McKinsey analysis reveals that oil and gas costs could rise by another 10% in 2023
McKinsey & Company: Oil and gas costs could rise by another 10% in 2023 unless supply chain risks are managed
But smart supply chain decisions could save up to 15 percent on costs new analysis reveals
6 March 2023: The latest analysis from McKinsey & Company (McKinsey) reveals that oil and gas industry costs could increase between 6 to 10 percent in 2023 due to labor uncertainties and raw-materials inflation.
The analysis uncovers that primary operation tasks, such as regular inspections and maintenance, are becoming more expensive as labor rates grow upwards of 9 percent per annum and costs for steel casings and tubing also rising at 5 percent per annum. This, coupled with spiraling marine and aviation logistics prices, is causing increasing operating expenditure (OPEX) rises.
The article examines how oil and gas companies are grappling with the business fallout of sustained global inflation, geopolitical developments in Europe and Asia and increasing economic headwinds. McKinsey details how the supply chain risk caused by these factors is affecting field operations and project delivery, with traditional mitigation strategies proving inadequate.
Johann Raunig, Partner at McKinsey said “These issues mean supply chain security should be catapulting to the top of the CEO agenda as organizations must swiftly implement a nimble, comprehensive strategy to navigate this turbulent period. We’re already seeing that production efficiency is dropping while operating expenditure is rising, project budgets and schedule milestones are being missed, and key suppliers are struggling to provide labor and materials on time. It’s a vicious cycle: more work is carried out under emergency conditions, which is increasingly expensive.”
McKinsey notes organizations that are taking measures to secure their supply chain and avoid market volatility are seeing significantly less inflationary pressure, saving ~15 percent on costs. The insight details key high impact levers that can mitigate supply chain reliability risks that could be used to pivot away from the typical cost reduction mindset including:
Early procurement in strategic projects to accelerate long purchase times by adjusting the sanctioning period
Revising the approval gating process or enabling earlier budget approvals
Improving the risk-reward ratio in major contracts to incentivize performance and consolidate contract volumes
When it comes to staffing, enhancing offshore execution efficiency and digitizing inspection data could make the workplace more appealing
Published: 06-03-2023
