Volatile markets can have an adverse effect on operators, especially when having to purchase products and services off contract. For example, with Equipment Maintenance Services 8% off contract on average and costs expected to rebound c.3% by April 2022, operators must be prepared to manage their spend effectively to mitigate market changes.
The US construction sector is facing a confluence of supply chain disruptions, cost increases, and worker shortages as the economic recovery from the pandemic accelerates. Now, President Biden’s proposed plan to invest $2T over 8 years in infrastructure could further boost demand for construction services, putting even more pressure on the limited labor supplies providing services to energy firms.
PowerAdvocate’s analysis of the proposed investments in roads, bridges, power transmission networks, and other physical infrastructure shows that higher demand will impact some craft labor types more than others. As the chart shows, demand is expected to exceed supply for several key crafts in the first year of the plan, with heavy equipment operators and electrical power line installers seeing the severest shortages. Both crafts saw minimal job losses in 2020 amid pandemic-related work stoppages and are currently near full capacity with few qualified workers remaining jobless. Meanwhile, both will see significantly higher demand if the infrastructure bill passes Congress. At a national level, PowerAdvocate forecasts that construction sector employers could face a shortage of 27,000 heavy equipment operators, or nearly 7% of the currently employed labor force of 405,000. For electrical power line installers, we forecast a shortage of 21,000 workers, or 18% of the current labor force of 114,000.
Labor shortages are a major risk for energy firms, impacting everything from costs, to safety, to project continuity. PowerAdvocate works with firms to quantify their exposure to these shortages and execute key supply chain strategies to mitigate the risk, including managing demand, improving supplier productivity, and enhancing volume commitments.
2021 marks an opportunity for upstream operators to overcome cost challenges presented amid last year's turbulent market through appropriate CapEx and OpEx forecasting.
In our latest market report, we provide cost forecasts for key CapEx & OpEx categories and outline why we see cost increases across almost all of them which are forecast to rise between ~1%-12% between February 2021 and January 2022.
Some of the top categories with notable inflationary/deflationary trends included in the report are:
- CapEx: OCTG, onshore & offshore drilling rigs, and wellhead equipment services
- OpEx: Production chemicals, compression services, and offshore support vessels
As operators focus on optimizing their costs in 2021, it is key to leverage market forecasts to estimate key cost changes and forecast spend.
Market Forecast Overall Weighted Trend Based on Brent Crude Spot Price Scenarios
2020 has been a volatile year for downstream supply markets, and several key cost categories have moved sharply. For example, since last January,
- Hot-Rolled Coil Steel costs have increased by 40%+
- Copper costs have increased by 16%+
- Organic Basic Chemicals costs have decreased by 4%+
As operators refine their CapEx and OpEx programs for 2021, we have found that it is important to understand both how key downstream commodities have trended, and the impacts of those trends on key cost categories – for example, the 16%+ increase in copper costs contributed to a 7%+ increase in Electrical Supplies.
2020 has been a volatile year for upstream supply markets in Europe, and several key cost categories have experienced inflationary pressure. For example, since January,
- Screen costs have increased by 16.6%
- Generator costs have increased by 11.7%
- Carbon Steel Pipe costs have increased by 11.3%
Understanding how key cost markets are trending unlocks value across the entire cost management lifecycle: from identifying market-driven opportunities and risks to support category strategy development, to executing data-driven vendor negotiations, to tying contracts to favorable indices to underpin contract resilience.
Our team recently put together a list of upstream cost categories which experienced the most inflationary pressure during 2020.
This year's economic, cultural, and health environment has elevated the industry's focus on supplier diversity initiatives. As an example, over 50% of the top 25 investor-owned utilities in the US referenced the topic in their Q2 earnings call, vs. just 20% in Q2 of last year. However, data and resource challenges can often hinder progress to stated diversity program goals.
As commodity markets rebound, the window of opportunity for mining operators to drive supply chain savings is narrowing.
In this discussion, we look at:
- Recent trends in commodity metals pricing
- How these trends represent a strategic – and narrowing – opportunity for mining operators to capture savings
- Key components of a strategic roadmap for how mining supply chains can effectively leverage current market conditions to achieve market-based savings and protect against future inflation risk
In this discussion we look at the building blocks needed to understand supply chain risk across the enterprise and dig deep into the cost structure of mining tires to answer the following questions:
- What are the drivers behind the rise and fall of mining tire prices in different regions?
- What are the bottlenecks with your supply of mining tires?
- What does the future look like for key mining tire suppliers?
Amidst the COVID-19 market downturn, midstream projects are under intense scrutiny as executives look to reduce spending in a capital-constrained environment. However, data challenges prevent firms from identifying opportunities to lower cost estimates, resulting in scrapped projects and lost bids.
As the market downturn has forced Oil and Gas operators to diligently scrutinize 2020 budgets, common data challenges are impeding E&P executives from taking swift action.
In our most recent market report, we examine two questions raised by executives grappling with the current market crisis: