Can the bottleneck be broken?

Essential equipment and important commodities are short in the supply chain. Is this slowing the industry down?

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By  Stuart Matthews Published  December 5, 2006

Comment|~||~||~|Shortages have a detrimental effect on the efficient and profitable activities of industry.

It’s more than the simple economics of demand and supply, it’s just plain common sense. And while it is easy to say it’s a question of planning far enough ahead, it isn’t always that easy to achieve.

There are companies working in the oil and gas industry that can’t get the resources they need as quickly as they would like. Whether this is a particular kind of steel, the right brand of equipment or even well-trained and experienced people, shortages of all kinds of resources are having an impact now.

When it comes to commodities, demand has been rising, in some cases quite sharply, as the industrial consumption of growing giants China and India reaches new heights.

According to the OECD’s Steel Committee, “Chinese steel consumption reached 287 million tonnes in the first nine months of the year, up 28.75 million tonnes or 10% from a year earlier. Indian consumption is also increasing swiftly, though from a much lower level of 38 million tonnes.”
The committee also noted that steel trade has been stimulated by the buoyancy in global demand.

“Developments have been dominated by China becoming the world’s largest exporter of steel products in the first half of the year, surpassing Japan, Russia, and the European Union. Steel import growth has been particularly pronounced in the European Union and North America, where inventories have increased significantly.”

Added to this is the fact that the oil and gas industry gives every impression of being a conservative one. Reluctance to rely on, or even trial untried and untested suppliers creates a market where certain companies and products are considered acceptable and reliable, while others are left in the cold.

Instead of opting for something new, companies will wait in a queue, which could be measured in years, to get their hands on something they know they can trust.

The current and growing shortage of jack-up rigs is a case in point. Furnishing rigs with the right equipment is one of the pressing issues facing rig builders. Planning is an essential part of success for them if they’re not going to be left waiting for critical components.

While manufacturers pay big money to build this kind of brand loyalty, what cost does it have for those doing the consuming? Is waiting really the best economic option?
Given the current willingness to put up with substantial waiting times it must still be viable, but someone, somewhere must be working out how long is too long.

When the delay finally becomes unacceptable and someone reaches a point where they are prepared to try something new, it won’t be long before others follow. What company will wait years for a part, while its competitor takes what is available and presses home an advantage?

In the meantime the favoured suppliers have full order books, work guaranteed for months, and in some cases paid for in advance. They too must know it can’t last and some are investing to stay ahead of the theoretical turning point, where the delays will become intolerable.

But even if everything could be found when it’s needed, there may not be the manpower to bring the resources to bear.
Finding experienced people is a problem too; age and experience are hard to come by in the right quantities, leaving some contractors paying a premium and others forced to accept second best. Some companies have described the shortages of experienced people as ‘reaching intolerable levels’, but they face no other option but to press on with the resources at hand.

Any solution to these issues will be a long-term one. There are no quick fixes on the horizon, so for now the only option is to plan carefully for the future and hope it arrives quickly.

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