Cost Insights
by PowerAdvocate

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

PowerAdvocate


Recent Posts

[Whitepaper] How Segmenting Suppliers Can Help Predict Bidding Behavior

November 26, 2018 at 5:08 PM / by PowerAdvocate posted in Project Estimation, Power & Utilities

The variability of supplier responses to bid events can pose significant financial and operational risks to energy companies, especially as this behavior is prone to change when market and economic conditions shift. Variances in bid responses during the recent economic recession and recovery motivated PowerAdvocate to analyze the impact of macroeconomic factors on supplier bidding behavior. The aim of this analysis was to uncover trends that, when coupled with project and company-specific data, will enable industry leaders to better anticipate and mitigate project and supplier risk. If you missed our introduction of this analysis, you can read our previous blog about it here.

Our team hypothesized that suppliers who offer a diverse range of services, work across multiple industries, and service a wide geographic area respond to macroeconomic circumstances differently than smaller or more specialized suppliers. To measure these differences, and to better understand how a supplier’s profile influences their behavior, the team categorized bid data into two groups: bids from major suppliers and bids from specialized suppliers.

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Wood Mackenzie Upstream Digitalization Report

November 20, 2018 at 4:29 PM / by PowerAdvocate posted in Cost Reduction, Industry Insights, Oil & Gas

WoodMac Report Hubspot Image

With cost volatility and a need to continue adapting to an evolving industry, Oil & Gas firms have increasingly turned to innovations such as "digitalizaton" as solutions, with many industry leaders citing it as a top of mind focus in 2018 and beyond. But what is digitalization, and how can firms think about leveraging it effectively to drive greater cost competitiveness and overall higher EBITDA?

To help answer these questions, PowerAdvocate's sister company Wood Mackenzie recently published a report outlining the digitalization landscape in Oil & Gas, including a case study of how one operator drove >$1B in savings and a 25% reduction in third party costs through digitalization and big data from PowerAdvocate.

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New Section 301 Tariffs Put Energy Supply Chains at Risk

November 7, 2018 at 4:10 PM / by PowerAdvocate posted in Industry Insights

Global trade continues to keep energy companies on their toes. With 60-80% of business line costs coming from supplier activities, owners and operators need data and insights to better understand supply risk. With that in mind, our analysts have built out a comprehensive report summarizing the latest impacts of the 301 trade case.

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Potential Tariffs on European Automakers Create Savings Opportunity in Refining Catalysts

July 17, 2018 at 11:56 AM / by PowerAdvocate posted in Industry Insights, Oil & Gas

Platinum, a key input to critical refining catalysts, has already faced steep multi-year price declines and has recently hit a long-term low. However, recent hints at a price rebound point to substantial possible cost risks for downstream firms.

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What New Chinese Oil Futures Mean for Oil & Gas Supply Chains

May 18, 2018 at 4:35 PM / by PowerAdvocate posted in Oil & Gas

Summary: What Happened?

In late March China launched its first oil futures contract that may fully appeal to non-Chinese risk managers. Since oil field service (OFS) providers and other companies often peg contract pricing to oil benchmarks such as WTI and Brent, this introduces a new option for contracts. However, O&G supply chain teams should beware the new option: rather than entertaining the new Chinese oil futures, teams should consider less risky and more established alternatives to mitigate risk and avoid unnecessary costs.

Why Have I Not Heard of Chinese Futures Before Now?

Despite surging activity on China’s three main commodity exchanges (the Dalian Commodity Exchange, the Shanghai Futures Exchange, and the Zhengzhou Commodity Exchange), until recently, several factors have precluded Chinese commodity futures markets from emerging as commonly referenced international price benchmarks:

  • Lack of cross border access: Foreigners have seldom been permitted to access and utilize Chinese commodity futures. Only a limited number of Chinese state-controlled enterprises have been granted licenses by the Chinese government to transact in commodity derivatives outside China.
  • Non-convertibility of the RMB: The Chinese government limits the convertibility of its currency, the RMB. This can make exchange rate transactions costlier to execute than those with other currencies. Market participants have expressed concerns that profits earned on Chinese commodity futures contracts may potentially be difficult to move out of China.

Both factors have contributed to large divergences between Chinese and foreign benchmark pricing across many commodities. These divergences make Chinese contracts unsuitable to hedge commodity exposure incurred outside of China and arguably make Chinese commodity derivative prices less reflective of global market conditions than their foreign equivalents. Traders and supply chain managers have thus been reluctant to use them. 

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Section 232 Threatens Steel and Aluminum

February 23, 2018 at 4:49 PM / by PowerAdvocate posted in Industry Insights, Oil & Gas, Power & Utilities

UPDATE: In a surprising move, President Trump announced on March 1 that he intends to impose sweeping 25% tariffs on steel imports and 10% tariffs on aluminum -- the most severe of the potential trade remedies recommended by the Department of Commerce. Details of the plan are still unknown, but the announcement has already driven dramatic steel and aluminum price increases and spooked equipment manufacturers. Register for our March 13 webinar for the latest updates on Section 232.  

Read on for our initial analysis of the Department of Commerce's recommendations.

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What Utilities Need to Know about Energy Storage Cost Drivers

November 27, 2017 at 4:31 PM / by PowerAdvocate posted in Cost Reduction, Industry Insights, Power & Utilities

More likely than not, your utility is already or soon will be procuring battery energy storage as part of its grid modernization strategy. In fact, according to BCC Research, the global market for grid-scale battery storage technologies is projected to reach nearly $4.0 billion in 2025, up from $716 million in 2015.  Battery costs have fallen dramatically over the past decade. However, events in the Democratic Republic of the Congo are putting the brakes on further cost reductions. Here’s a look at what’s happening and how you can approach your battery procurement planning in light of these events.

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

September 22, 2017 at 4:42 PM / by PowerAdvocate posted in Cost Reduction, Oil & Gas, Power & Utilities

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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Why Your Utility Should Do Should-cost Analysis

September 21, 2017 at 7:09 AM / by PowerAdvocate posted in Cost Reduction, Industry Insights, Power & Utilities

Do you manage a utility supply chain, procurement process, or supplier relationships? Or collaborate with and depend on teams that do? If so you know how heavy a lift it can be to effectively manage asset-intensive energy sector costs. Should-cost analysis helps address two key challenges that get in the way of delivering even more value for your organization.

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Will New Sand Mines Crash the Proppant Market?

September 18, 2017 at 6:52 PM / by PowerAdvocate posted in Cost Reduction, Oil & Gas

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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