OIL AND GAS SUPPLY CHAIN
Supply-chain links involved in the oil and gas enterprise include; exploration, production, refining, marketing and consumption. Various operations are involved in each of these stages. To begin with, the exploration stage involves geological seismic and geophysical procedures. Production involves engineering facilities, reservoir and drilling operations. On the other hand refining involves complex processing procedures resulting products for the market. The consumption stage refers to when the oil and gas products have reached the end user. All the above stages are carried out as separate segments in a company or as specialized companies dealing with a single stage of the supply chain. However the stages are directly linked and dependent on each other as the output of one operation becomes the input of the next stage in the chain (Chima 2007).
A number of reasons support the fact that very few industries can benefit from maximizing supply-chain efficiencies more than the oil and gas industry. The industry as a great variation in the different shipments involved. Also, only a small number of enterprises require daily movement of often bulky quantities of such nature onshore, offshore, domestically and globally. There is a great deal of repetitive work in production and exploration involving yearly drilling of wells each requiring many different services and workforce.
It is important that all the players in the supply-chain to ensure; quick responses to their customer’s material needs, protection from supplier related problems as well as guard their procedures from risks associated with demand and supply uncertainties in the industry. However, there is usually a chance of each company being concerned solely with its own interests aimed at profit maximization and this result into loss of coordination related opportunities as well as the goal of customer satisfaction (Chima 2007).
In the oil and gas industry, there is no product differentiation existing in the production as well as the exploration sectors therefore making innovations to come up with new products difficult. This leaves these companies with economic production and efficiency as he only ways to differentiate themselves from their competitors.
Suppliers and customers relate through negotiated contracts which define all the terms of interaction and expectations from each party. Through sole sourcing, a firm is committed to purchase all the goods or services of a particular type from one supplier. The supplier in return attains the right of partnership in product design. Sole sourcing may result to liability problems between the partners in the event that a harmful manufacturing defect occurs (Chima 2007).
Uniform commercial code (UCC) governs the sale of goods. UCC includes specifications for delivery obligation in relation to the place of delivery. The parties also agree upon the risk of loss to cater for the event that goods are lost before reaching their destination. Shipment contracts provide that the seller ensures receipt of goods by the common carrier, arranges for their delivery and makes a notification to the buyer in order to complete the delivery. Destination contracts on the other hand delivery obligations apply to the seller until the goods reach the buyer (Chima 2007).
The oil and gas industry is a complex business access to whose information on management, economic, agreements and environmental and social impacts is quite limited despite their vital importance. Governments’ control of the industry and interaction channels has been hindered by lack of viable control mechanisms. There has also been little coordination between international and national market players. Improvement of transparency in this industry is of critical importance to ensure; proper use of public resources, efficiency and greater public participation (Andrade, et al. 2011).
The oil and gas industry’s supply chain has many opportunities where governments have earned revenue through taxation. Governments all over the world have devised taxation and regulatory procedures to control the impact of the oil and gas industry on the environment. The will to implement and the impact of these procedures depend on the government involved. However, a conflict exists between governments and the local authorities as a result of difference in interests. The local communities are interested in protecting their environments while the national governments have an interest in increased domestic energy production (Brosio 2012).
In the oil and gas business today, there is a tough global competition considering that the resources are becoming scarce and there is fear of them diminishing. Very harsh economic and geographical challenges in the world environments have not helped the situation at all as exploration and production of oil and gas has become more difficult. As a result firms have developed strategies to be able to cut down their production costs and increase their profits from the oil and gas business. Over time, the industry has faced increasing challenges resulting from more strict regulation policies by governments, increased competition from new entrants, political risks and hostilities which have had a great impact on the industry’s output and growth (Brosio 2012).
Andrade M, et al., in 2011. Transparency petroleum contracts, TRACE briefings, Norway. 4-5
Brosio G and Jimenez J.P., 2012. Intergovernmental interactions between taxation of oil and
gas and environmental protection. 5TH Issue.60-62
Chima C.M., 2007. Supply-Chain Management Issues in the Oil and Gas Industry. Dominguez Hills. Volume 5. 28-32.