Logistics in Oil and Gas - A growing global energy demand. Article by Tsvetana Paraskova

Global energy demand is constantly growing and so is the logistics business for the oil and gas sector. Logistics is a key component of every step of producing oil and gas and transporting said oil and gas to storage, to refineries, or to consumers.

In the upstream, logistics to produce oil and gas is the transportation of drilling equipment to the drilling location. In the case of hydraulic fracturing in the US shale patch, it also involves transporting frac sand, water, and chemicals to the drilling pads. It involves a lot of trucks, rail cars, and manpower. Midstream logistics is the business of transporting the crude oil or natural gas from the drilling location onto storage locations or oil terminals for seaborne transportation to refineries around the world. Refined petroleum products must then get to the end users—to the petrol stations.

Oil and gas logistics also involves offshore supply base management and air and sea chartering.

Therefore, logistics is a crucial part of all upstream, midstream, and downstream activities of oil and gas companies. Like in all other sub-segments and related industries in the oil and gas business lately, the keywords in the logistics sector are optimisation and enhanced efficiency.

In the upstream, in the US shale patch, there is a push to develop sources of frac sand close to the largest shale basins such as the Permian in West Texas and the Eagle Ford in South Texas, as well as in the SCOOP/STACK in Oklahoma, analysts at RBN Energy say. The closer the frac sand is, the lower the costs for transportation will be, so operators could reduce their well-completion costs. After the crude oil or natural gas is extracted, it needs to be transported to the point of processing—here comes midstream logistics with oil or natural gas pipelines and oil tankers or liquefied natural gas (LNG) vessels.

The rising shale oil and gas production in the US and the massive Russian expansion of natural gas pipelines will make the United States and Russia the dominant spenders on oil, oil products, and natural gas pipelines through 2022, according to data and analytics company GlobalData.

Canada, China, and Nigeria are expected to be the other big spenders on pipelines between 2018 and 2022, GlobalData says.

The US is already seeing some pipeline capacity constraints in its star shale region the Permian, where pipelines are currently maxed out. Many new pipelines are planned in the area, but until most of them come online, in the latter half of 2019, the Permian operators will see capacity constraints in transporting the rising crude oil volumes to the refineries or storage and export terminals on the US Gulf Coast.

Pipelines play a crucial role in the transportation of oil and gas, yet seaborne oil transportation accounts for the majority of the flows of petroleum supply in the world.

According to an April 2018 report by Stratistics MRC, the global market of crude oil carriers accounted for US$172.67 billion in 2017 and is expected to reach US$250.04 billion by 2026, rising at a compound annual growth rate (CAGR) of 4.1 percent until 2026. Growing demand for bulk oil transportation services and facilities, rapid industrialisation, and longer hauls are expected to drive growth, while the pace of that growth could be slowed down by seasonal variations and high logistics expenditure.

Specifically in the UK oil and gas industry, marine logistics— transporting equipment by boats— accounts for nearly 10 percent of the £10 billion total operating costs of the UK Continental Shelf (UKCS), The Oil & Gas Technology Centre said in its final report of feasibility study findings in June 2018.

The Oil & Gas Technology Centre, partnering with Aberdeen’s Robert Gordon University (RGU), conducted a feasibility study to assess potential cost reductions in marine logistics operations through digitalisation. There are inefficiencies in the current practices that could be optimised, the study concluded.

Modelling work in the feasibility study showed that theoretically, savings of around 20-25 percent in vessel days could be achieved if there are no operational restrictions. Additional 5-10 percent savings could be achieved if vessel sharing is invoked, the study suggests.

The study makes several recommendations, based on many discussions with industry representatives, observations from other industries, and the modelling work from RGU. These recommendations include increased supply chain visibility; possible data sharing standards; use of analytics; pilot data-driven approaches; and collaborative commercial frameworks.

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