VALVES & FLOW CONTROL
OIL PRICES
PJ VALVES
HOW THE RIGHT SUPPLY CHAIN CAN REDUCE
RISK AND COSTS AND WHY THE OIL PRICE
MATTERS LESS THAN YOU MIGHT THINK
By Dan Munro, CEO, PJ Valves
The oil price is a source of endless
fascination. Entire careers are built on
following its daily peaks and troughs.
No wonder: for companies in the oil and gas
industry, the oil price provides us with one of
very few indicators of likely future demand
for our products and services. But for
engineering procurement and construction
(EPC) companies in the sector, it matters less
than you might think on a short-to-medium
term basis.
A DIFFERENT WORLD
While some in the industry would no doubt
like to return to the halcyon days of 2013/14,
most of it is steeling itself to thrive at lower
project cost levels, mindful of the fact things
may never return to how they were. Indeed,
since Brent reached just under $85/bbl in
October, prices tumbled, going nearly as low
as $50/bbl in January. At the time of writing,
a barrel trades at $63, more than $7 less than
it did a year ago.
There has been a broadly recognised
shift away from mega-projects with
high breakeven costs towards smaller
alternatives. However, there are still tightly-
designed mega-projects going – look at Mad
Dog 2 or the Liza Field development – but
nowadays you are more likely to read about
new FPSO’s (offshore) and fast-track early
production facilities (onshore).
NEW PLAYERS, NEW RULES
So – though big players and major projects
still have a significant role to play – it’s the
leaner, hungrier operators that are the
choicest target for many EPCs.
Valves have historically been over-specified
and, for an EPC looking to put together a
response to tender, it’s not commercially
viable to spend precious time optimising the
components that add up to £10m when they
could be focusing on the £50-100m project
spend for ‘big ticket’ items such as rotating
equipment.
Despite being a small part of the overall cost,
valves can cause big delays and expensive
overruns. As someone once told me: “valves
are 2 per cent of my cost, but 50 per cent of
my problems.”
The trick is knowing where to find that
engineering time and expertise. A good
place to start is where the valves are
designed and made: the manufacturers and
suppliers.
PARTNER, NOT SUPPLIERS
However, being lean has downsides too.
During the downturn, engineering teams
across operators and EPCs lost expertise. As
an illustration, take a look at our world of
valves. In a traditional manufacturer-supplier
relationship, the customer doesn’t get access
to the expertise. They just get the valves.
Whereas, a partner’s engineering team can
work with the EPC to optimise the valve list.
An oil and gas project can feature thousands
of valves, each a small part of the overall
picture but crucial for safe and efficient
production. Often, a valve has been specified because
that’s what the specifying engineer for that
component has done in the past and doesn’t
have capacity to look at changing. Repeat
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PECM Issue 38
that across a project and the list sprawls.
A partner-supplier which understands the
valve application as much as the valve
product can suggest alternatives and
streamline that list.
For one customer, we reduced an initial list
of roughly 1,500 distinct valve descriptions
to 193. With this simplification of product
and spares came both capex and opex
benefits, in addition to huge time savings in
administration.
This way of working provides greater value,
hopefully creating long-term, trusted
partnerships. For the operator or EPC, it
means getting extra value from its supply
chain to reduce costs and de-risk projects,
ultimately building in resilience.
So, my challenge to operators and EPCs in
today’s environment is to not fixate quite so
much on the day’s oil price. Instead, consider
the type of supply chain you want to build
and the type of company you want to work
with. By doing that, and looking for partners
instead of suppliers, operators and EPCs can
set themselves up for success whether the
oil price is at $50/bbl or $100/bbl.
www.pjvalves.com/