4. Oil and gas supply chain at a glance: seeking opportunities for intervention
In an oil and gas project, the lifecycle begins with the exploration phase. As in mining, exploration in oil and gas involves conducting geophysical surveys, in this case to identify formations likely to contain oil and gas. This phase also includes drilling exploration wells in prospective areas in the hope of encountering significant quantities of oil and gas, which are then called “discoveries”. Exploration drilling is also good for understanding sub-surface geology and providing further data on prospectivity of an area. The process of exploration can take anywhere from three to five years. The potential for local content is usually low at this stage (especially when oil or gas is discovered in new areas) as the exploration of oil and gas is a highly specialised and technically complex process. There will be some demand for unskilled services and for basic construction but these will be small scale during this first stage.
The appraisal stage begins after discoveries are confirmed and signals the start of providing more certainty as to the quantities and qualities of hydrocarbon discovery fields. Along with establishing the size of an oilfield and the most appropriate production methods, appraisal data assists exploration companies in determining whether a field is commercially viable. The appraisal stage may take a number of years; the expected duration from exploration drilling to development is between four and ten years.
The development phase is analogous to planning and construction for mining and could last between one and seven years.
Once the development is on stream, the production phase commences and activities will gradually increase until they reach their peak. Peak production will typically be maintained for a number of years before production starts to decline, though governments will usually seek to balance resource exploitation and the need to fund development activities. Because resource extraction can be optimised to take into account other priorities the life of an oilfield can be extended significantly by adjusting production rates. Both at the appraisal stage and development stage the local content potential is still very limited because they are small in scale and the search for oil can still prove financially unviable, which means that any local content created here can be short lived.
In the production phase the scale of operations increases substantially and inputs will be required for longer periods of time. Furthermore, less specialised skills and inputs are required in the production, which creates additional potential for local suppliers. However, once the major production structures are in place and the extraction starts, the requirements for further inputs declines.
Finally, Oilfields will usually be decommissioned or abandoned when resources are depleted or cannot be profitably recovered.
Opportunities for local content in downstream activities
Transportation and storage of oil and gas usually generate large demands for local construction. The construction of pipelines and storage facilities necessitates large numbers of temporary workers.
The refining stage is again a very capital-intensive and highly specialised stage in the supply chain with low demand for local inputs. However, the subsequent primary distribution of refined products requires less specialised capital and offers many jobs with lower skills levels, creating opportunities to increase the local content in the sector.
The diagrams below and on the following page summarise the goods and services required for each phase in the oil and gas project lifecycle.