Oil and gas has fuelled the world economy over the last 50 years, making a global supply chain possible. It has enabled the transportation of perishable goods by air and non-perishable goods by sea. It has delivered personal travel that’s broadened our horizons and business travel that has created global networks and changed the way we work. There is a long list of benefits and changes that have been made possible by oil and gas, but this longevity brings a heavy piece of baggage though: the sector has developed an unwieldy bureaucracy that has pushed up costs. For several reasons, this is the time when the industry needs to look at how it can modernise.
Several industries have risen and fallen during the time that oil and gas has been the at the centre of the world’s energy mix. Innovations have become business as usual have been consigned to economic history books as better ways of working have been developed.
Prices have risen and fallen but throughout it all, oil and gas has continued to provide power, keeping the economy moving forward. This fact has made it an invaluable part of an investment portfolio.
Time for an overhaul
Oil and gas has been full of innovation on a small scale, with new working practices and individual companies spotting opportunities to add value and join the oil and gas process throughout the last five decades.
The problem is though, overall, while the oil and gas sector has added to its working processes, there have been very few instances where processes have been streamlined across the sector. Bureaucracy has been focused on making sure that every part of the process completes at the right time. This has sometimes meant that has lacked flexibility and the ability to respond to the sorts of changes in circumstances that are likely to be fairly typical in complex global supply chain.
A key part of the problem is that the oil and gas sector has been too big, too complex and too successful to change quickly. The majority of companies are focused on a small part of the process and only really able to enact change within their direct sphere of influence, whether that’s upstream, midstream or downstream. Change on a large scale has been virtually impossible.
Taking costs out of the process
This means that working processes have become very expensive, particularly in comparison with some other industries which have been either more able or simply quicker to embrace new ways of working beyond their specific silos.
The challenge is that as this has become more apparent, some parts of the investment community have begun to look elsewhere, and funding was starting to become more difficult to come by even before the economic ravages wrought by Covid-19.
Oil prices have been steady over the last week, but they are still half of what they were at the end of 2019, suggesting that while the market is stable, it is a long way from confident. As we’ve discussed in other articles however, there is an opportunity for the sector as a whole to enhance its efficiency over the next couple of years and ensure that oil and gas remains at the centre of the global energy mix in the years ahead.
About the author
Kay Rieck has been active on the investment side of the oil and gas sector for more than two decades. Starting his career as a financial adviser and stockbroker on the New York Stock Exchange, he quickly developed an interest in natural resources and associated assets building his expertise with investment banking and asset management roles at the New York Board of Trade and the Chicago Board of Trade. Utilising his exceptional network of global contacts, he started his first exploration and production company in the US in 2008, selecting investments across the Haynesville Shale, Permian basin, Eagle Ford shale, Dimmit county and elsewhere that offered exceptional prospective returns.