Volatility is returning to oil prices as the market adjusts to lower prices and as the cushion of oversupply is being eroded, making the market more vulnerable to supply disruptions. Two important oil suppliers - Libya and Iraq - are both experiencing production issues; Libyan oil exports are being seriously affected by internal political activity as is oil production from Iraq. Iraqi production has become increasingly important to the global market – the country was the second-leading contributor to global oil supply growth in 2014 (behind only the USA, reaching 3.4 million b/d in 2014)*
Lower global oil prices are allowing many oil companies to realise the value of integration. Lower oil prices result in cheaper feedstock, meaning downstream returns are on the rise—for example; Europe’s refiners are back in profit (albeit probably short lived). However, several factors are working to keep the sector depressed and as overall price advantages for downstream players go away as oil prices recover, the battle for market share will predominate. Competition in the downstream sector continues to intensify with many new players, including some large commodity traders, who can exploit market volatility and have very different business models, seizing market share.
What then can traditional downstream players do to counter increased prices and growing competition? Many are starting to focus more on technologies like digital, using mobility, analytics and automation to make plants more efficient. Several companies have already started to broadly integrate such technologies into their day-to-day refinery work, encouraging an acceleration of innovation.
The goal would be to reach what Accenture calls “high-velocity operations”. This would be a plant so completely digitally integrated that all of its data would be hosted on the Cloud, with workers able to visualize and analyse data on their tablets in real time, enhancing both the understanding of the plants and also the ability to predict its behavior. Digital is changing the pace of many industries, the oil industry included. The digital plant is bringing together the IT side of the plant with the operational side into a full functioning and connected plant, and driving value, for example, by allowing more informed better and quicker decisions. Velocity along with volatility could be the energy industry watchwords of 2015. Listen to the latest Accenture Energy Trends podcast to know how downstream players can address the challenges of the market today with a focus on more efficient and innovative operations.
*Source “United States Department of Energy Information Administration, February 9, 2015, “Iraq was second-leading contributor to global oil supply growth during 2014” © 2015 Energy Information Agency).