Cost Insights
by PowerAdvocate

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

Navigating Harvey's Aftermath: How Supply Chain Can Manage Market Risks

September 22, 2017 at 4:42 PM / by Toby Kearn and Jaclyn Tran posted in Cost Reduction, E&P, Utility, Midstream, Downstream

As the Texas and Louisiana Gulf Coast recovers from Hurricane Harvey, Supply Chain organizations face the challenge of navigating its effects, from chemicals to logistics to labor.

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Will New Sand Mines Crash the Proppant Market?

September 18, 2017 at 6:52 PM / by Toby Kearn and Rasha Atwi posted in Cost Reduction, E&P, Midstream, Downstream

Key Takeaways

  • Since last fall, a surge in drilling and completions activity in the Permian Basin has led to a dramatic increase in sand demand and, in turn, substantial sand price inflation.
  • In response, sand mining companies have begun investing in a slew of new mines in the area.
  • While new sand mines will deepen the market’s oversupply, prevailing logistical bottlenecks will likely prevent significant sand price deflation from occurring.

Sand Demand and Sand Price Inflation Since Last Fall

Demand for sand used in oil field operations plummeted after the oil-price crash in mid-2014 and the subsequent sharp drop-off in well completions activity. This trend, however, has recently reversed. Since late 2016, a surge in drilling activity in the Permian, coupled with the activation of drilled-but-uncompleted wells (DUCs), has led to a massive increase in sand demand in the basin (Figure 1). During the first half of 2017, total US sand proppant demand was 63 million tons per year, a 75% increase over 2016 levels.


Figure 1: Permian Basin Sand Demand

Figure 1a.png

Sources: United States Energy Information Administration, Baker Hughes, PowerAdvocate


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How Oil Price Spreads Have Changed Refiner Crude Sourcing Strategy

August 4, 2017 at 10:08 AM / by Toby Kearn and Nicole Hamilton posted in Cost Reduction, E&P, Midstream, Downstream

Over the last five years, the United States has significantly increased its production of oil and natural gas, a phenomenon referred to as the Shale Revolution. US crude oil production has increased substantially, especially in the inland parts of the Gulf Coast and Midwestern states (Figure 1). This shift has impacted the economics of downstream operators; however, the benefits for specific refineries have varied depending on location and refinery crude slate.

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Annual Oil & Gas Executive Forum: The Highlights

July 7, 2017 at 3:01 PM / by PowerAdvocate posted in Cost Reduction, E&P, Midstream, Downstream

We’re thrilled to share that more than 60 Oil & Gas executives attended our Annual Oil & Gas Executive Forum on June 22, for our best event yet.

The 2017 Executive Forum provided a platform for sharing and discussing new cost-cutting strategies

2017 Executive Forum

Each Executive Forum is designed to enable operators to exchange innovative approaches to cost reduction with one another. This year’s event featured:

  • A keynote speech by the Vice President of Global Supply Chain at Hess Corporation
  • Spotlight presentations on pressing Supply Chain concerns led by 7 industry leaders:

A New Mindset for a New Market. Former CEO of Maersk Oil Houston discussed the importance of cost control in Oil & Gas and provided a new perspective on the market

Cost Reduction in Practice. Director of Strategic Sourcing at DCP Operating Company, Sr. Commercial Manager at Motiva Enterprises, and Head of Procurement at Jonah Energy shared how supply market insight and data were used to decrease their operating costs

Cost Reduction Outside the Box. Vice President of E&P Services at WPX Energy and Head of Procurement at Statoil explained how rising costs were averted by their companies

Elevating Costs. Director of Supply Chain at Southwestern Energy spoke about the factors that drive business unit engagement and their effects on category management success

  • Networking opportunities that brought together over 67 executives across 38 firms

A keynote speech on current economics of Oil & Gas and how to envision Supply Chains of the future

Keynote Speech

We want to extend our gratitude and appreciation to all who attended the Forum and shared their perspectives on the Oil & Gas market. If you would like more information about any of the presentation topics, please send us an email at costinsights@poweradvocate.com.

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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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