Cost Insights
by PowerAdvocate

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

How a NAFTA Renegotiation and New Executive Orders Could Affect O&G Supply Chains

May 26, 2017 at 1:41 PM / by PowerAdvocate posted in Cost Reduction, E&P, Midstream, Downstream

In this latest clip from our Energy Intelligence Group, we share how recent political actions could affect Oil & Gas supply chains.

Specifically, we share which categories would be at risk in the event of a NAFTA renegotiation, as well as the impact of recent Executive Orders on "Buy American" rules and the importation of steel and aluminum. 

For more information on how these political actions could affect your U.S. supply chain activity, feel free to contact us here
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Beyond the Supply Chain Toolkit: Creative Approaches to Cost Reduction in Today's Oil & Gas Markets

April 13, 2017 at 9:32 PM / by PowerAdvocate posted in Cost Reduction, E&P, Midstream, Downstream

Oil & Gas Supply Chain teams have built up a tried and true toolkit of approaches to cost reduction spanning everything from negotiation strategies to RFP’s to demand planning.

But beyond that standard toolkit, what are the most innovative Oil & Gas firms doing to drive cost out of their organizations?

In today’s article, we provide specific examples of out-of-the-box ideas that other Oil & Gas firms are using to creatively reduce costs. We’ll also share several tools from renowned creativity experts to help Supply Chain teams think about how to brainstorm their next big idea.

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Hot and Cold Rig Stacking in Oil & Gas (Part 1)

April 12, 2017 at 7:47 PM / by PowerAdvocate posted in Cost Reduction, E&P, Midstream, Downstream

This post is the first of a two-part series on rig stacking. Part 2 will cover stacking in onshore drilling.

Are you actively tracking which Oil & Gas service providers have made the decision to stack their rigs? While rig stacking was the farthest consideration from our minds just three years ago, today it’s a concern of grave importance for E&P’s.

In today’s post, we cover the different methods of rig stacking, why they matter to E&P’s, and what impact they can have on your operations and cost structure.

Two Methods of Rig Stacking

Since the market downturn in mid-2014, stacking of rigs has become a strategy commonly employed by service providers to save money, helping weather the storm that is low-cost oil. For those new to the world of stacking, it can take two different forms:

  • Hot (or Warm) Stacking involves paying a skeleton crew to stay on the rig and conduct regular maintenance to ensure a smooth reactivation when the equipment is once again in demand and brought back online.
  • Cold Stacking is the equivalent of shuttering a factory in manufacturing—rigs and equipment are packed up and stored, and employees tied directly to the operation of the equipment are laid off.
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Risks of President Trump's Steel Memorandum to O&G Firms

April 7, 2017 at 9:28 AM / by PowerAdvocate posted in Cost Reduction, E&P, Midstream, Downstream

On January 24th, President Trump issued a memorandum mandating the use of domestic steel for American pipelines. For Oil & Gas firms, this could drastically alter the viability of existing capital and maintenance programs and pose a threat to procuring critical materials.

On March 8th, we were joined by 30+ Oil & Gas firms to discuss what risks the memorandum could pose, including questions like:

  • How will the memorandum affect steel plate prices?
  • What supply constraints will O&G firms face?
  • Which items are most at risk of price escalation and short supply?
  • What can we do to prepare?
  • And much more...

Click here to view our recording of the event

 

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

March 17, 2017 at 5:19 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

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Methanol Prices Skyrocket by 180% Over Last Year

March 15, 2017 at 12:56 PM / by Garima Painuly posted in Cost Reduction, E&P, Midstream, Downstream

It's no secret that many of the input costs to Oil & Gas firms have started to rise in the last year. Chemicals such as ethylene, propylene, and many others are no stranger to that trend. But there's no culprit more extreme than methanol, whose prices have risen by >180% in the span of just one year.

In this article, we share:

  • Why methanol prices have been surging
  • What underlying market fundamentals are contributing to the increase
  • Which constraints and opportunities are coming up in the future

Methanol Pricing Trends

Methanol prices are seeing drastic increases across the board: in the last month, the ICIS US Gulf Coast Methanol benchmark reached a 2-year high, 180% higher than the year before. Methanex contract reference prices have seen similar increases, and are currently at $500 per metric ton ($1.50 per gallon). These domestic price increases are broadly in line with global methanol price trends.Final Graph.png

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3 Common Justifications Suppliers Might Use to Raise Prices

March 9, 2017 at 9:32 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.

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5 of the Top Chemical Savings Opportunities for Oil & Gas

March 3, 2017 at 9:30 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

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

February 27, 2017 at 2:05 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

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[Video] A Closer Look at the Proppant Market

February 27, 2017 at 2:02 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
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 Interested in learning more about your exposure? Send us a note at costinsights@poweradvocate.com

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