U.S. and global oil, gas, energy, and utility companies are looking at challenges in their markets, rarely seen in recent years. The complexity of delivering energy to previous high standards is staggering. Power grids are becoming increasingly unstable, and the costs associated with expanding capacity are overwhelming. Demand regularly surges for energy, yet the infrastructure and business cost of ramping up quickly to meet it has become increasingly prohibitive, causing prices to skyrocket. Uneven energy demand stemming from the pandemic, supply chain issues, and pricing pressures are affecting these firms in unpredictable ways.
America’s dependence on oil and gas to power facilities and vehicles remains at very high levels, along with energy and utilities to run our world of lights, air conditioners, and myriads of other devices. While strides are being made in renewables and sustainable alternatives, the United States is very much a country built on ready access to these core natural elements.
As we enter the second half of the year, O&G, energy, and utility companies are facing additional issues. With sustainability at the forefront of regulation discussions and consumer concerns, energy companies must invest in improvement opportunities that instill confidence in the industry. This will help mitigate the cost increases due to upcoming regulations. More specifically, energy and utility companies have complex requirements regarding their materials. Without a retooling of internal processes, their material and inventory costs will likely continue rising. The good news is that new business development tools that use artificial intelligence and machine learning can not only help these firms optimize their operations but also continue to scale moving forward.
US oil production in decline
U.S. oil production has rapidly decreased in the last few years. Simply put, U.S. oil producers are producing less. For example, Bloomberg reports that the US’s oil refining capability has shrunk by 1 million barrels from March 2020, when the pandemic immediately suppressed demand.
This results in fewer U.S. refineries producing a larger share of the world’s fuel needs. In addition, more countries worldwide are leaning on Middle East pipelines, and the disruption in Russian oil exports resulting from the war in Ukraine will cause even more significant shortages. This sets the stage for a supply crisis, as the availability of oil resources will likely continue to diminish over the rest of the year.
Add to that continuing inflation, fears of recession, limited drilling, fewer natural resources, aging facility infrastructures, and government environmental demands — these compounded issues make for increased uncertainty in these industries.
According to a JP Morgan forecast, if the G7 imposes caps on the price of Russian oil and Russia retaliates by cutting oil production, oil prices could skyrocket to $380/barrel. At the time of this writing, the price is around $105/barrel.
This uncertainty may be elevated if oil executives don’t have clear visibility into resources within their networks. With the proper AI tools, oil and gas enterprises can accurately identify on-hand inventory value and cost-cutting measures to avoid impending shortages and supply chain issues, which put energy producing facilities and assets at risk.
Oil companies aren’t the only ones facing uncertain future scenarios. Electricity grid operators are feeling the heat, too, literally.
ERCOT (Electric Reliability Council of Texas), warned this month of possible rolling blackouts for the nearly 29 million residents in the state. The utility asked companies and consumers to reduce power usage when temperatures recently soared above 105 degrees.
Gas companies are struggling to stay ahead of gas leaks and pipeline fissures. A recent study by the U.S. Public Interest Research Group Education Fund showed that 2,600 gas leaks occurred over the past decade. Many of these leaks resulted from fires or explosions. This is a growing concern across the industry.
Combatting industry pressures
As energy and utility companies grapple with industry pressures, the stakeholders in these businesses want change. They are seeking new ways to do old business. They want more efficient operations, lower costs, increased transparency, and fewer disruptions in the supply chain.
For energy companies and oil & gas firms, a digital transformation for materials management must take hold. Investing in infrastructure, including software operations, should be the top priority. Increased visibility across their supply networks, means they will be better positioned to respond to market changes while maintaining critical production requirements.
But financial pressures during the pandemic caused some large O&G conglomerates to halt their technology upgrades. Energy & utility companies need to invest more into upgrading their infrastructure, especially in maintenance, repair, and operations areas. A recent Cap Gemini Engineering report found that utilities are considering new investments in analytics. About 45% of the utilities surveyed noted that network infrastructure, operations, and plant maintenance are high on the list for investment.
Rethink the MRO strategy
It’s time for oil and natural gas companies to rethink their business operations with a focused, calculated MRO (Maintenance, Repairs, Operations) strategy. Making MRO materials management a corporate priority means having the ability to oversee inventory and operational processes more accurately.
Becoming more agile with parts, labor, equipment, and operations will also help improve revenue and margins. As a result, O&G companies can reduce risks while better balancing costs. This strategy may also mitigate any cost increases due to new impending regulations stemming from gas pipeline leaks or gas leak incidents.
With energy, oil, and gas industries in turmoil, the next six months could prove exhausting for industry executives unless they look to MRO to increase their network visibility, bolster their agility and increase their cash flow. Winter is coming, but value is in sight for oil and energy companies if they step up and commit to harmonizing MRO inventory data through a purpose-built SaaS AI and machine learning platform that harnesses the power of AI to quickly reveal insights and drive results. Real-time visibility will help prevent the blindness around material data that O&G companies are dealing with today.
Founder & CEO of Verusen