Mike Houghton calls on the UK oil and gas sector to view the turbulent oil price and related cost pressures as a time of opportunity to work in partnership with its supply chain, adopt a culture of continuous improvement and secure its future as global competition intensifies
Despite the recent small recovery in the global oil price, it is clear that continued concerns about over supply and suggestions that the UK sector is seeking 20% cost cuts from its supply chain to protect profits, are creating a challenging short and medium-term outlook for the nation’s oil and gas industry.
The sector’s stuttering performance is also having a significant effect upon the rest of the economy. Ian McCafferty from the Bank of England recently commented that 22% of the productivity shortfall in the UK can be attributed solely to the oil and gas sector, driven by depleting reserves and the growing obsolescence of legacy production equipment.
Seeking to extract such high levels of cost savings from the supply chain is both ambitious and, ultimately, non-sustainable, as it is the beginning of a cost cutting journey that will very quickly come to an end as suppliers are simply unable to deliver the savings being sought over the long-term and still remain in business.
An ideal opportunity
The current situation offers a real opportunity for an important industrial sector that has been blessed with continued high oil prices over the long-term, producing a reluctance to embrace innovation-driven change.
It could reap significant benefits by following other sectors such as automotive in adopting a culture of continuous improvement which over time can help secure a prosperous and sustainable future. It is widely acknowledged that the UK automotive sector is achieving between 4 and 8% improvements per annum on the back of a continuous improvement strategy. The recent glowing headlines highlighting the renaissance of the UK automotive industry is proof that such an approach is working.
Continuous improvement strategies have also delivered dividends closer to home. Siemens’ Congleton manufacturing site, a leading manufacturer of drives, has over a period of time reduced the manufacturing timescale of a single drive from 99 hours to just one! This has been achieved by constant review of the production process so that incremental improvements add up to a significant and impressive result.
As many companies in a variety of sectors have already done, the oil and gas market needs to partner with technology suppliers to begin the improvement process. With the operating costs of barrel extraction in the UK just under $40 a barrel, compared to $20 in the USA and $5 in Kuwait, it is self-evident that it’s not a case of just thinking about future competitiveness, it is, indeed, imperative.
The industry would be well-placed for future success by shaking off historical reluctance to embrace innovation, and by examining how other industrial communities are gaining benefit from technological and production improvements. Optimised production, safer operating environments and a reduction in costs are just some of the tangible advantages that a culture of continuous improvement can deliver over the medium-term – benefits that sectors such as automotive are already seeing.
It is no exaggeration that improvements on the scale seen in the motor industry are entirely feasible for the oil and gas market. It requires leadership from the top of companies to state that incremental continuous improvement is the strategic way forward to safeguard both the sector and its supply chain.
A combination of careful planning, partnerships across the supply chain, the acceptance of technology innovation and an open mind that seeks to overcome historic barriers can underpin the oil and gas sector as it surmises the next 20 years and a time when global competition can only intensify.
It is a new world for the UK oil and gas sector - but one of real opportunity.
Like other sectors that have had to adapt and change to meet the challenges of an altered operating landscape, the oil and gas industry cannot afford to always do what it always has.
It is time to think differently, embrace a cultural shift and work smarter to secure a competitive future. The tools and expertise exist to make it happen.
It’s time to say yes.
Mike Houghton is Managing Director, Process Industries & Drives, Siemens UK & Ireland.