Optimizing the Subsea Supply Chain in an Uncertain World
This piece presents the opinions of the author.
It does not necessarily reflect the views of Rigzone.
After four years, the oil and gas industry is now in a position to take a step back from the price shock of 2015 and assess the long-term impact and consequences of the cost constraints it imposed.
The initial response by operators in 2015 was familiar to industry watchers and veterans alike: an immediate scaling back of projects being planned and undertaken to cut costs in their own businesses, followed by a chain reaction through the vertical supply chain.
Initially, top-tier suppliers saw a significant reduction in the number of final investment decisions (FIDs), as demand for equipment and technology rapidly decelerated. For smaller suppliers of transaction equipment and services, business dried up almost completely. It was generally expected that, once the price of crude returned to more ‘normal’ levels, the temporary suspensions would be reversed, operators would throw off the mothballs and the industry would continue much as before.
The expected trajectory failed to materialize for a number of factors, one of the most notable being the decision by tier-one suppliers and others to embrace new, innovative ways of working – and then encourage operators to embrace the results of these re-imagined methodologies. The end goal was to drive greater levels of standardization throughout the industry, and in doing so, reduce immediate project costs while embedding operational efficiencies in the supply chain that would remain long after any future price recovery.
From Trust to TOTEX
The key to this changing dynamic was building new kinds of relationships between operators and suppliers. Trust-based collaboration and partnerships fostered by shared commitments to common goals are essential. Without them, new methods of driving down costs are unlikely to be successful.
For suppliers like Baker Hughes Co., entrenching trust in the supply chain is about demonstrating that, as a supplier, it is as invested in the success of any given project as that project’s owners and operators.
The new supply-chain relationship is not about simply selling more equipment on one side and squeezing suppliers on the other. Transactional interactions that, before the downturn, had focused on what technology was to be supplied in a tick-box tender have now become broader conversations about the complete life of a project.
The difference manifests itself in various ways but one of the simplest is the development of subsea trees. Almost every operator has its own specification, but the expertise often lies with the manufacturers and suppliers. In a collaborative relationship, responsibility for specifying the tree can safely transfer from operator to supplier, leading to an optimized product and no loss of differentiation.
These new relationships focus far more on how to deliver a sustainable outcome. That means taking a step back from viewing projects through the lens of constrained CAPEX budgets and instead talking about total expenditure (TOTEX) – that can be sustained through the life of a field.
These new collaborative relationships between operator and supplier provide the necessary foundation on which new approaches to technology can be developed and then built in to the supply chain.
There are three layers of technology innovation that are relevant to the subsea supply chain. The first is the equipment, technology and systems that are used in the field. The second is the technology associated with manufacture of equipment, its transportation and logistics. The third layer is enabling technology: the digitalization, robotics, machine learning and Artificial Intelligence (AI).
In practice, this three-layered approach led to significant advances in the development and delivery of vital equipment. Take flexible pipe as an example. There is a limit to what can be achieved simply by making everything smaller and lighter – although this is a useful first step. It is more sustainable to look at the inherent design: bringing in a new hybrid-composite material from the aerospace industry, and looking again at the flow path in the pipes so that they require fewer valves with smaller valve blocks.
Those new materials and equipment specs make it easier to manufacture the product. In turn, it reduces complexity in the machinery, wells and cladding that further reduces the amount of investment required and increases the opportunities for automation. It also makes deployment and installation easier, streamlines logistics and transport and reduces quality issues – all of which further strengthen the TOTEX case.
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