LOOG5026 Logistics And Operations For Oil And Gas

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LOOG5026 Logistics And Operations For Oil And Gas

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LOOG5026 Logistics And Operations For Oil And Gas

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Course Code: LOOG5026
University: Greenwich School Of Management

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Country: United Kingdom

Question:

At the end of a module students will be expected to be able to:

Explain theoretical and practical aspects of logistics and operations management in the oil and gas industry.
Examine the difference and similarities in logistical and operational problems and solutions between service and manufacturing industries.
Determine methods of planning and organising efficient operations network.
Analyse behavioural problems arising from work organisation and methods to mitigating them in the context of operations strategy.

You are responsible for ensuring you understand the policy and regulations about academic misconduct. You must:

Complete this work alone except where required or allowed by thisassignment briefing paper and ensure it has not been written or composed by or with the assistance of any other person.
Make sure all sentences or passages quoted from other people’s work in this assignment (with or without trivial changes) are in quotation marks, and are specifically acknowledged by reference to the author, work and page.

You have been newly appointed as the head of Operations and Logistics at Saudi Aramco. As indicated in the report, your organisation is exploring opportunities to have a tie up in retail petroleum and marketing with ADNOC. Your line manager has tasked you to write a 2,500 word Report addressing the following:

To identify and discuss four practical logistics and operations management challenges that your organisation could face in its attempt to penetrate the Indian downstream petroleum market (LO1).
To describe the service provision of potential competitors in the Indian downstream sector and critically assess four logistics and operations challenges linked to the design and delivery of the services offered by those competitors. (LO2).
Furthermore, you are expected to select one of Saudi Aramco key potential competitors in the Indian Oil and Gas downstream sector and critically assess its supply chain economic and environmental performance. The discussion will include a brief description of its supply chain configuration and coordination (LO3). (25 marks)

Finally, you are required to discuss human behavioural issues that staff employed in the Indian downstream Oil and Gas sector could be exposed to,
and the subsequent implications for your organisation. Finally, you are expected to recommend how the main identified issues could be mitigated (LO4).

Answer:

Logistics and Operational Management Challenges
The logistic and operational challenges that Saudi Aramco is likely to face in the Indian downstream market are the follows:
Cutting the Transportation costs
The constant and steady growth of the fuel prices in indigenous market of India have increased the supply chain management pricing. The supplying partners in the oil and Gas sector now demands 15% higher payment in comparison to the was demanded 5 to 7 years earlier. As identified by Kelland (2014), the price of transportation fuel have also increased by 10% approximately over the last 5 years. In companion with that, the indexes of peaking inflation works in tandem to increase the daily transportation costs in India. In the initial phase, setting up a logistics platform including rail, ocean, and rail as well as air routes is difficult and expensive also. This is why logistics managers have to remain well informed about the current as well as the future orders in order to avoid the surcharges owing to urgent deliveries (Raut, Narkhede and Gardas 2017). The cost related to transportation that Saudi Aramco have to bear in the Indian market includes cost of maintaining a large fleet of vehicles for delivery, cost of salaries for large number of drivers and freight management staff, along with the on road charges and other freight related taxes.
Processing large quantity of information
In order to ensure smooth operation of the logistics network, the mangers of logistics have to maintain a high level database including dates, volume and payment of the big array of freight vehicles transporting oil in their favour. As Badiru and Osisanya (2016), informs, the position of the drill in Maharashtra is situated near the coast line. Hence, the company can use the vessels for distribution along the Western coastal states. However in east and South, they have to use land and air routes for transmission only. Hence, the logistics management body of the organisation have to deal with the safety of their indigenous as well as out-sourced staff associated with logistics, keep track of the loading and unloading of the fleet as well as check the route maps for the shortest distance delivery. In India, Kanikdale and Venugopal (2015), opines that last mile delivery is a big concern as communication with the oil reserves that are mainly located in the outskirts is very difficult in India. Hence, mapping and scouting of delivery requires a lot of resources in India. In this context, Bildirici and Bakirtas (2014), states that the sanctioning of fuel bills for every organisation with which they deals is very important. This requires a large quantity of manual attention and continued labour.
Segmented and Customised Servicing
Market management is gradually becoming a multi-layered affair in India. Most of the organisations and smaller networks as well, are using multiple supply chain. As an outcome, one significant task of the managers is to have a database as well as understanding developed of the major trends that is being followed in the country regarding contracting and selecting oil and gas partners. In this context, Mitchell and Mitchell (2014), mentions that in the Indian market, the oil and gas supply partners have ties with large corporations for providing personalised supply. Saudi Aramco should have such potential market contracts since this would increase their brand value as suppliers of oil and gas.
Manpower management and regulations
Managing the manpower is one of the trickiest affairs for an oil and gas corporation that is trying to penetrate the market. Having essentially human approach towards the Indian employees is very essential as pertaining to various parts of the country, they are adapted to various patterns of work culture. In case if they are not treated with compassion and trustworthiness, Kang, de Gracia and Ratti (2017), states that the integration of the workforce would not be accomplished.
Another factor that requires mention here is the need to be stringent towards compliance to regulations and rules regarding transportation. The norms related to transportation varies from one city to other ad from one state to another. These can be a grave challenge as the company have to be informed about the norms that exists in various states and they should also give extensive training to the delivery agents so that they are able to comply with the transportation norms of every state.
Service provision of potential competitors in the Indian downstream sector
The oil and gas industry in Australia is one of the most competitive sector in India. Economic growth of the country is directly linked to the demand for energy. Hence major investment of all the sectors are conducive for investment in oil and gas. As Sharma et al. (2015), states, several policies have been taken up by the government in this context to meet the increasing demand for oil and gas in the country. The Indian government have allowed hundred percent of direct foreign investment towards many segments in the oil and gas sector in the country. As per the opinion of Heidersbach (2018), Reliance Industries as well as Cairn India are the two main bodies in the Oil and Gas industry of India that attracts the main bulk of foreign investments in the Oil and Gas sector of the country.
In terms of oil marketing, the three big firms are directing the ways in the oil and gas sector. They are Bharat Petroleum, Hindustan Petroleum and Indian Oil. However, these three organisations have a MOU signed with Adnoc, the trading partner of Aramco in the country. Reliance Petrochemicals is one of the potential companies that can pose a big challenge for Aramco in India. This organisation is highly favoured by the customers in India as well as abroad (Wright 2017). In fact, they have the reputation of being the most favoured as well as versatile customer based company. With its headquarters in Ahmadabad, the annual turnover of the organisation is 700 million Dollars approximately. The number of employees associated with the organisation is 100000. The organisation has tie up with another industry leader, namely Chevron India Holdings of Singapore.
The second most potential threat to the path of spreading business in the country is Cairn India. This is the highest grossing private organisation in the oil and gas sector in the country with an annual turnover of 3500 million Dollar USD (Shvarts, Pakhalov and Knizhnikov 2016). This organisation is still emerging and is probably the biggest threat to any new entrant in the oil and gas sector of the country. The business coverage of the company is the greatest in India and this is the most prospective emerging oil and Gas Company in South East Asia. Again, this is a public sector company that is engaged in contract with many of the frontline organisations in the country as frontline suppliers of best quality oil, petroleum as well as natural gas.
The dominant presence of Essar Oil in Maharashtra would also challenge the growth of Aramco in India. In the recent years, this company have had active participation in exploration of new drills of crude oil in India as well as abroad parallely involving them in the purifying of crude oil and actively advertising for petroleum products. As Smith and Richards (2015), states, with 9 billion Dollar production value and 75000 employee strength, Essar Oil is also engaged in the drive of becoming the greatest grossing oil and gas corporation of the country.
Challenges linked to the design and delivery of the services offered by the Competitors
The rising consumption of oil and gas products in India is characterised by high ambiguity. However, apparently, the consumption strength is less with merely 0.6 tons per capita oil consumption on an average in the country. In this situation, the demand is highly ambiguous and confusing. As Perrons (2014), thinks, the indigenous organisations that have been surviving in the circuit of the Indian Oil and Gas sector only have the potential to know the market pulse of the market. This is one area where the organisation is facing large issues in controlling the market. They have to get hold of an advisory consultancy group that can guide them regarding the knowledge of the most potential markets of oil and gas in India. India have about 3.85 MMTPA of oil refining capacity. The LNG import proximity of India is also the fourth largest. Hence, the company would face a complexity in deciding which segment to invest in. However, they cannot afford a delay in market acquisition also. The LNG import market is mainly captured by the ONGC and the Reliance Petroleum (Gaurav et al. 2017). As an impact, the organisation would have to face large adversity to bump in to the LNG market with a big investment. The growth of infrastructure and development of resources are also relative with the large oil and gas production and refining agencies in India. In this context, Bharat Petroleum would be a big threat for the organisation. The major oil drills in the Mumbai-Maharashtra belt are under the acquisition of the Bharat Petroleum, ONGC and Reliance petrochemical Industries. In this context, Iyer (2016), states that the organisations would firstly come in conflict with the Bharat Petroleum with whom their trading partner in India, namely Adnoc who have signed a MOU with Bharat Petroleum. Hence, in serving the Indian market, the organisation have to majorly rely on the import of oil from the OECD union countries
Supply chain economic and environmental performance of Reliance Petroleum
The Jamnagar unit of the Reliance Petrochemicals is the largest refining hub of the world. The organisation showed professionalism of highest level by constructing the plant at a competitively much lower cost. The speedy growth of the refinery helped the company to capture the market rapidly and Reliance Petrochemicals gradually became the backbone of petrochemical supply in India and even started exporting outside India. The technologies implemented in the refinery have made the plant absolutely future ready and have the potential to deliver gasoline as well as diesel of any grade. The Saudi Aramco also have high and technological expertise. However, as per the opinion of Singhal and Ghosh (2016), the cost of establishing the same technology and set up in India would be at least 30% higher than their native set up (Gogoi et al. 2016). Besides, the location of the plant is exclusive since it is situated in a special economic zone, which is facilitated with amenities like easy transportation facilities and easy land acquisition and settlement agreement. It is not easy for Saudi Aramco to find an easily facilitated set up location to accommodate 600,000 BPD of oil.
In the above context, the key components of the R&M business model that is key to the success of the Jamnagar plant of the Reliance Industries the operating excellence of the company is owing to the automated facilities and high horse power machineries at the organisation. Besides, as discussed earlier also, the refinery of the Reliance Petroleum is also located strategically on the western coast of India. From this region, the cost of transportation is already low owing to the feedstock and closeness of the high growth markets. Owing to the presence of the oil yielding facility in the Maharashtra region, it would be almost impossible for the company to set up such a favourable unit at such a lucrative location.
The primary goal of the business model of the organisation is to ensure the deliverance of industry leading returns to ensure medium term growth alongside keeping focus on safety and sustainability of the environment.  

Asset Advantage of Reliance

Asset Optimisation of Reliance

· High capacity of production ensures industry leading capital for per barrel
· High end marine facility that gives access to the largest crude as well as product vessels
· The large scale of operations as well as the energy efficiency of the organisation ensures much lower operational cost for the company, inside as well as outside India

· The integrated supply as well as trading team of Reliance gives real time benefit to the organisation regarding the refinery operations. This in turn helps the organisation in optimisation of the asset utilisation.
· The organisation have the ability to process all the qualities of crude oil as well as meet the more variegated as well as demanding specifications of the product.

Table 1: Asset Advantage and Asset Optimisation of Reliance Petrochemicals
(Source: Xie et al. 2014)
There is a wide variety of crude oils as well as production of large range of petrochemical products for the purpose of exporting as well as supplying in the market of India.

Table 2: Listing of the products of Reliance Industries and their applications
(Source: Soam et al. 2015)
Implications for HR management by Aramco in India 
In spite of the recent developments in the Oil and Gas sector, the analysis of Soam et al. (2015), proves that there is still the shortage of 25,000 additional staff in the industry. The learning and development that the candidates receive at an academic level is not sufficient and matching with the recent industrial standards. As an outcome, the problem of lack of experienced staff in the oil and gas sector is hovering over the industry and this is going to be a dangerous implication for the future sustenance of industry. Before the beginning of the operations in the Indian oil and gas environment, the organisations should be aware of this problem. As an outcome, they would also face the same implication and in order to overcome that they have to set a proper criteria of industrial standards for getting appointed at the various positions of the organisation. Working in India, the organisation have to have 30% native workforce. Besides, it would be cost enduring if they have to appoint staff from other parts of the world at competitively higher wages (Saudiaramco.com 2018). In India, the organisation have to pay a minimum of 25% lesser wage than that expected by the staff of Aramco in other countries.
Another thing that the organisation might consider is setting up their own training institute in India. This institute would focus up on making the collegiate students industry ready and adaptive to the technologies and methodologies that the workers have to work with, in the organisation. The selected candidates should be given at least 6 to 10 months of industrial training and then absorbed in mainstream work. This would be ultimately beneficial for the organisation as the trained workforce would be able to provide a 20 to 30% higher productivity to the organisation at the same wage rate.
The experienced workforce that is involved in the oil and gas sector is only 25% of the total employed workforce. Moreover the average age of the experienced workforce is above 40 years. At the stage of employment they are into, they have developed a certain stage of involvement with the organisation they have been serving. Hence the chance of appointing experienced workers in the mainstream job roles is very limited.
Another Human Resource related issue that the company would be acing while working in the Indian standards is that in India, most of the promising employees as well as deserving candidates feel the need to be outsourced in a foreign job site. Even, this is the dominant trend in the industry. The dominating Indian companies which have operations outside India place most of their experienced and most potential workers outside India. Hence, in case if the organisation wants to retain the employee base formed after training and scheduling, they have to pay wage at a rate higher than the specific industry demands of the oil and gas sector.
Reference List
Kelland, M.A., 2014. Production chemicals for the oil and gas industry. CRC press.
Raut, R.D., Narkhede, B. and Gardas, B.B., 2017. To identify the critical success factors of sustainable supply chain management practices in the context of oil and gas industries: ISM approach. Renewable and Sustainable Energy Reviews, 68, pp.33-47.
Badiru, A.B. and Osisanya, S.O., 2016. Project management for the oil and gas industry: a world system approach. CRC Press.
Kanikdale, T. and Venugopal, S., 2015. Future Scenarios for Automotive Engines in India (No. 2015-26-0034). SAE Technical Paper.
Bildirici, M.E. and Bakirtas, T., 2014. The relationship among oil, natural gas and coal consumption and economic growth in BRICTS (Brazil, Russian, India, China, Turkey and South Africa) countries. Energy, 65, pp.134-144.
Mitchell, J.V. and Mitchell, B., 2014. Structural crisis in the oil and gas industry. Energy Policy, 64, pp.36-42.
Kang, W., de Gracia, F.P. and Ratti, R.A., 2017. Oil price shocks, policy uncertainty, and stock returns of oil and gas corporations. Journal of International Money and Finance, 70, pp.344-359.
Sharma, S., Goel, A., Gupta, D., Kumar, A., Mishra, A., Kundu, S., Chatani, S. and Klimont, Z., 2015. Emission inventory of non-methane volatile organic compounds from anthropogenic sources in India. Atmospheric Environment, 102, pp.209-219.
Heidersbach, R., 2018. Metallurgy and corrosion control in oil and gas production. John Wiley & Sons.
Wright, C.J., 2017. Fundamentals of oil & gas accounting. PennWell Books.
Shvarts, E.A., Pakhalov, A.M. and Knizhnikov, A.Y., 2016. Assessment of environmental responsibility of oil and gas companies in Russia: the rating method. Journal of cleaner production, 127, pp.143-151.
Smith, D.C. and Richards, J.M., 2015. Social license to operate: hydraulic fracturing-related challenges facing the oil & gas industry. ONE J, 1, p.81.
Perrons, R.K., 2014. How innovation and R&D happen in the upstream oil & gas industry: Insights from a global survey. Journal of Petroleum Science and Engineering, 124, pp.301-312.
Gaurav, N., Sivasankari, S., Kiran, G.S., Ninawe, A. and Selvin, J., 2017. Utilization of bioresources for sustainable biofuels: A Review. Renewable and Sustainable Energy Reviews, 73, pp.205-214.
Iyer, C.G., 2016. Impact of entrepreneur on the sectoral system of innovation: Case study of the Indian crude oil refining industry. Technological Forecasting and Social Change, 102, pp.102-111.
Singhal, S. and Ghosh, S., 2016. Returns and volatility linkages between international crude oil price, metal and other stock indices in India: evidence from VAR-DCC-GARCH models. Resources Policy, 50, pp.276-288.
Gogoi, S.B., Sen, R.K., Rajbongshi, A. and Hazarika, K., 2015. Characterization of Oil field Produced waters of Upper Assam Basin, India. Int. J. of New Technologies In Sci. and Engg, 2(1), pp.2349-0780.
Xie, B.C., Shang, L.F., Yang, S.B. and Yi, B.W., 2014. Dynamic environmental efficiency evaluation of electric power industries: Evidence from OECD (Organization for Economic Cooperation and Development) and BRIC (Brazil, Russia, India and China) countries. Energy, 74, pp.147-157.
Soam, S., Kumar, R., Gupta, R.P., Sharma, P.K., Tuli, D.K. and Das, B., 2015. Life cycle assessment of fuel ethanol from sugarcane molasses in northern and western India and its impact on Indian biofuel programme. Energy, 83, pp.307-315.
Saudiaramco.com (2018). Enabling opportunity, when we put our energy to work, we enable others to seize opportunities that can revolutionize the world. Available from https://www.saudiaramco.com/ [Accessed on: 26th October 2018]

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