By Joshua Trott, Chief Revenue Officer
In a world where coal power generation is on the rise, Europe continues to overpay for natural gas from Russia, and unmet demand from the developing world continues to pile up, we must look at new energy options to heat our homes, generate electricity, manufacture products, and fuel commercial vehicles. The numbers and the experts point to liquified natural gas (LNG) as likely our cleanest and most reliable bridge fuel in the decades-long march that is the energy transition.
With one of the largest concentrations of reserves in the world, North American natural gas producers are in pole position to capitalize on this opportunity. And global LNG demand is expected to grow through at least 2040, thanks to increased demand from Southeast Asia for more reliable, cleaner energy sources, according to a new McKinsey & Co. analysis first reported by HART Energy.
But the US might lose its competitive edge if the red tape, particularly around pipeline permitting, isn't addressed. We’ve talked about how badly we need pragmatic federal policy and permitting reform that streamlines the processes for developing every piece of our energy infrastructure. For natural gas specifically, that means reform on everything from new production permits to interstate pipelines, LNG processing facilities to exports. This is necessary to bridge the energy gap and level the playing field so that North American LNG can continue to compete on the global stage in the coming decades.
Today’s Playing Field: A Challenging Environment
Everyone in the natural gas value chain — from production to transmission and processing — should take a hard look at their supply chain operations if they want to win today and capture the opportunities that widespread reform will bring.
Over the past few months, notwithstanding the uphill battle on the regulatory and permitting front, companies looking to find ways to capitalize on LNG demand in the short and medium term have seen increased competition across the supply chain. This contributes to a myriad of challenges including rising costs, longer lead times, more rush fees — the list goes on.
So even while Oil & Gas production remains steady, the supply of quality vendors, parts, materials, and labor to support activity from drilling to pipeline construction and processing is in increasingly short supply.
Here are the three moves North American LNG producers need to make to support their growth today while also preparing for a future when the floodgates are opened. With the right strategy and forethought, producers can make the bounty of the natural resources we have in the US and Canada work for consumers at home and around the world.
1. Improve Operational and Supply Chain Data
In a recent benchmark study on the Oil & Gas supply chain state commissioned by Workrise, only 20% of respondents across all departments said they feel confident they have the data they need to make decisions in their daily work. And just 40% of decision-makers across supply chain, operations, logistics, and finance said they have access to reliable data on the key performance indicators (KPIs) for which they are held accountable.
Growth relies on the ability to efficiently deploy capital to drive returns. But without the data to make informed decisions, and to report on progress against your goals, it becomes incredibly difficult to reliably maximize the impact of your investments.
Now consider that the majority of Oil & Gas Supply Chain leaders reported that fewer than 50% of their projects are completed on or under budget, and the problem becomes acutely clear. Oil & Gas leaders must improve both data access and quality in order to meaningfully improve how they manage their supply chain and deliver on the projects that fuel their growth.
2. Streamline Purchasing, Deployment, and Verification Processes
If energy companies want to meaningfully accelerate their growth and efficiently manage a growing operational footprint, they need to take a hard look at what it takes for their teams (yes, plural) to purchase, deploy, and pay for the things they need to operate.
A real-world example: You’re down a forklift for a job site in the Permian. It can take 10 people 10 steps across five different systems to get a single forklift out to the job site, verified, and paid for on the back end. The “hidden” costs of vendor work time are significant — and incredibly wasteful.
At the same time, it can’t take months to bring in a new vendor when your existing resources fall through, so we have to think holistically about every piece of the puzzle, and not just how energy companies purchase from their existing approved vendor list.
This is why I believe it’s imperative that the companies operating in this industry revisit the ways in which they purchase, verify, and pay for the work they need. This will only be possible if we empower teams to move faster, implement solutions to track this process from start to finish, and centralize governance of vendor relationships to mitigate risk as operations scale.
There’s a ton here; more than I can cover on this piece specifically. For those who want to dig deeper, check out this piece by my colleague and our chief technology officer, Praveen Kalamegham, on how the industry’s status quo developed in the first place. He makes a persuasive case that, when facing a challenge this complex, the best way to start is to uncover the root cause. From there, everything else becomes a lot clearer.
3. Expand Access to Suppliers
We’ve talked about how competition for everything from parts to materials, labor and equipment
has contributed to a steadily rising cost environment. This is backed up by the new study, in which the majority of decision-makers on the Supplier side reported that they are operating between 80% and 90% capacity, while 20% of suppliers reported they are at full capacity and actively waitlisting clients.
In each category, the causes and ripple effects stemming from rising costs and a tight supplier market are different. For example:
- Labor is famously hard to come by as boomers begin to retire and Gen Z is far less likely to pursue a career in Oil & Gas.
- Lead times for parts and materials are doubling and tripling on a good day, which points to raw materials, manufacturing, and logistics challenges.
- The best suppliers are in high demand, which energy companies try to manage by locking in long-term agreements. Unfortunately, this further constrains the pool of suppliers who are available to take on work.
To manage costs and create leverage in what will continue to be an incredibly supply-constrained world, companies operating in the natural gas sector must find ways to increase their access to vendors. Increased competition for every slice of every service category is the only way to ensure they are paying a fair price for the parts, materials, equipment, and labor they need to increase their capacity to meet rising demand.
Preparing for the Future, Today
Unlocking North American natural gas is an essential ingredient to successfully navigating the energy transition. If we don’t, I believe we are complicit in the rise of coal power globally and our continued slide into an irreversible climate future.
I can’t overstate how critical it is that we get the policy and permitting reform piece right. Consider this from my colleague Adam Hirschfield, VP of Sales: “We are hearing from clients that permitting lead times on federal lands have gone from three months to 18 months, and that’s in the past year alone.”
In the meantime, there are concrete steps that companies operating across the natural gas value chain can take to make the most of the capital they deploy today, while putting solutions in place to ensure that they can effectively and efficiently manage their growth tomorrow.
Improving operational and supply chain data, streamlining the entire purchasing process, and expanding access to suppliers: these are tangible steps that can be taken to uplevel how companies manage the unique challenges they face in today’s environment. As one supply chain leader put it: “I was kind of shocked [with]... the lack of focus on the supply chain, especially coming from automotive manufacturing."
The time to focus is now. Because only with an increased focus on the supply chain and everything it touches can today’s natural gas companies ensure they are prepared to capture the opportunities that will come as our governments begin to see the light.
In many ways, the world depends on it.
Joshua Trott has spent his career serving the energy industry, including at Workrise where as Chief Revenue Officer (and previously as Head of Oil & Gas) he has helped to grow the company’s industry-leading labor business and shepherd its evolution into a leading supply chain solution for many of the biggest energy companies in the world. A lifelong soccer player and fan, he lives in Austin, Texas.
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