Presented by:Asad Danish Siddiqui - 1462

IMPORTANCE OF SUPPLY CHAIN MANAGEMENT IN OIL AND GAS SECTOR

Presented to:Mr. Azmat AliCourse Instructor, Supply Chain Management

May 2010

Supply Chain Management:

Supply Chain Management is the art and science that creates improvement in the way that an organization finds the raw components it needs to make a product or service and deliver it to the customer at the right time and in the right quantity

Exploration → Production →

Refining → Marketing →

Consumer

Supply Chain Link to the Oil and Gas Industry

Break up of Oil and Gas Sector

Upstream SectorUpstream sector is where we get crude oil and crude gas from. These are Offshore oil and gas rigs and onshore oil and gas rigs

Downstream SectorDownstream sector is where we refine the products and make it usable for end customers like gasoline, jet fuel, diesel fuel, furnace oil etc.

It also consists of storage system and pumping stations from where we get our supplies of petroleum products like gasoline, diesel, lubricants etc

Our Main focus in this presentation would be the downstream sector (Pakistan State Oil) and PSO’s

SWOT Analysis

Cycle of Oil and Gas Sector (upstream to downstream to end user)

* The petroleum industry includes the global processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines), and marketing petroleum products.

* The largest volume products of the industry are fuel oil and gasoline (petrol).

* Petroleum is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics.

* Efficient delivery of oil products, combined with management of stock levels, are vital activities in order for downstream oil businesses to protect or increase thin margins.

* Supply Chain helps precise, up-to-the-minute, information on fuel levels as well as the ability to flexibly schedule and manage deliveries

* Supply chain helps companies to maximize profits by saving costs and making decisions using skills teached by Supply Chain Management

Role of Supply Chain in Oil and Gas Sector

• Having a good network of skilled suppliers

• Having good negotiations skills, Oil and Gas sector is negotiating all the time

• Decide to MAKE vs BUY e.g. Offshore rigs utilize the gas produced to make power on the rig. Some refeniries produces power themselves and some buy it from other suppliers

• Strict compliance to all applicable codes and standards

• Forecasting is always been done with historical data and demand supply strategy

• The supply chain in oil and gas consists of operators (oil companies), main contractors, subcontractors and suppliers. Procurement is performed during the development and abandonment of oil and gas fields and during operation of fields (production). During development, the majority of procurement is structured as project execution tasks. Projects are unique and typically range in size from the tens of millions of dollars to billions of dollars for large offshore new builds

How Supply Chain Management Helps Improve Oil and Gas Sector

Integrated Supply Chain Network General Model

Integrated Supply Chain Network of Oil and Gas

Pakistani Refineries

Pakistan’s Refinery CapacityPakistan’s Refinery Capacity

Figures in Million tons per annum

COMPARISION OF PAKISTANI OIL MARKET COMPARISION OF PAKISTANI OIL MARKET WITH WORLDWIDE OIL MARKETSWITH WORLDWIDE OIL MARKETS

Major Problems Faced by RefineriesMajor Problems Faced by Refineries

Crude Oil supply Demand and Supply Scenario Deficit of oil Products Pricing Regime for Products Import Parity Price (IPP) Ex-Refinery Prices

Pakistan State Oil

Best Symbol of Supply Chain Excellence in

Pakistan Oil and Gas Sector

Pakistan State Oil as a Supply Pakistan State Oil as a Supply Chain LeaderChain Leader

• Largest STORAGE, SUPPLY AND DISTRIBUTION netwok in Pakistan.

• Storage Facilities Capacity:877,000 million tons .• 81% Storage of the Country Overall• 3800 Outlets.• These outlets are equipped with convenience stores,

business centers, Internet facility and CNG facility• 16 mobile quality-testing units .• PSO also caters to the fuel demand of the industrial

consumers that includes power generation, railways, sugar, textile and steel mills.

• PSO operates at 8 airports and serves 4 domestic and 18 international airlines under its technical/ commercial license agreement with Air Total International.

• PSO participation in Allama Iqbal Airport, Lahore is 100%.

PSO MARKET SHAREPSO MARKET SHAREWhite Oil Market with 59 %

Black Oil Market with 79%

PSO59%

Others41%

PSO79%

Others21%

The White Oil segment includes Gases, Kerosene, Diesel and Jet Oil that are purified fuel.

The Black Oil segment represents the products, which are less purified and used in mostly

industrial sectors.

Oil and Gas Industry Oil and Gas Industry AnalysisAnalysis

Current scenario of oil and gas industry

PSO SALES using supply PSO SALES using supply chain techniqueschain techniques

64 6681

110121 116

135

195182

206

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Sales in billions (Pak. Rs.)

Profitability of PSO in million Profitability of PSO in million (Pak. Rs.)(Pak. Rs.)

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Advertisement and Advertisement and Promotional Expenditures Promotional Expenditures PSO VS ShellPSO VS Shell

16

2016

22

2006 2007

PSO Shell

Distribution & Fleet Distribution & Fleet ManagementManagement(Strong distribution (Strong distribution network)network)

8,500 Strong Tank Lorry Fleet along with 7000 trained drivers

3,800 Railway Wagons480 Lubricant DistributorsPipe Lines

StorageStorage

• PSO have 877,000 MT Storage capacities, which is representing the 81% of total storage in the Pakistan

• Inventory Turnover Rate (PSO VS Shell)

21 2123

28

2320 20 1919

1715

18 18

14

24

16

2000 2001 2002 2003 2004 2005 2006 2007

PSO Shell

New Vision Retail OutletsNew Vision Retail Outlets

• PSO began it New Vision Retail Outlets (NVRO) in the year 1999 .• CNG Facilities• Today there are more than 400 CNG stations throughout the country. Shell

Pakistan is providing the CNG facility at only 68 outlets.• Non-Fuel Retail Outlets• The Non-Fuel Retail Department is responsible for all the non-fuel facilities at the

retail outlets. PSO, being an organization committed to providing value added services to its customers, has facilities at its stations. These includes,

• Convenience Stores (C-Stores) =64• Business Centers=16• Internet facilities=600• Auto Car Washes• There is one car wash each in the three major cities in Pakistan.• Karachi• Lahore • Islamabad

Value Chain – PSOValue Chain – PSO

SWOT Analysis of PSO Supply Chain SWOT Analysis of PSO Supply Chain NetworkNetwork

Market Share of 70% is one the main strength of PSO. Company reputation in the industrial sectors adds the strengths for PSO. Product quality is also strength especially in industrial sector. Service quality like plastic cards and non-fuel activities adds the value. Distribution & Fleet network, which covers 81% country retail network, is the key

edge on PSO its competitors. Promotional activities add value in brand awareness and attraction of new customers. Innovation like Auto Car Wash helps PSO to differentiate with its main competitors. Storage capacity, which holds 80% of total storage capacity of the country, is also

key advantage over its competitors. Technical skills in Fleet management are another strength for PSO. Visionary, capable leadership adds value to PSO strength like their NVRO operations. Financial Stability with strong reserves, paid-up capital adds the trust of stakeholders. Product line width adds long range of products for more revenue opportunities. Castrol brand affiliation with PSO adds strength in terms of brand awareness. Relations with Government one of the key strength of PSO in order to get legal

protections. 

StrengthStrength

WeaknessesWeaknesses

• Lost & Dissatisfied customers are major weakness of PSO as they are causing the perception of inefficient PSO.

• Old retail outlets are major weakness for PSO as they are not enough capable to compete the Shell, Caltex or Total outlets.

• Untrained staff at outlets is causing inefficient services. Training required

• Quality assurance is not so effective to build the image of “Quality & Quantity”.

OpportunitiesOpportunities• Afghanistan's Market is the biggest opportunity

for OMCs in Pakistan.

• De-regularities of Oil industry in Pakistan add the opportunity to fill the deficiency in few sectors of petrochemicals markets. 

• Export Opportunities of Black Oil Products is also adding the opportunities by exporting Black Oil products, which is facing downfall due to the introduction Gas Oil.

• Industrial & Trade growth in Pakistan is also the opportunity for PSO as they are adding revenues in Power sector that is the major customer of PSO.

ThreatsThreats• Risk of forward integration of Supplier is

the key threat for PSO and other OMCs in Pakistan. As the example, the PARCO who is one of the main POL product suppliers to OMCs adopt the forward integration strategy by introducing its own OMC with its new business alliance TOTAL and named its OMC as TOTAL-PARCO.

•  • Risk of Diversification in technology is also

a key threat for PSO as due to new technology used in industrial sector are causing decline in particular POL products.

Future of Oil and Gas:

Oil are gas are not depleting, the methods to extracting them are getting complicated.

The easy way out to save environment and not consuming every natural resource we have to look for alternate energies for our requirements

Thank You