Digitalization Threat for Supply Chain

Upstream Operators Face New Risks

Digitalization represents a potential threat for breakbulk operators serving the upstream oil sector as it disrupts current business, according to research consultancy Verisk Analytics.
The process of digitizing data related to the oilfield services sector is expected to bring multiple benefits, not least in lower-cost barrels and improved safety, but Verisk cautions that “many of the ideas and new operating models” threaten firms within the supply chain.
“With the pace of change, the disruptive nature of technologies and the competitive threats, digitalisation brings opportunities and challenges in equal measure,” said Malcolm Forbes-Cable, vice president consulting, at Verisk subsidiary Wood Mackenzie.

Worst Downturn in a Generation
Noting that the oilfield services sector is still experiencing the impact of the worst downturn in a generation, Wood Mackenzie predicts that future shocks may still ripple out to the wider supply chain.

“As operators increase their capacity to measure and benchmark all facets of their work, it is likely new business models will emerge … technically adept companies will evolve and develop new offerings. But it won’t be easy. At a time when the sector is still struggling from cyclical headwinds, the challenges of structural upheavals are magnified,” Forbes-Cable said.
Logistics operators serving the upstream sector are expected to deliver increasingly efficient use of resources and extend the operating life of some equipment and personnel. Engineering, procurement and construction companies are also expected to become increasingly streamlined with AI supporting design and project management.

“This will mean fewer billable hours in the design phase; but the ongoing monitoring of facilities with digital twins is a significant opportunity for the EPC companies,” Forbes-Cable said.

Evolving Service Contracts
“We expect service contracts to evolve from fixed-price models, such as day rates and lump-sum costs, to risk-reward agreements, and in time, to outcome or performance-based models,” he said.
Based in New Jersey, Verisk provides data analytics and risk assessment globally. Its subsidiary Wood Mackenzie is based in Edinburgh, Scotland, and provides research and consultancy on the upstream oil and gas sector worldwide.