How to Achieve Oil and Gas Cost Reduction

With oil prices at a three-year low, companies in the sector are taking the opportunity to slim down. They are demanding lower prices from service providers; supply chain margins have fallen. Contractors and permanent staff are seeing day rates drop.

But despite the financial benefit of reduced operating expenses (opex), companies need to ensure that they are addressing all cost drivers. For example, a focus on cost reduction should not impede an organization’s ability to implement new technologies that help improve operational efficiency and sustainability.

Developing and implementing innovative technologies that find and eliminate inefficient processes is one of the best ways to achieve sustainable costs savings. This could include leveraging new ultrasound technology that can scan wellheads and pipelines, IIOT or automation, value engineering during the engineering, procurement and construction (EPCC) phases of projects, and a range of other emerging technologies.

Many of these technologies visit here can also reduce the operational surface footprint that is needed to service a given well. For example, horizontal drilling and directional drilling allow drillers to consolidate multiple gas wells into one pad site, which can result in up to a 90 percent reduction in the overall surface footprint. In addition, reducing the number of pad sites can also lower energy consumption through better utilization of infrastructure such as access roads and pipelines.

In addition to easing constraints on global supplies, new technologies can support sustainable growth in the industry. These innovations can enable more cost-effective production and processing, as well as reduce emissions. In fact, some companies have already started to embrace these technologies as part of their commitment to sustainability and reducing carbon emissions.

Another way to reduce demand for oil and gasoline is by providing incentives for the adoption of electric medium- and heavy-duty vehicles. Electrifying these trucks and buses would have a significant impact on total petroleum-based fuel use because these vehicles require the most diesel, which is refined from crude oil.

Ultimately, the biggest opportunity for oil and gas cost reduction lies in reducing dependence on fossil fuels. In a country like the United States, which is highly car-dependent and has limited public transportation options, sudden spikes in gasoline prices can be economically devastating for households. It is essential that policymakers in Congress and the Biden administration support efforts to expand the availability of alternative transportation options.

As the oil and gas industry continues to face challenges, it is important that companies continue to seek out innovative ways to advance their sustainability and resilience initiatives. To do so, they need to empower their supply chain functions with an explicit mandate to seek out value-generating solutions and provide them with the resources and talent they need to succeed. For more on how to do so, read our Oliver Wyman white paper. Click the link below to download it.