Cost Insights
by PowerAdvocate

Intelligence for energy companies seeking a data-driven approach to cost management

US Shale Production May Lead to OPEC’s Failure: Oil Markets at a Precipice

March 17, 2017 at 3:19 PM / by Toby Kearn posted in Cost Reduction, E&P, Midstream, Downstream

Last fall, renewed optimism resounded across oil markets. The North American rig count had fallen by almost 50% since January of 2016 and was a tiny fraction of where it stood prior to the oil price decline that began in mid-2014, foreshadowing weak supply growth. Moreover, the Organization of the Petroleum Exporting Countries (OPEC) appeared to finally be ready to take advantage of these lower levels of shale activity by cutting output and paving the way to a recovery in oil prices. North American oil prices jumped jubilantly when this action came to fruition and OPEC signed a major deal in which members agreed to curtail production.

 

Figure 1: A Brief Oil Market Deficit and the OPEC Deal

Image 1.jpg

Sources: US Energy Information Administration (EIA); PowerAdvocate Energy Intelligence Group

Read More >>

Webinar On-demand: Q4 2016 Utility Market Update

March 17, 2017 at 7:54 AM / by Jaclyn Tran posted in Utility, Market Update

There has been no shortage of discussion about the new White House Administration’s policy change. But how will anticipated trade and market-related shifts affect your Supply Chain options and planning? 

Watch our Q4 2016 Quarterly Market Outlook webinar on-demand to get answers to questions like these and more.

Read More >>

How Data Enhances Utility Supply Chain Value

March 15, 2017 at 11:57 AM / by Kristen Brewitt posted in Utility, Cost Transformation, Supply Chain Transformation, Data and Analytics

Utilities rely on supply chain to manage resources efficiently and effectively across a wide range of projects and operations. Delivering on this mandate is increasingly challenging – and critical – as utilities adjust operational cost models and investment strategies to satisfy stakeholders and stay competitive. By connecting new data sources for more accessible, powerful historic usage data, many utility Supply Chain organizations are enhancing their enterprise-wide value.

Read More >>

Methanol Prices Skyrocket by 180% Over Last Year

March 15, 2017 at 10:56 AM / by Garima Painuly posted in Cost Reduction, E&P, Midstream, Downstream

Methanol prices have increased sharply over the past year. This recent price surge is part of a broader trend in the chemical industry, as prices for ethylene, propylene, and other petrochemicals are also rising.

The ICIS US Gulf Coast Methanol benchmark reached a 2-year high in February, 180% higher than last year. The Methanex contract reference price has seen similar increases, and is currently at $500 per metric ton ($1.50 per gallon). For broader context, the domestic price increase is in line with methanol price trends globally.

Final Graph.png

Read More >>

3 Common Justifications Suppliers Might Use to Raise Prices

March 9, 2017 at 7:32 AM / by PowerAdvocate posted in Cost Reduction, E&P, Midstream, Downstream

As suppliers enter 2017 looking to recover lost margin with double-digit price increases, we’ve found that the operators with the most successful responses are the ones who most effectively use data.

In this post, we share how Oil & Gas Supply Chain teams can respond to the 5 most common arguments suppliers use to raise prices.

1. “My costs for X are up”

We often hear suppliers come to the negotiating table with arguments like “our overhead is up by 3% this year” or “our labor costs are up by 5%, which means that our costs are rising by 7%”. So what are some effective ways to respond to a supplier who necessarily has better visibility into their own cost structure? We suggest starting with 3 key questions:

  • Have the costs really gone up that much?
  • What are the other cost drivers doing?
  • Are factors like supply/demand offsetting the cost structure?

Developing a standard negotiation packet filled with market data on the particular item or service can be an effective way to respond. In this case, we suggest starting with a cost model that breaks down the cost of the item into its individual cost inputs, and then tracking how those inputs have moved with the market over time.

For example, if a joints supplier came to you saying “the price of labor for steel mills services is rising,” you could instead point to the other commodities that are exerting downward pressure on joints. In the graph below, we can see that steel has a much stronger impact on the price of joints than iron and steel mills services does, suggesting that the overall outcome should be a price decrease.

Read More >>

5 of the Top Chemical Savings Opportunities for Oil & Gas

March 3, 2017 at 7:30 AM / by PowerAdvocate posted in Cost Reduction, Downstream

Everyone knows that commodity markets are volatile – but volatility can also translate into opportunities to capture market declines and turn them into savings. So how can downstream procurement teams ensure that suppliers pass on savings from market declines in chemicals, which are critical to operations?

Last year, we shared the top chemicals that Oil & Gas firms should be saving on based on actual market data that tracked changes in input commodities, margin, and overhead from 2014 to 2015. Before prices start going back up, it’s time to assess whether you’ve taken advantage of the declines that have occurred since the peak of the market. Read on to see an updated list of top chemical savings opportunities for downstream firms.

 

The Top 5 Chemicals You Should Be Saving On:

1. Ammonia: 43.6% Decline Over Last Two Years

1-Ammonia.jpg.png

Read More >>

[Video] How the Macroeconomic Context is Impacting Oil & Gas this Quarter

February 27, 2017 at 12:05 PM / by PowerAdvocate posted in Cost Reduction, E&P, Midstream, Downstream

Current global currency behavior has created a climate of inflation that will likely mean increased materials prices and tighter cost constraints on Oil & Gas firms. In this market update, our Energy Intelligence Group shares:

  • The growing possibility of a "Hard Brexit" and why there is fear over the UK suddenly losing access to the EU’s markets
  • Why the Peso’s current decline represents a pre-tariff buying opportunity for supply chain
  • How inflation is impacting US post-election interest rates
  • What Saudi Arabia's recent pumping cuts could mean for oil prices

 Scroll down to view:

 

Interested in learning more about your exposure? Send us a note at costinsights@poweradvocate.com

Read More >>

[Video] A Closer Look at the Proppant Market

February 27, 2017 at 12:02 PM / by PowerAdvocate posted in Cost Reduction, E&P

In this closer look at proppant, we discuss correlations between upstream activity and proppant sales, and explore how we can forecast proppant prices going forward. Our Energy Intelligence Group zooms in and shares:

  • The effect of recent operational changes on the price of proppant 
  • How O&G firms could use the number of drilled-but-uncompleted (DUC) wells to forecast proppant prices
  • Why E&P operators’ experiments with proppant intensive wells are contributing to increased sand demandand the effect this has on prices
 Scroll down to view:

 Interested in learning more about your exposure? Send us a note at costinsights@poweradvocate.com

Read More >>

[Insights Beyond Oil & Gas] Baseball, Data, and E&P Supply Chain Performance

February 14, 2017 at 1:00 PM / by PowerAdvocate posted in Cost Reduction, E&P

In our latest installment of the Beyond Oil & Gas series, we turn to America’s favorite pastime and a man by the name of Billy Beane, who helped transform the world of baseball by popularizing a robust new form of empirical data analysis. Then, we’ll share how E&P firms might use similar new data approaches to elevate Supply Chain performance.

In his popular book, Moneyball, Michael Lewis tells the story of the Oakland A’s general manager Billy Beane and how he challenged the baseball industry status quo. Before Beane, the industry relied heavily on highly paid scouts to recruit new players based on ‘gut feelings’ and traditional statistics like stolen bases and batting average, which had low accuracy rates at predicting which players would actually perform best.

This meant it was difficult for low-budget teams like the Oakland A’s to compete with teams like the New York Yankees, who had mammoth salary budgets more than twice as large. With only a fraction of the salary, Beane knew that he had to leverage better data and statistical analyses to recruit quality, yet undervalued and low-budget, players to form a team that could hope to compete.  

Read More >>

Collaboration and the Art of Utility Cost Transformation

January 26, 2017 at 8:20 AM / by Kristen Brewitt posted in Utility, Cost Transformation, Supply Chain Transformation

When it comes to the utility cost transformation journey, every group has a different role to play. Supply Chain organizations are in a unique position to apply their deep spend, cost, and supplier management expertise to help advance enterprise-wide objectives. One path for sustained value creation is through enhanced stakeholder collaboration – both internally with business units and externally with suppliers.

Read More >>

Subscribe to Cost Insights

Join thousands of energy industry leaders and receive regular insights to help your organization manage costs more intelligently

View Webinar:
Driving Down Costs with Data,
Co-Hosted by a Leading O&G Firm


Request a Demo of Our
Cost Reduction Technology Suite