Procurement strategies for the oil and gas industry: current issues and problems

The new century brings significant challenges to the oil and gas industry, as it seeks to maintain high levels of investment against a background of volatile oil and gas prices. Despite the numerous constraining issues and problems the industry has to deal with, exploration and production technologies have continued to improve in leaps and bounds with more land and seabeds being explored for their valued commodity. However, there appears to have been little development to move away from traditional approaches into a more innovative procurement strategies in the oil and gas industry. This is perhaps because there are relatively few major players, that is project initiators (clients/owners) and implementers (contractors), in the oil and gas sector. Furthermore, clients/owners have been found to have a wide variety of method for selecting contractors. In light of the rising oil and gas prices and operational costs, the oil and gas industry is being challenged on the issues of cost, safety, the environment, technology, resourcing, competitiveness and procurement. Procurement lessons learnt from other industries have also been tested but with mixed outcomes. However, procurement issues and problems in the oil and gas industry are not so pronounced as in other industries due to the small number of players and the need to maintain good image, reputation and goodwill amongst themselves. This paper presents a review of current literature on the subject within the industry.