Challenges on procurement in the oil and gas industry: developing new strategies

With the background of volatile oil and gas prices, marginal oilfields, extreme locations and new global business trends, the oil and gas industry is forced to seek better solution to overcome these challenges, among others, to look at new procurement strategies. Although some changes have taken place in the development of innovative procurement strategies in other sectors, more needs to be done to the oil and gas industry. This is perhaps because the oil and gas industry needs to be considered as an individual and complex industry in its own right. The other probable reason why there appears to have been little development away from the traditional approaches is because there are relatively few major players, that is project initiators (clients/owners) and implementers (drilling contractors etc.) in the oil and gas sector. Clients/owners have also been found to have a wide variety of method for selecting contractors. The direct transfer of other industries` experiences on procurement may not be suitable, as they are different in nature and many other aspects of the business which could have given a different impact to the overall management of oil and gas field exploration and production. Procurement lessons learnt from other industries have also been tested but with mixed outcomes. This includes Partnering/Alliancing/Joint Ventures, Design and Build/Engineering, Procurement and Construction, and Performance-Based approaches. However, procurement issues and problems in the oil and gas industry is not so pronounced as in other sectors due to the small number of players and the need to maintain good image, reputation and goodwill amongst them. The overall aim of the research is to improve procurement strategies in the oil and gas industry. This paper will present a review of current literature on the subject within the industry.