Oil & Gas

Analysts warn oil and gas industry costs could rise 10% this year

It is thought oil and gas industry costs may jump markedly this year on labour uncertainties and raw-materials inflation.

Analysis carried out by McKinsey & Company finds prices could rise by between 6% and 10% in 2023, unless supply chain risks are managed.

Primary operation tasks, such as regular inspections and maintenance, are becoming more expensive, the company says, as labour rates grow upwards of 9% a year.

For steel casings and tubing meanwhile, costs are rising 5% per annum.

This, coupled with spiraling marine and aviation logistics prices, is causing increasing operating expenditure (OPEX) rises, McKinsey said.

Johann Raunig, a partner at the global management consultancy, said: “These issues mean supply chain security should be catapulting to the top of the CEO agenda as organizations must swiftly implement a nimble, comprehensive strategy to navigate this turbulent period.

“We’re already seeing that production efficiency is dropping while operating expenditure is rising, project budgets and schedule milestones are being missed, and key suppliers are struggling to provide labor and materials on time.

“It’s a vicious cycle: more work is carried out under emergency conditions, which is increasingly expensive.”

McKinsey notes organisations that are taking measures to secure their supply chain and avoid market volatility are experiencing significantly less inflationary pressure, saving some 15% on costs.

The insight details key high impact levers that can mitigate supply chain reliability risks that could be used to pivot away from the typical cost reduction mindset.

That includes early procurement in strategic projects to accelerate long purchase times by adjusting the sanctioning period, as well as revising the approval gating process or enabling earlier budget approvals.

McKinsey also flagged “improving the risk-reward ratio in major contracts” to incentivise performance and consolidate contract volumes, and enhancing offshore execution efficiency and digitising inspection data as a means of combatting rising costs.

Recommended for you

EY report warns of dangers of hastily winding down ‘£16bn’ Scottish oil and gas industry

What's your reaction?

Leave A Reply

Your email address will not be published. Required fields are marked *