers Without Borders volunteer commercially-viable biogas plants
land including Johannesburg, saw its Francois Petousis and Siyazama throughout South Africa that use waste
population grow from 9.4mn to 12.8mn Community Garden leader Cynthia streams to produce green electricity. The
people in the decade to 2011, an Nkqayi in front of the biodigester company’s clients are typically waste
increase of 31%. In addition, energy compartment fed with garden waste management companies interested in an
costs across the country have increased Source: Bill Corcoran alternative to landfills as a way to dispose
by 50% since 2008. of waste, but they also include local munic-
The process of turning waste into still embryonic, private sector companies ipalities and large-scale dairy farmers.
biogas involves the breakdown of and universities have forged ahead to According to the company website, its
organic matter in an oxygen-free envi- investigate how to convert organic second commercial biogas project is situ-
ronment called a biodigester, which is material into biogas on a more practical ated on a dairy farm in the Western
usually a large rubber-bladder or a con- level. Pavel Parks, a co-founder of Cape province and it intends using the
crete structure, depending on the scale African Green Energy (AGE), a new waste produced by the farm’s 7,000
of the project. Operating like a human renewable energy company, says they cows to fuel a biogas plant that gener-
stomach, the biodigester produces have combined designs from biogas ates electricity. ‘Targeted electricity
methane gas that is siphoned off and plants from around the world in a bid to generation capacity of the proposed
used for cooking and to replace get the right type of digester for South biogas plant is 3 MW, expected to come
paraffin, an increasingly expensive fuel African conditions. onstream by 2014,’ said a company note.
commonly used in informal settlements Although commercialising the In June 2012, a grant of about R2.7mn
as a light source, even though it causes product is the company’s ultimate goal, was provided by South Africa’s National
countless shack fires each year. in the last few years AGE has primarily Research Foundation to UCT to conduct
David Mahuma of the South African focused on biogas pilot projects in dif- small biogas demonstration projects to
National Energy Development Institute ferent poor communities to iron out see if they can alleviate waste disposal
has been tasked by the government to problems caused by fossil fuel depen- problems in informal settlements, as
examine whether it is feasible to add dency. To date, the company has set up well as saving on energy costs. UCT pro-
biogas to the other renewable energy biogas plants in a rural village called ject researcher Rethabile Melamu said
sources that the country is trying to Melani in the Eastern Cape, near Fort its studies show that up to 70% of
develop. He said while his team is in the Hare University. This is used by villagers organic municipal waste could be used
early stages of assessing its viability at a as a power source and the university stu- to create biogas. ‘We are going to set up
national level, ‘biogas becomes a good dents as a training facility. Meanwhile, a biogas project near an abattoir and
energy provider if you have the biomass in Philippi, at an informal settlement use the leftover blood and animal waste
resources to create it’. near Cape Town, two concrete digesters to create fuel that can be used for
While the government’s research is have been constructed. ‘In Philippi we cooking and heating water,’ she said. ●
EI membership
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G
ood practice and professional over 9bn by 2050, according to the
development have always been United Nations (UN). Some 20% of the knowledge, professionalism and good
the cornerstones of the Energy world’s population do not currently practice.
Institute (EI). Providing the ability for have access to electricity.
individuals to develop their skills, The investment needed and planned Understanding our members
careers and their value to industry, in the energy sector is in the trillions of The first task in improving the EI’s ability
through membership of a professional pounds. Local, regional and global deci- to deliver and develop energy knowl-
body that is relevant to their daily sions are being made on energy policy edge is to gain a better understanding
activities, enabling engineers, scien- that will have a profound impact on of our members and their activities and
tists, environmentalists and energy availability of energy, its affordability, skills. This is important on two fronts.
managers to become chartered, is fun- the mixture of sources, technologies, First, to help the EI get more from the
damental to the purpose of the EI. Also the environmental cost, and the skills membership resource that lies at its
fundamental is providing industry with challenge. Decisions are being made heart, to draw on the inherent experi-
guidance and good practice, across a and policies developed that will have a ence and expertise, to link members to
range of health, safety and environ- huge effect on how we all live our lives key initiatives and to provide a conduit
ment (HSE) and fuels and distribution over the coming decades at a local to enable that expertise to engage with
issues, and acting as a broker between level, and also will have consequences the wider debate. Second, to enable the
industry partners and regulators, sup- on geopolitics and international rela- EI to better target its own resources and
porting self-regulation across industry. tionships for years to come. offerings back to relevant sections of its
How society secures and uses energy, This is the context within which the EI membership – thus improving the value
what it costs to both consumers and the is operating, and it is within this of membership and ensuring EI deliver-
environment, and how we meet a context that the EI Council took the ables are used and relevant.
growing demand have never been decision that, as well as providing excel- An improved understanding of our
more pertinent and relevant than they lent opportunities to develop good members comes from a more refined
are now. The global population is set to practice and routes for personal profes- energy classification system. Work has
increase by a further billion people to sional development, the EI should also been undertaken to better organise
over 8bn in the next 25 years, and to seek to improve its provision of wider and link our assets, both members and
Q
. What are the main opportuni- order for storage activity to develop?
storage; this relies on the tax regime
ties for the development of A. Reducing geological uncertainty
and the need to reduce risks are essen- and business case being favourable.
large-scale carbon dioxide (CO2)
tial, as is improving understanding and The economics of EOR are the subject
storage in the UK?
communication of geological uncer- of much debate.
A. Initially, the selected DECC
tainty. For example, a large amount of The re-use of oil and gas infrastruc-
[Department of Energy and Climate
the UK storage potential is located in ture such as wells and pipelines might
Change] demonstration storage sites
saline aquifers – these have the advan- be possible in some cases and could pro-
might act as seeds or catalysts for projects
tage of offering the large storage vide some cost savings. Timing is critical
offshore the UK. Hubs may develop in
capacities required to achieve significant for this to occur. It will require planning
these regions from specific points on the
CO2 reduction. For widespread utilisa- and might include changing ‘close of
UK coastline. Development of offshore
tion of saline aquifer sites, confidence in production dates’ for oil and gas fields.
infrastructure might provide opportuni-
storage security needs to be established. It might be the case that CCS projects
ties for delivery of CO2 for enhanced oil
Until geological or perceived geological could share or defer the decommission
recovery (EOR). However, coordination of
uncertainty can be reduced, financing of costs for oil and gas operations.
CCS schemes would mostly likely require
some ‘top down’ planning. storage in such scenarios may be more
challenging. Reduction of geological Q. What health, safety and environ-
Opportunities for early storage sites
uncertainty could be achieved by mean- mental concerns need to be addressed?
may be in the larger depleted gas fields
ingful demonstrations in saline aquifers A. Favourable public opinion of CCS is
of the Rotliegend Formation in the
or by more rigorous assessment of the essential. Projects in Germany and the
Southern North Sea. The fields are well
most favourable saline aquifer sites to Netherlands have failed due to deter-
understood due to the history of gas
‘prove’ them up. mined and organised groupings of the
extraction, improving confidence in their
Clear business models need to be public who are against CCS. The pro-
ability to retain CO2. The fields were
developed, allowing clarity and support posed storage sites opposed by the
commonly produced under depletion
on issues such as funding during both public were onshore, whereas in the UK
drive, so the final reservoir pressures are
operational, closure and post-closure planned storage sites are all offshore,
lower than the initial pressure. They are
phases and long-term liabilities. It will which may be less of a challenge. In the
securely sealed by the Zechstein Salt and
be necessary to get agreement on UK public awareness of CCS remains low,
so pose a low leakage risk. In addition,
permit performance conditions that however. If we really believe CCS is one
water depths are shallower than the
enable operators and regulators to of the only ways we can meet CO2 reduc-
northern North Sea, potentially reducing
agree on evidence for appropriate site tion targets then more effort is needed
the cost of infrastructure
performance, which will improve confi- to address the lack of public awareness
development. The Bunter Sandstone
dence in liability transfer at closure. and support for this technology.
Formation in the southern North Sea
In a scenario of large-scale deployment The potential of CO2 leakage and its
offers an opportunity for saline aquifer
of CCS, the management of potential impacts has received significant research
storage in the same region, diversifying
conflicts and protection of future attention, but gaps remain due to com-
the storage portfolio.
resources both at the surface and in the plex interactions between the physical,
In the northern and central North Sea a
subsurface also need to be considered. chemical and biological systems, from the
large amount of potentially high quality
deep subsurface to the seawater column.
storage capacity is available in
Q. What are the main synergies with Research is required regarding the poten-
Palaeogene fan sandstones. This may
current North Sea oil and gas E&P tial for induced seismicity (earth tremors)
offer the volumes of CO2 storage capacity
operations? caused by fault movement due to
required for long-term deployment of
A. The UK has a long history of oil increased reservoir pressure; geomech-
CCS. Less is known about the connectivity
and gas E&P and as a result we have anically induced leakage pathways
and structure of these formations, and
world-leading expertise and experience including scale and frequency; and
large storage sites may present challenges
in this field. Many elements of CO2 impacts of leakage on marine ecosystems.
for licensing, but their size makes them a
storage and CCS more generally require Quantitative emissions measurement
potentially valuable storage asset.
the same. If CO2 storage is deployed on would be required for qualification in the
a large scale, there may be competition EU Emissions Trading Scheme, but mea-
Q. Apart from the capture of CO2, which for skilled people, so it will be essential surement of leakage and emissions at the
hurdles will need to be overcome in to have people with the right training seabed remains a technical challenge. ●
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T
he Professional Development Her advice for graduates was: ‘Don’t
(PD) programme was open to an insight into career paths available become too focused on status. Maintain
graduate members of the Energy within the energy industry. The talks your level of interest and challenge and
Institute (EI) and many of the partici- from current industry workers were the rest will take care of itself.’
pants were post-graduate students particularly useful for us as they One question from graduates to the
looking for tips on how to enter the explained the different routes to get- speakers was how they kept up their
sector. It was a very useful experience, ting into the energy industry. IP Week motivation when they were doing
as Okuntimo Ayomipo, a graduate of as a whole showed how important and things they didn’t want to do. Spomer
Coventry University, described: ‘I learnt useful being a member of the EI is to told participants that there were always
a lot – I gained knowledge about the my future in the industry.’ things you won’t enjoy doing but to
current trends in the energy industry During the programme, speakers remember the big picture. ‘The pay-off
and the future of oil and gas, I had the from the IP Week conferences joined is good when those big things deliver.’
opportunity to ask questions about graduates to talk about their own Giles Farrer, Senior Analyst – LNG and
the industry and my career, and I had career paths. Christof Rühl, Group Chief Global Gas Research, Wood Mackenzie
the privilege to meet leading energy Economist and Vice President, BP, spoke advised: ‘Make sure whatever you
industry figures. I also corrected wrong at the first career session outlining his deliver is to the best of your ability.’
notions I had earlier about networking career path, from his start as an econo- Spomer and Farrer also advocated
and job applications.’ Rachel Soyoye, mist to his current role in BP. This was networking as a good way to get ahead
an MSc student at Surrey University, particularly useful to PD programme in the industry. Spomer advised gradu-
All consultants in the Register are qualified to Chartered status or equivalent. They have
been professionally recognised by their peers and have extensive training, knowledge
and hands-on experience to address complex business requirements. They adhere to a
Code of Professional Conduct, giving customers confidence in the standard of service
they receive.
B
ased on our recent analysis of the announcements are expected in 2013.
current state of the oil and gas The evidence is piling up that we are in
sector in the UK, between 40,000 the middle of a surge in interest in
to 50,000 new jobs are expected to be North Sea oil and gas.
created in 2013 as a result of increased
oil and gas investment. Rising job demand
More than 40bn barrels of oil have Record investment and new oil finds will
been produced from the UK continental lead to an increase in demand for engi-
shelf (UKCS) to date, with potentially neers and drill crew, as well as those
another 20bn still remaining to be who work in the service sector that sup-
exploited. New technology is making ports the oil and gas industry. Likewise,
this oil more accessible than ever before. it is expected that there will be a rise in
A total of 167 new licences covering 330 the need for qualified and experienced
North Sea blocks were offered by the UK geoscientists and exploration engineers.
Department of Energy and Climate While this is good news, this has a
Change (DECC) in the 27th licensing direct impact on the jobs market. With a
round in 2012, while a further 61 blocks current skill shortage being reported
are under environmental assessment. across the sector, the available candidate
The government also announced a pool to meet this forecast employment
number of improvements to the UK tax boom is depleting.
regime last year. Coupled with relatively Oilandgaspeople.com’s study found
stable oil prices, this has led to billions of that the recruitment crisis in the industry seems likely that the current boom in
pounds of planned investment in North will intensify over 2013, pushing up North Sea investment could be short
Sea oil and gas developments. average wages, which, at £64,000, are lived unless the government and the oil
Investment is at record-breaking levels, already twice the national average. One industry proactively tackle the wors-
with more than £40bn, at least, key reason is that it isn’t just the North ening skills shortage in the UK. Without
expected to be invested in the sector Sea alone that is seeing renewed invest- immediate action there is a real risk that
over the next three years. ment. Other areas of the world are also there will be too few qualified staff to
As examples, a new oil field – Darwin increasing investment in hydrocarbons fill the posts.
– was recently discovered in the exploration – finance is picking up in the The UK government also needs to
northern North Sea by the Abu Dhabi US following the lifting of moratoriums realise that, without the workforce,
National Energy Company, while GDF put into force after the Macondo oil large projects will not be able to go
Suez, Dana Petroleum and Talisman spill, with Brazil, Australia, Canada and ahead and the economy as a whole will
have secured the formal go-ahead from Iraq all seeing record levels of invest- be affected. Government needs to step
DECC for projects valued at some £1bn. ment and demand for qualified staff. in and incentivise companies to invest
Late last year, Statoil UK announced This huge global demand for qualified more in people. Both it and industry
£4.3bn investment in the North Sea, cre- staff is leading to many UK candidates need to invest for the future, actively
ating over 700 jobs, including the £1bn heading abroad, lured by high wages, encouraging graduates to train in the
development of the Harris and Barra oil exacerbating an already serious skills energy sector. There has been a lot of
fields. Meanwhile, the Canadian-based shortage in the UK. media coverage suggesting the North
Talisman Energy and Chinese Company The oil and gas industry has always Sea is in decline, but the truth is that
Sinopec joint venture unveiled a billion been reactive and, with so many vari- there are still 30 to 40 years of resources
pound investment plan. Large projects ables, it is hard for companies to left to exploit and that estimate
West of Shetland, backed by BP, are forecast, with any reasonable certainty, increases all the time as new fields are
already underway, while Total’s new ter- future workforce demands. Oil prices, discovered and come onstream. As a
minal project in Shetland is in full swing. global demand, tax changes, conflicts result, anyone looking to get into the oil
Indeed, there are too many new pro- and disasters are all business risks that and gas industry now will enjoy a career
jects to mention and more big are hard to predict. Having said that, it that will last their lifetime. ●
FREE Exhibition - 580 companies from 19 countries Plus many other attractions including: Energy
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Lessons learnt
create it on demand at the last minute),
align with suppliers to maintain mate-
rials flow and to centralise distribution
by providing a ‘just-in-time’ service. It is
what the big brands (such as P&G, 3M,
Dell and GSK) do in order to reduce cost,
Professor Alan Braithwaite, LCP Consulting and Cranfield increase demand responsiveness and
reduce stock risk.
School of Management, looks at how the oil and gas
Planning and control
sector could apply supply chain management (SCM) best The second methodology is planning
and control, which, of course, is helped
practice that has been adopted in other industry sectors in by complexity reduction and centralisa-
tion. This is about moving from a
order to maximise profit margins. ‘just-in-case’ mentality to an integrated
plan that positions and moves materials
against activity plans and resources
N
o one now expects the oil price to The challenge for oil and gas is that deployed – ie increasingly ‘just-in-time’.
fall back below $100/b, which volume growth is being eroded by cus- Again, the precedents for such processes
brings a whole range of new and tomers (both business and consumer) and their effectiveness are legion, with
more difficult to access resources into adopting energy efficiency programmes the automotive sector as the standard-
play that have much higher production in the face of the doubling of oil prices bearer. Scheduled and sequenced
costs than the Saudi baseline of $5 to over the years. If it was not for China’s inbound materials against a build plan
$10. The good news is that ‘peak oil’ insatiable appetite for energy, the world have reduced plant stocks to less than
may be postponed by a combination of price would have collapsed. These con- half a day and helped to reduce the
new fields and economic disruption ditions accentuate the pressure to end-to-end construction time for a car
while low carbon technologies kick in. secure improved operating efficiency in to as little as six hours whilst cutting
However, the bad news is that margins all upstream areas of the sector. waste by 80%.
will decline and the industry will enter a Historically, most supply chains in the I can almost hear oil industry execu-
phase of ex-growth unless costs are rad- upstream sector have been based on tives shouting ‘We are not like the car
ically contained. ‘threat’ rather than ‘trust’, with the industry!’, which misses the point that
Oil and gas are commodity markets focus placed on the ‘three Cs’ of forcing getting half the way towards such
where the final price has no bearing on Competition, Coercion and Conflict. methods would still be transforma-
the cost of production, which means However, a shift is beginning to occur, tional. Techniques and processes such as
that supply chain efficiency is set to with supply chain operations adopting sales and operations planning (S&OP)
become an imperative in a sector that a more positive, pro-active stance help to organise the flows and manage
has been revenue rather than margin focused on Anticipation, Advice and the stocks; this, in turn, reduces emer-
driven in the past. Assistance. gencies and improves availability and
This is a paradigm shift which has up-time while using less stock. It is tech-
been experienced in other sectors and it Methods employed niques like these that are causing the
may be time for the oil and gas industry Learning from other sectors suggests pharmaceutical sector to question why it
to learn from some of those experiences. that the methodologies adopted can be runs with an average of more than
The pharmaceutical sector has seen 80% applied to an industry that has tradi- 200 days stock while consumer goods
gross margins decline to 30% on some tionally thought of itself as a ‘project firms (arch exponents of the method)
lines in the face of the growth of business’ with engineers dominating the are on 70 days overall. In the earlier oil
generics; the food sector has seen mar- specification. and gas case, S&OP would have more
gins decline by 20 percentage points in than halved the upstream stocks of
the face of own label products; retailing Standardisation and centralisation pipes, which then would have been
in the Wal-Mart way plans for average The first of these methodologies is stan- halved again by complexity reduction
gross margins of 22% against the sector dardisation and centralisation. The bill programmes.
at more than 35%. The electronics sector of materials for upstream oil and gas is
now runs on gross margins in the 20% profoundly complex; much of that com- Supplier collaboration
zone against more than 60% some 30 plexity is unnecessary and the ‘cost of The third methodology that is com-
years ago (Apple excluded), while the car complexity’ is simply not understood. monly applied is supplier collaboration
industry measures profits in US dollars Some work by LCP on engineering sup- to smooth schedules and take cost and
per unit and looks to other revenue plies to the North Sea found many risk out of the whole chain. At present,
streams to enhance operating profit. grades of well piping with different the oil and gas sector is characterised by
So, what has driven these changes and pressure specifications. The materials tightly protected commercial silos that
how have industry leaders coped with were on long lead times from specialist leave waste in terms of time and cost at
them? The first answer is that most sec- steel works, where the cost of each spec- every interface. The idea that suppliers
tors have sought to exploit the potential ification was correspondingly inflated. can co-create value with their customers
for growth, allowing them to reduce Worse still, because of the long lead through product specification and
sales prices and commute margins for times for the range of specifications, design as well as the mode of delivery is
increased volume, so enabling con- pipe stocks were up to one year, distrib- not new. A great example is CEMEX,
tinued profit growth. The second is that uted over many locations with little which has an operating model enabling
they have looked for transformative visibility and significant redundancy, it to deliver concrete to construction
supply chain business models and oper- repositioning and write-offs. sites in a 15-minute window on a short
ating methods. Combined, these factors The standard suite of measures in lead time; this maximises labour utilisa-
have driven economic success. other sectors is to reduce variety (or tion and reduces concrete waste. It
lowers the total cost of doing business there was the potential to threaten identify where the true potential is (see
while giving suppliers the profit incen- safety and there were bankruptcies as Figure 1).
tive to innovate rather than hide from a result. When you describe it like The challenge will be to establish the
or obstruct overt power. that, it sounds stupid; but such situa- right culture so that the heavily
An example from the oil and gas tions are a constant feature of supply defended silos are bridged and objec-
sector related to the deployment of heli- chain operations. tivity is attained. The Deepwater
copters to rigs exposed the lack of a Horizon reports showed how conflicted
collaborative mindset. The operator Unlocking value potential relationships can be deeply embedded,
could see clearly the potential to reduce So, how can companies in the oil and resulting in catastrophic losses. We are
costs by working to adjusted schedules gas supply chain identify and unlock this talking here about the potential for
and providing shared-use services value potential? At LCP, we would argue spectacular gains. In the end, margin is
between the different rig operators. for an objective end-to-end opportunity everything and oil and gas majors will
Instead,
E it was forced to spend time identification process that balances costs have to take a more industrial and
defending prices through a hard pro- and performance along the chain. This is supply chain view of their operations in
curement process. Prices fell so low that a kind of operational ‘seismology’ to order to maximise profit. ●
Conference sponsored by
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Optimising operations
The indirect material maintenance, repair and operations • Inflexibility in serving smaller or more
remote production sites, because the
(MRO) supply chain is an important part of a producer’s distributor supply model is generally
only cost-effective for very high-
operations. If it does not perform well or is inefficient, a density markets.
producer risks, among other things, overspending on indirect In short, the traditional model leaves
significant opportunity to control costs
materials and experiencing unproductive downtime. Ed Smith, on the table.
Vice President, Business Development, Exel/DHL Supply Chain 3PL distribution model
Americas, explains. As more companies look to save costs
and improve MRO performance, they
realise the distributor supply chain
H
istorically, the maintenance, • Multiple suppliers entering the manu-
repair and operations (MRO) facturing site create safety and security model may not meet their needs or their
supply chain has been an after- issues – Allowing multiple suppliers to best interests. As a result, a growing
thought. Purchasers usually focus on make on-site deliveries creates risks number of companies are exploring the
obtaining high-value, mission-critical and drives inefficiency. Risks include option to outsource their indirect mate-
engineered equipment and compo- accidents, plant congestion and poten- rials supply chain to third-party logistics
nents, and not necessarily on other tial security threats. Many, smaller providers (3PLs).
indirect materials or the cost to get shipments drive escorting, unloading A 3PL with expertise in MRO supply
them to their final destination when dock and asset inefficiencies. chains will offer:
they are needed. However, market com- • A comprehensive approach to supply
petition and opportunity, as well as MRO outsource models chain assessment, supported with
increasing operating costs, are driving Fortunately, companies have recognised analysis tools to uncover hidden costs
the need for innovation and better that the strategies that helped them and ensure accurate evaluation of
management of the MRO and mainte- drive waste and inefficiency out of their potential cost improvement.
nance supply chain. High capital operations can be applied to MRO • Lean expertise to re-engineer the
investment, shorter maintenance and supply. While some tackle MRO chal- supply chain, evaluate capabilities and
development timeframes, and the cost lenges with internal resources, many technologies of the future supply
of operating in more dispersed and Fortune 500 companies have gone out- chain, and assemble a new supply
remote environments are mandating side their organisations to seize the chain team.
increased maintenance productivity and opportunity more quickly by leveraging • Cost transparency and sourcing neu-
better transportation and materials existing expertise and solutions. trality.
management for upstream, midstream There are two primary outsourcing • Key performance indicators that
and downstream companies. models currently used in the industry. proactively measure and monitor
Today, companies are facing many compliance and success.
MRO supply chain inefficiencies, Traditional distribution model • A proven track record in project
including: This is the most common model today. implementation for new process, IT
• End users lack comprehensive under- The MRO supply chain is outsourced to a systems and physical infrastructure,
standing of MRO costs – MRO supplies single or a few external providers as a providing adequate levels of staffing
represent almost two-thirds of com- service bundle (procurement, logistics, at all times.
panies’ purchasing transactions, yet inventory control and on-site manage- • Existing infrastructure and tools that
companies lack comprehensive ment). The traditional model offers fast can be leveraged to reduce or elimi-
tracking systems that provide visibility implementation of turnkey IT solutions, nate up-front costs.
into the total costs of fulfillment a single point of contact for the end • Relationships with relevant specialists
(including ordering, warehousing, customer and better management that will be needed in the assessment
transporting, receiving, payment and resources for high-volume sites. On the and implementation of a higher-
other supply chain costs). These downside, supply chain management efficiency MRO supply chain.
expenses typically represent about (SCM) issues and waste may include:
50% of the total cost of MRO supplies. • Lack of cost and data transparency, Specific opportunities
• Expensed materials are critical, but not making it difficult to identify inefficien- Fluctuating energy demand and price
easily tracked and visible – Energy cies and reduce total delivered cost. volatility have forced producers to slash
producer ERP (enterprise resource • Mismatched incentives between dis- operating costs and non-core activities.
planning) systems often do not track tributors and producers to reduce At the same time, the days of producing
expensed materials after they are stocking levels and overall costs. ‘easy’ oil are ending. Now companies
received. Producers may over order • Overstocking, obsolescence and stock- must consider extraction of oil from
materials because they lack visibility to outs resulting from MRO items being unconventional sources such as from the
expensed material receipts or avail- replenished based on historic demand Canadian tar sands, North American
ability. This lack of visibility and control and new product promotions. The hydraulic fracturing, or natural gas sites
can also lead to materials becoming resulting push-based supply chain in politically challenging environments
lost or stolen and contribute to ineffi- responds slower to changes in end- like Israel and Mozambique.
cient operations, lost productivity user demand or changing This evolution of production is driving
and/or redundant purchasing. specifications. three major trends:
www.energyinst.org/technical-training
C
ontract management and the wholesalers that franchise their brands. maximising logistics or sharing logistics
selection of logistics contractors is This has led to a number of large inde- has now become a problem to be man-
an increasingly diverse and skilled pendent fuel wholesalers entering the aged.
task that demands greater consistency market, initially in the industrial/ With this changing modus operandi,
and efficiency in its management, and distribution sector, targeting the contracted fleet operators are strug-
requires a positive attitude to risk and retailers and competing hard with the gling to offer the flexibility the market
opportunity. The operational manage- majors. A few have even dared to step now demands as equipment and drivers
ment of logistics contractors has become openly into the public’s eye by fran- may be wrongly located to meet the
a critical discipline that is moving away chising their own brands. price points of the suppliers. Volumes
from what was purely an administration These changes in the market are are moving between locations quicker
role, to become a commercially driven causing logistics contractors to start and the consistency of operation
frontline operation. This will require looking around, wondering who will be changes daily. Even the larger supermar-
contract managers of the future to be their customer of the future and asking kets and major oil companies are
broader in their skill base in order to where will contractual security come seeking to find flexibility in their opera-
meet the operational demands placed from? tions, looking to reduce their
upon them to extract the flexibility and contractual liabilities with the fleet
reduced risk (financially) that has not An exact science operators. Furthermore, the discount
been demanded in long-term contract Fuel sourcing for the retailers and indus- promotions on fuel by supermarkets
arrangements in the past. trial customer has become an exact mean volume demands peak and
Time has proven that term contracts science as spot prices change regionally trough, increasing and decreasing logis-
operate successfully while the market and between suppliers in the same area. tics demand over time.
remains stable, as per the forecasted vol- This has led some companies to consider
umes. However, in times of austerity and sourcing products from further afield as Re-thinking logistics
changing markets, the contracts become it can be cheaper to operate the road This growing complexity in logistics
outdated and the relationships between fuel tankers over greater distances and demand is placing pressure on all parties
parties can become adversarial, leading still gain financial benefits on the fuel and there is a need to re-think the logis-
to a negative business impact on both price into tank. tics models of the future.
parties. There was a time when the major oil The US market has already started to
The landscape of downstream fuel companies owned the fuel, held in address these issues with what is termed
deliveries – both retail and industrial – is bulk/terminal storage or at a retail 4PL (fourth-party logistics), which drives
changing, with the retail fuels market outlet. Now, it is more common for the flexibility that the retailers and
evolving towards greater numbers of retailers and industrial customers to industrial users are demanding. It
independent retailers. The supermarket own the product, paying for it and the reduces risk and cost, both from an
chains are placing pressure on retail associated duty within days. As a result, internal dimension and from contractual
market volumes through discounting they are constantly rolling the dice on arrangements, in most cases removing
fuel against in-store purchases, while cash flow and credit terms between sup- the need to tender as the business
major oil companies are withdrawing pliers; stock management and credit model is live and consistently reviews
from retail and are becoming fuel terms dominate the business, while price and performance with shorter
break clauses, whilst maintaining the
requirements of the industry in opera-
EI Oil and gas training tional efficiency and safety.
The model is simply based upon using
Supply and distribution: Organisation, operations a fourth party as the management of
and economics 10–13 September 2013, London, UK the logistics chain, which is impartial
Now includes a visit to Royal Dutch Vopak’s London facility and does not directly operate any equip-
This 4-day course will examine the impact on supply and distribution of: refineries’ output and fuels’ specifications; ment itself. Therefore, it is not seen in
product sourcing – parent company refinery, open-market, ex-rack, exchanges; primary-supply mechanisms used;
terminal design and location… and much more. the market as a competitive haulier, but
EI Member £3,000.00 (£3,600.00 inc VAT); non-member £3,200.00 (£3,840.00 inc VAT) as a ‘funnel’ that issues the collections
For more information, contact Nick Wilkinson at: and deliveries across several approved
e: nwilkinson@energyinst.org www.energyinst.org/training subcontractors, holding responsibility
SAFE:
Safety appraisals for everyone
Do you see yourself as others see you?
www.safeappraisal.org
L UBRICANTS Tr e n d s
I
n the past year, continuing financial in what could be called the last frontier
turmoil – notably in the Euro Zone and for the lubricants industry – Africa. National and regional oil companies are
the US, but not just confined to these Volatile oil prices, currency fluctua- expanding, with recent examples
regions – has had a significant impact on tions, product shortages and overages, including Lukoil’s plans to build a lubri-
the performance of several industries changes to oil-derived products and cant plant in Kazakhstan and SK
(including construction, mining, primary petrochemical flows and a continuing exporting its ZIC finished lubricants
and fabricated metals, transportation emphasis on energy efficiency, the envi- brand to many countries outside of its
equipment and general machinery, on- ronment and sustainability are all home market of South Korea. We are
highway and marine transportation). factors that present challenges to the also seeing continuing legislation on
There has also been a significant slowing baseoil and lubricants industry. fuel efficiency driving new lubricant and
down in the star economies as China, However, there are also many opportu- hardware solutions, and the beginning
India, Brazil and Russia all see challenges nities – and we have an industry of an industry that looks beyond petro-
to what is sometimes seen as inexorable infrastructure that is fit to rise to these leum and gas toward fluid products
and guaranteed growth rates. challenges and continue to provide made from renewable and sustainable
In particular, China witnessed a signif- good earnings for stakeholders. raw materials.
icant contraction in demand in 2012, Shell began blending its new gas-to-
including that for finished lubricants, liquids (GTL) basestocks into its line of Key developments
additives and baseoils, as the govern- branded finished lubricants and the syn- Narrowing down to the specifics of our
ment tries to re-align the economy from thetics category as a whole is showing industry, 2012 was certainly not a strong
being export- and investment-driven to significant growth in many parts of the year for finished lubricants demand
an economy focused on domestic con- world given the tightening of original growth as originally expected – given
sumption and services. However, as equipment manufacturer (OEM) specs the ongoing economic conditions in
labour wages grow in the emerging on both the industrial and automotive Europe, lacklustre growth in the US
economies, we are also seeing trends side, as well as significant barrels of API economy, a significant six-month
such as re-shoring – where companies Group III baseoils gushing into the mar- demand contraction in China and a
elect to bring manufacturing closer to ketplace. Refinery and Group I baseoil slowdown in industrial activity in Brazil.
the home markets, with increased plant shut-downs continue in the Despite these issues, the global lubri-
wages in the emerging markets and mature economic areas and investment cants market remained essentially flat in
increased productivity in the developed east of the Suez regions is increasing as 2012, as compared to 2011 from a
markets contributing to this phe- refiners seek to reshape their strategic volume standpoint. However, one
nomena. The Arab world has also footprints for the new world. cannot be complacent given the flat
changed considerably after the advent We are seeing national players in the growth as many opportunities and
of the Arab Spring; and not enough can rising economies flexing their wings and threats are bubbling at the surface.
be said about the growth opportunities demonstrating regional and global These key developments can be
Figure 1: Global lubricant demand by region, 2012 Figure 2: Global lubricant demand by product, 2012
Source: Kline & Co Source: Kline & Co
Looking ahead
In conclusion, we as an industry have
Figure 5: Supply (basestocks) and demand (lubricants), 2011 Source: Kline & Co done very well – but how do we push
the envelope and come up with new
ideas? How do we surpass ourselves?
In the past, synthetic products were thetics. This has led to a growing com- Nolan Bushnell, the founder of Atari
primarily offered by the global multi- moditisation in this category and new Games, said: ‘Everyone who’s ever taken
national oil companies who had access competitors entering the space a shower has a brilliant idea. It’s the
to high quality baseoils and the most including retailers, distributors and person who gets out of the shower, dries
advanced additive packages. Today, equipment OEMs offering their own off and does something about it who
with the growing availability of Group branded product lines. To curb this, makes all the difference.’ So, I say,
III baseoils marketed by merchant sup- some marketers have resorted to a ‘Shower often and dry off often.’
pliers who promise availability of tested ‘good’, ‘better’, and ‘best’ strategy in Companies that draw winning strategic
and approved additive packages in their their line of synthetics. Will customers plans and, more importantly, execute
baseoils, many lubricant blenders have be confused? Will the retail stores, mass them to perfection, will be the winners
developed an ability to formulate syn- merchandisers, and do-it-for-me chains in this race. ●
E
www.energyzone.net
19th Reservoir Microbiology Forum 2013
The most comprehensive online guide to energy
education and training from the Energy Institute.
(RMF2013)
About Towards a Advancing your
20–21 November 2013
energy career in energy career in energy Energy Institute, London, UK
The Reservoir Microbiology Forum is an annual 2-day
conference, which is an excellent multi-disciplinary
platform to present, share and discuss your experiences
in the area of reservoir microbiology relevant to oil
Information for students, teachers, people working
recovery. Contributions can be in the form of results
in the energy sector and those looking to join the
from scientific research projects or case studies. This
energy industry.
event, which aims to link academia with industry, is
…professional development, teachers’ resources, hosted and organised by the Energy Institute.
training, careers, students’ zone, events, projects,
competitions, awards, job profiles, fact sheets, Deadline for abstract submission – 24 May 2013
financial support, job search, key employers, mentoring…
For further information, please visit:
www.energyinst.org/events/reservoir-microbiology-forum
Or contact Gemma Wilkinson, e: gwilkinson@energyinst.org;
t: +44(0)20 7467 7174
BRONZE SPONSOR
www.energyinst.org/events
w w w.energyzone.net
L UBRICANTS Tr e n d s
Megatrends matter
Brian Crichton, Global Industry Liaison Manager at additive innovation that enables these
green targets to be met, further pres-
Infineum UK Limited, talks about the five key megatrends surising the profitability of the vehicle
builders.
that will shape automotive fuel and lubricant technologies 3. Legislation
From this social pressure to be cleaner
during the rest of this decade and beyond.* and greener springs government legisla-
tion. However, it is often the case that
O
ur collective industries are being facturing footprint. This allows them to government policy and customer prefer-
impacted upon by a wide array take advantage of lower cost manufac- ence are in conflict and both are
of factors. From tightening emis- turing in emerging markets, gets them explicitly impacted upon by economic
sions legislation and fuel economy closer to the customers and in some realities and shifts. In the past six
standards to the rising importance of cases avoids trade tariffs. However, months, UK Brent crude, the most
emerging markets, all have the poten- today, another new trend is emerging – widely accepted gauge of global oil
tial to create new opportunities and one in which regional Chinese and prices, averaged more than $100/b and
pressures. However, these changes are Indian companies are looking to glob- so far in 2013 the price has been on yet
being accelerated by the impact of the alise their operations and where another upward trajectory. These high
global economic downturn. After a consumer interest in lower cost vehicles crude oil prices have the capability to
period of high growth, the automotive is offering potential for them to gain a quickly change both policy and con-
industry experienced tough times in the place in the more mature markets. sumer drivers.
recession and is now in recovery mode. Legislation concerning CO2 emissions,
Financial distress continues among sup- 2. Climate change debate other tailpipe emissions, safety and end
pliers and many original equipment The global debate on climate change of vehicle life all require investment by
manufacturers (OEMs), leading to con- continues. Greenhouse gas emissions OEMs and add cost to the product on
solidation and budget constraints. legislation and the mandated use of the showroom floor. In the recent past
Traditional tailpipe emissions remain renewable biofuels, coupled with con- industry attention has been centred on
important, but carbon dioxide (CO2) and sumer desires for improved fuel reducing emissions of nitrous oxides
fuel economy standards increasingly economy are driving changes to both (NOx) and particulate matter. This has
take precedence when it comes to allo- passenger car and heavy-duty vehicles. been achieved in the main through
cating the available R&D budgets and At the United Nations climate confer- advanced hardware, which has in part
are the major drivers of powertrain ence, held at the end of 2012 in Qatar, a been facilitated by reducing sulphur in
technology developments. new commitment period under the fuels and cutting sulphated ash, phos-
As the lingering recession saps confi- Kyoto Protocol was successfully phorus and sulphur (SAPS) in lubricants.
dence, oil prices remain high and the launched, a firm timetable to adopt a Now, because atmospheric CO2 is
rising economic powerhouse – China – universal climate agreement by 2015 known to make a significant contribu-
adds further uncertainty, it is essential was agreed and a path to raise necessary tion to the greenhouse effect,
for industry to adapt and innovate. ambition to respond to climate change governments around the world are
However, the impacts of the five key was established. New ways to deliver introducing and tightening legislation
industry megatrends – macro economic scaled-up climate finance and tech- to limit those carbon emissions that can
environment, climate change debate, nology to developing countries was also be controlled. Going forward, industry
legislation, technology challenges and endorsed. Some 37 countries adopted efforts are focusing on innovative and
model mix – must be considered so that legally binding emission reduction tar- cost-efficient ways to meet the very
informed decisions on future lubricant gets, bringing them collectively to a challenging CO2 and fuel economy legis-
and fuel needs can be made. Each is level 18% below their 1990 baselines lation in order to help OEMs avoid the
addressed below. over the next eight years. hefty fines for non-compliance. The
As governments work hard to meet spread of these regulations sets major
1. Macro economic environment their green obligations, CO2 emissions challenges for vehicle builders, lubri-
In the continuing global downturn it is limits and fuel economy targets across cant, fuel and additive suppliers, and are
the established markets of the US, all transport sectors will tighten. This a real threat to the industry’s cash flow.
Europe and Japan that are suffering adds complexity and risk for OEMs
most in terms of new vehicle sales. The because they must invest in new tech- 4. Technology challenges
future does not look promising in these nology to meet the imposed targets and Fuel economy and CO2 emissions legisla-
regions, and we have to look to the mar- avoid fines at a time of high competi- tion will be the main drivers of
kets in China, India, South America, tion and low profitability. Improvements technology change in the next decade.
Africa and the Middle East for a positive to conventional powertrains, drivetrain However, regional politics, legislation
story. The front-runners, in terms of electrification and the increasing use of and vehicle use means a complex set of
market growth, are in Asia, where the sustainable biofuels are sure to con- vehicle and hardware road maps with
market size in China alone is already tinue. However, while consumers may no obvious winning technology
larger than that of North America. look for cleaner and more fuel efficient emerging.
The established international players vehicles they may be unwilling to pay a The European Commission (EC) is
in the automotive industry are premium price for the engine, transmis- tightening legislation to reduce average
responding by globalising their manu- sion, vehicle design, fuel, lubricant and CO2 emissions from transportation. By
Exploration and production of oil and gas: technical and commercial perspectives
9-11 April 2013 EI Member: £2,200.00 (£2,640.00 inc VAT); Non-member: £2,400.00 (£2,880.00 inc VAT)*
This course familiarises delegates, avoiding jargon and corporate bias, with the evolution and recent
developments in a wide range of upstream technologies. It also identifies the respective strengths and weaknesses
of the technologies currently in use from commercial and risk perspectives.
Shale gas and other unconventional petroleum resources 15–17 April 2013
EI Member: £2,200.00 (£2,640.00 inc VAT); Non-member: £2,400.00 (£2,880.00 inc VAT)*
This course addresses the nature of the resources, the techniques to identify and categorise them and the new
technologies used to exploit them commercially. It also considers their economic potential and the environmental
hurdles they need to overcome. The course will involve a mixture of PowerPoint presentations, videos and
exercises and an informal and interactive approach.
Economics and trading of the oil supply chain 15–19 April 2013 Cambridge, UK
EI Member: £2,945.00 (£3,534.00 inc VAT); Non-member: £2,995.00 (£3,594.00 inc VAT)*
Trading oil on international markets 22–26 April 2013 Cambridge, UK
EI Member: £3,500.00 (£4,200.00 inc VAT); Non-member: £3,550.00 (£4,260.00 inc VAT)*
Oil marketing 24–26 April 2013 Cambridge, UK
EI Member: £2,100.00 (£2,520.00 inc VAT); Non-member: £2,150.00 (£2,580.00 inc VAT)*
Practical workshop: building excel models of oil and gas fiscal terms
24–26 April 2013
EI Member: £2,200.00 (£2,640.00 inc VAT); Non-member: £2,400.00 (£2,880.00 inc VAT)*
This course offers hands-on instruction for building, developing and applying spread-sheet models to analyse the
economic performance of upstream fiscal terms. Delegates are not confronted with one large complex model that
is difficult to interpret and audit. Rather they are provided daily with a number of workbooks to load, evaluate
and develop through structured exercises into increasingly sophisticated models.
Who should attend?
This course is suitable for commercial, technical and financial analysts, tax accountants, economists, bankers,
planners, lawyers and others working in the upstream oil and gas industry wishing to develop fiscal analysis skills
using Excel spread-sheets to evaluate natural gas projects. The material is designed to illustrate perspectives of oil
and gas companies, governments, state-owned oil companies and those providing financial services to the industry.
Advanced petroleum economics with optimisation 29–30 April 2013
EI Member: £1,400.00 (£1,680.00 inc VAT); Non-member: £1,600.00 (£1,920.00 inc VAT)*
This course starts with the assumption that delegates understand what risk discounted cash flows are and how and
why they are applied generally in the petroleum sector. From that base it explores how analysis, valuation and
decision-making can be enhanced using simulation, statistical measures of risk and optimisation methodologies
and techniques.
Who should attend?
This course is suitable for petroleum economists, risk analysts, portfolio modellers, financiers and strategic planners.
Delegates should be conversant with the basics of petroleum economics and also be familiar with the oil and gas industry.
Essentials of cash flow management: Managing cash for value 1–3 May 2013
EI Member: £2,200.00 (£2,640.00 inc VAT); Non-member: £2,400.00 (£2,880.00 inc VAT)*
A new and highly participative 3-day course which covers the principles, techniques and skills involved in the best-
in-class management of cash flow in the oil industry, blending a clear theoretical framework with extensive use of
real-life examples and case studies.
Financial skills for non-financial managers 7–9 May 2013
EI Member: £2,200.00 (£2,640.00 inc VAT); Non-member: £2,400.00 (£2,880.00 inc VAT)*
A new, highly participative 3–day course which covers the principles, techniques and skills involved in the analysis
of financial information in the oil industry, blending a clear theoretical framework with extensive use of real-life
examples and case studies. This course starts with a review of the financial language and the accounting basics, and
explains the full scope of how financial analysis and accounting are inter-related. It explores how a clear
understanding of the nature of the three cycles of financing, investing and operating a business will help the
participants make improvements in their own businesses.
Oil and gas industry fundamentals 20–23 May 2013
EI Member: £3,000.00 (£3,600.00 inc VAT); Non-member: £3,200.00 (£3,840.00 inc VAT)*
This 4–day course comprehensively covers the oil and gas supply chains from exploration through field
development, valuation and risk, production, transportation, processing and refining, marketing, contracts, trading,
retailing, logistics, emerging markets and competition with alternative energies. As such, it provides understanding
* Includes complimentary
and insight to the processes, drivers, threats and opportunities associated with the core industry activities.
Affiliate membership to the
Energy Institute. Who should attend?
Unless otherwise specified, Personnel from a range of technical, non-technical and commercial backgrounds, new industry entrants and those
all courses are held in Central with expertise in one area wishing to gain a broader perspective of all industry sectors. It also provides an industry
London at the Energy Institute, overview for those employed by financial, legal, insurance, governmental, service, supply and advisory organisations
61 New Cavendish Street,
that require an informed introduction to the economic and commercial background and general trends within the
London W1G 7AR, UK.
oil and gas industry.
www.energyinst.org
TRIED, TESTED AND TRUSTED
FOR 30 YEARS
Stadis® has set the standard in static dissipators for many years.
Since 1983 Stadis® has been trusted for use in aviation fuel.
This year we celebrate the 30th anniversary of this important milestone.
This unique technology is also used extensively in ground fuels,
especially ultra low sulphur fuels. Whatever the application, it never fails
to perform safely and reliably, preventing the risk of electrostatic ignition,
fire and explosion when handling and storing fuel.
Only Stadis® is supported by the world's experts in fuel additive technology.
www.innospecinc.com/fuel-specialties.html
Americas: +1 800 441 9547 Europe, Middle East & Africa: +44 (0)151 355 3611 Asia Pacific: +65 6336 6286