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Shell exec says energy sector has itself to blame for current woes

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Posted by Jordan BlumDate: May 05, 2016

The oil and gas sector largely has itself to blame  for the financial hemorrhaging many energy companies now face, said Harry Brekelmans, Royal Dutch Shell’s projects and technology director.

Rather than just  low price of oil, redundancies, cost overruns and inefficiencies throughout the supply chain have made the industry far too inefficient during years of growth with $100 per barrel oil, Brekelmans said at at the Offshore Technology Conference in Houston.

“Our behavior – both inside and outside our respective companies – has allowed cost, risk and inefficiency to spread unchecked across the industry’s supply chain,” he said.

“We had our sights set on more barrels rather than higher returns,” Brekelmans added. “We were convinced that global demand growth would see us through. But this has left us today with baggage that drags down our industry’s performance.”

He said companies must jettison that baggage by working much closer together instead of the typical back-and-forth financial disputes between oil and gas producers and the services contractors — hand-shaking instead of arm-wrestling.

A barrel of oil today requires more than 3.5 times the amount of capital from 2004, Brekelmans noted. Oil is being produced in harder-to-reach areas, but that doesn’t account for much of the increases. There are more engineering man hours per piece of equipment now than before, he said.

“It’s not just Shell engineers who have become less productive; it’s the entire oil and gas industry,” he said.

Brekelmans called for an eradication of the current way of doing things and a complete transformation of the supply chain, including often eliminating the middle men and development stages and having producers buy new technology “off the shelf.”

The sector cannot go back to business-as-usual when oil prices eventually rise and let services and projects costs grow too high again, he said.

He listed the industry’s woes: capital investments drying up, hundreds of thousands of job cuts, high project costs, lessened productivity, eroding competence, safety micromanagement, and decreasing quality controls.

“As a consequence, our industry’s supply chain is being stretched to the breaking point,” he said. “Our situation can only be relieved through healthier, stronger relationships between us.”

He cited efforts like Shell’s joint industry project with nine other partners like Chevron, BP, Total and Saudi Aramco to standardize a lot of their equipment specifications and procurement processes in order to save large swaths of money.

Changes are being made for the better, he said, but many more changes are needed still.

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