How Will The New Oil And Gas Industry Affect Logistics In Guyana
The oil and gas industry has been always a story of boom and bust, but times might be changing. We are now entering an era of major social, technological, and political trends that could reshape the environment in which oil and gas companies operate.
How does it affect logistics in Guyana? Where are we heading with the oil and gas industry? Optimism regarding resource abundance and profound technological innovations are leading to a focus on cost, efficiency, and speed.
Oil and Gas Demands Outlook
Strong economic growth means rising living standards. Around the world, the middle class is expected to more than double by 2035. This will drive an increase in energy consumption, as more people gain access to vehicles, better healthcare, and modern technologies. All economic energy sources are needed to meet this considerable demand growth, and oil and natural gas are expected to supply more than 50% of the world’s energy needs up through 2040.
Current Challenges Faced in the Oil and Gas Industry
- Supply Chain Complexity. The first and most important challenge that oil majors are facing these days is growing supply chain complexity, with ever-growing network consolidation and restructuring combined with greater dependency on third parties across the value chain.
- Increase in Costs. The increasing cost of service is another major challenge. This is driven by rising supply chain costs due to operational inefficiencies, hybrid back-office operations, and other factors.
- Poor Integration. Poor cross-functional and intra-company collaboration is a third key challenge. A lack of integrated supply chain planning and execution, limited flexibility for event- and exception-based planning and absence of real-time insights combine to complicate collaboration and decision-making.
New Initiatives and Strategies in the Oil and Gas Industry
- Sustainable Cost Cutting. In the past couple of years, operators focused at first on short-term cost-cutting initiatives (e.g., project postponements, staff reductions). The OFSE firms responded to this by scaling back on their own service and manufacturing footprints to cope with less activity. Now, in a more collaborative approach, operators and OFSEs are working together through means such as; optimizing operations, exploring supply-chain collaborations, and finding new revenue models.
- Vertical Integration and Consolidation. Combining equipment, software and engineering, or other combinations of service offerings can unlock significant value for customers. While some companies are developing integrated offers in-house, many are also partnering or merging with others to provide a wider range of services.
- New Revenue Models. Yes, new revenue models have emerged in the industry, including performance-based contracts that combine equipment and services and participation in project finance. While this increases OFSE capital expenses and requires sophisticated financial capabilities, it does create a more stable income flow for OFSEs and allows them to give operators more flexibility.
- New Equipment and Service Models. Sustained investment in new technologies is allowing some companies to capture new growth, especially investments in new digital technologies to achieve efficiencies, win business, and help develop new business and revenue models.
How Does the Recent Oil and Gas Price Hike Affect Logistics in Guyana?
When the economies move to a price hike on oil and gas such as with the recent turmoil happening in Ukraine, transportation and logistics are impacted all the more. When the oil and gas prices go up, logistics companies will have to increase rates as well. It’s a domino effect for everyone in the supply chain. Here are the impacts noted with the recent oil and gas price hike in Guyana logistics:
Increased Costs to Transport Freight
When the price of fuel goes up, carriers are required to increase their prices or take some losses. The rising costs of fuel affect the whole industry in that if it costs more for the freight carrier to transport goods, the shipper is charged more to transport those goods to make up for the increased costs. Also, if the shipper is charged more to transport, the receiver is consequently charged more to make up for additional costs.
The cost of fuel impacts so much more than just the transportation industry, such as the economy, politics, the environment, globalization, and technological development. These effects typically result in higher costs for shipping products that are time-sensitive or that need refrigeration.
Modifications in Service Areas
When fuel prices are set at a certain level, each mode has an optimum service area – the distance at which it provides cost-effective mobility. However, since each mode has a different resiliency, increased prices can have a significant impact on the cost or distance function. That means that service areas could change based on the increased cost of fuel.
As we’ve seen above, rising fuel costs affect many industries and even more companies. When companies are faced with rising costs, they generally cut back on the frequency of their services. If the price is affecting the usage level, then companies affected will try to save money wherever they can, hence the reduction in services.
What is Its Impact on the Future of Guyana Logistics?
More than 80 percent of cities in America get all of their goods solely by truck, so while the trucking industry isn’t going anywhere any time soon, costs could continue to rise. The increasing cost of freight transportation has led some companies to start keeping more products on hand, which can reduce the amount of necessary transportation.
Other responses include making changes from lean inventory strategies to lean inventory-transport hybrid strategies, going from offshoring to near-shoring when it comes to sourcing strategies (to decrease the number of miles traveled), and moving from product and package designs for creation and marketability to designs that integrate “shipability” concerns.
The rising costs of fuel will most certainly affect the freight transportation industry in more than one way. However, if you prepare yourself ahead of time for things to come, you’ll have fewer headaches down the road. Got some shipping done but want zero headaches? You can count on Zip Logistics to get it all squared away for you!