Logistics providers both big and small across the region are finding that offering enhanced end-to-end solutions for their oil and gas customers is giving them a competitive advantage.
The global logistics market is by any stretch of the imagination a lucrative one and with revenues of US$3.56 trillion (2008), it is easy to see why. Forecasts predict this figure nearing $4 trillion by the end of 2013.
Catering for upstream oil and gas operations is a niche area of the market where a delay in delivery by a logistics operator could mean losing millions of dollars in downtime waiting for a replacement part on an oilfield site.
Most of these operators pride themselves in being able to provide value added services to their discerning clientele in the oil and gas sector. Whilst the region's larger global logistics solutions providers are looking to enhance their well-established market share with increased capacity, smaller outfits are getting creative by capitalising on their specialist knowledge and expertise of the region.
Oil & Gas Middle East speaks to the region's logistics experts to analyse the state of the logistical support currently on offer to the upstream oil and gas industry in the Middle East.
Gulf Agency Company (GAC) is a marine shipping provider which started its operations in Kuwait in 1957 moving onto Iraq and the rest of the Gulf before spreading its operations further afield into Africa, Asia, Europe and the Americas.
"GAC in Dubai is quite big, we thought about the warehousing concept before anyone else. We had these warehouses up and running in the late 1980s," boasts Ismayil Manzil, group energy logistics manager, GAC. "Our strategy is that if a customer is going to a new country or business, we go with them," says Manzil.
GAC sets up infrastructure for a customer in a country that does not currently have it. The company recently carried out similar infrastructure setups in Algeria and Mozambique.
"You won't see any places where GAC has shut down an office because when we go there we go there with a 25-year plan," Manzil says. In order to further strengthen its position in the oil and gas industry, the Jebel Ali headquartered company recently set up a yard and a logistics warehouse in Houston.
"We had shipping agency offices in Houston for about 10 years but we never had our own infrastructure for the logistics business, we were using our partner's facilities," Manzil says.
The company prides itself on giving customers a single point of contact to its array of logistics services around the world.
Manzil says: "The energy marketplace is complex, with many parties involved at every stage. Customers want the full range of services delivered at the highest standard no matter the location. As a single contact point, GAC Energy cuts out the middleman."
Compared to other regions, the Middle East presents a comparatively more matured marketplace for upstream logistics according to Manzil. He cites the peaking of exploration and production activity immediately after the oil shocks in the early 1970s and the shallow hydrocarbon deposits in the region which makes it easier to strike oil.
GAC's offshore logistics operations are supported by its own fleet. In all, the company runs a fleet of nearly 50 anchor handling tugs, utility boats, landing craft, tugs and barges supporting its global operations in the Middle East, the Gulf, the Caspian, West Africa and off the west coast of India.
"The biggest challenge in this part of the world is attrition. It is very difficult to find quality HR especially in upstream logistics. Fortunately for GAC, we have a very good team of qualified and experienced hands who have been working with us for a long period."
He also says that bureaucracy in the region is an ongoing problem for the company's operations. "If you have a project in three or four countries in the same region your lead time for getting the equipment from one country to another country is going to be a real factor in the overall cost of the project," he comments.
However, good planning and knowledge of local rules and regulations goes a long way to mitigate bureaucracy-related delays, Manzil says.
The global downturn has not left the region's oil and gas operations unaffected, but looking ahead, Manzil is optimistic about growth in both existing markets and new areas in the Middle East.
"You have to agree that the regional economy is battered to the bottom. The only question is whether we hit the real bottom or not. If we have already done so, then there is only one way and that is upwards," he says.
"We need to look at the economic cycle. Growth is followed by recession and boom is followed by growth. Like many other industries, the upstream logistics industry is also poised for growth. The opportunities are plenty - Iraq is one side; Saudi Arabia is getting its act right in the west coast; Bahrain is looking at revamping its onshore field at Awali, Oman is looking offshore, Dubai's recent offshore find, Al-Khajfi Joint Operations (KJO) - these are all positive developments," Manzil concludes.
Global express service provider TNT has recently been developing its road network capabilities across the region with the planned acquisition of 200-250 trucks operating out of the company's Jebel Ali facility in Dubai, UAE. It is also beefing up its air freighter service with the addition of a dedicated Boeing 767 aircraft connecting the east coast of the US to the Middle East via Liège in Belgium, where previously commercial charters were relied upon.
Brandon Grieve, regional multi country accounts director for the Americas, Middle East and Africa says the increase in TNT's fleet capacity is a reflection of the increased logistical activity namely in the oil and gas sector, where the flow of traffic is importantly for TNT, bidirectional.
"Our focus on oil and gas is fairly new, from the beginning of this year we targeted the oil and gas industry as being one of big growth and untapped industries for us," Grieve says.
"We've been servicing the oil and gas industry for quite some time now but without any real focus or aligned efforts across our countries. Towards the end of last year we started looking at the oil and gas industry a lot more seriously and started investing in structures and support mechanisms to actually focus on it."
With the regions under Grieve's remit holding much of the world's known oil reserves, he says it's a no-brainer that TNT should focus on the oil and gas industry.
"We've put in place some key support structure around the industry, we have specialist oil and gas account managers in every country that just focus on oil and gas," he says.
Grieve says the ratio of upstream to downstream related activity regionally is 70:30, adding that there is a criticality in the upstream sector that is not as apparent in downstream as the supply chains are a lot shorter with transit time being of the utmost importance.
"Oil and gas companies are looking to differentiate against each other because there's a lot of vertical integration so the key differentiator is how quickly they can get the goods to market so that is critical for us," Grieve says
For many logistics providers, the key to gaining a competitive advantage is to develop integrated service solutions for their clients in order to retain business.
For TNT this means looking into becoming more involved with the region's dynamic regulatory environment. Bodies that govern border controls and customs duties have a significant impact on return and repair times and having prior knowledge about these is valuable to oil and gas companies with critical equipment in transit. "There's always a challenge when you're dealing with the regulatory environments here in the Middle East," Grieve explains.
"It changes everyday almost but I think it's down to building a relationship letting [authorities] understand where we're coming from and us understanding the restrictions that they've got."
In terms of new markets and opportunities, Grieve sees a lot of movement in Iraq despite the current instability in the country.
"There is a shortage of technical components in the market already, with Iraq opening up - 400 fields in the next 5-10 years - there will certainly be an influx of new equipment into the market," he says.
He adds: "Once Iraq and Afghanistan settle down they will take off in several sectors not just oil and gas but automotive for spare parts especially for construction machinery, telecoms and power generation."
Air chartering is another useful option for upstream oil and gas companies in need of urgently-needed replacement parts on oilfield sites. International air chartering firm, Chapman Freeborn, which has operated in the Middle East for over a decade, has seen business for its specialist services grow regionally.
"In this year alone we have seen a continued demand for our expertise - particularly for urgent and outsize cargo charter services", Says Eliska Hill, general manager, Chapman Freeborn's Dubai office.
While the company's Sharjah office deals with commercial traffic, its Dubai office handles cargo and passenger charters.
The company, which operates out of 25 countries around the world, saw a general slowdown in air charter movements during the global downturn last year with clients often choosing to utilise cheaper methods of transport such as over land or sea freight.
Over the last seven months, the company witnessed resurgence in the demand for specialist air charter services for cargo movements particularly in the oil and gas sector, moving technical oil spill equipment, heavy, outsized and urgent goods.
Internationally, Chapman Freeborn coordinated a series of aircraft charters into New Orleans, USA, to help tackle the leak from the site of the Deepwater Horizon rig in the Gulf of Mexico.
Recently its large movements saw the firm coordinate the air transportation of numerous heavy and outsized deep-sea drilling items, urgent tools and dangerous goods to support projects in regional and remote locations.
Whilst the global economic downturn affected air chartering operations for the company, Iraq was a notable exception, although in its early stages, it has created enormous charter opportunities for both passenger and cargo, according to the company.
The company has seen a sharp increase in the requests for tailored charter flights in 2009 to places such as Basrah, Baghdad, Najaf, Sulaymaniyah and Kirkuk increasing month-on-month in 2009 as the reconstruction efforts in the country stepped up.
2010 has seen a definite swing back towards air chartering, as the transit time factor outweighs the cost issues. The rapid development of some projects has generated a significant demand for all types of charter movements.
"The oil and gas industry is an important market in the supply of air charter services. Business is affected by the downturn - but in terms of logistics there remain considerable requirements," explains Hill. "Across our worldwide network of offices we're seeing continued demand for our expertise - particularly for outsize and urgent cargo charter services," she adds.
As oil and gas and reconstruction projects pick up speed in post-war Iraq, there are good opportunities for experienced logistics providers with an integrated security element. With its company mantra of "Doing difficult jobs in difficult places", Dubai based air chartering and ground logistics provider SKA Arabia sets itself some ambitious standards. It is more than a marketing slogan according to CEO and president Mike Douglas.
"Most of the big freight forwarders don't have the kind of on-the-ground presence we do. What we call in the logistics game ‘the final mile' is where we probably have a unique capability," he says.
"A lot of companies would have difficulty operating where we operate. We've made that our business and we've developed that capability and we have had a pretty impressive track record over the past several years. It's a high risk business but we try to limit our risk, we take care of our people and we try to do a professional job."
The company specialises in providing logistics solutions in unsecured and hostile environments with particular focus in Iraq and Afghanistan. It operates a tanker fleet in Iraq in excess of 60 trucks and has access to about 300 additional trucks for containerised and flatbed cargo.
"We've developed a unique concept for moving fuel: We operate convoys throughout Iraq down into the south into Basra and into the north in Kurdistan," Douglas says. The company has been contracted by the Iraq Ministry of oil to support operations at the Dora refinery in Baghdad and the Baiji refinery in northern Iraq.
It is seeking to increase its activity in the oil and gas sector in the country and is making efforts to meet the audit standards of the oil and gas community.
"We're focused on fixed-wing and rotary operations, moving contractors in and out of Iraq and also from the UAE, from Kuwait and hopefully in the near future, we'll be moving contractors to other destinations in Europe where some of the oil and gas companies are planning to move their personnel from," Douglas says.
"We operate warehousing in Baghdad and the Basra region. We are focused on developing the supply chain distribution capabilities, we've had significant experience and we hope to leverage that with a lot of the oil and gas clients," the CEO says. Douglas predicts that there will be a shortfall in refined products in Iraq in the future as the current refinery infrastructure cannot produce enough to satisfy demand. Indeed, multi-billion dollar investments are planned, but will take several years to come to fruition. The Iraqi government is currently negotiating with several potential partners to overhaul its ageing downstream infrastructure.
"We're investing in developing a fuel supply chain, we're intending to build fuel storage tanks in the Khor Al-Jabir port near Basra. We intend to develop a fuel supply chain logistics solution where we will import refined products, diesel primarily, and hope to supply a number of clients in the future," Douglas says. "Throughout the world wherever there are disasters, conflict situations, there's a need for this kind of ‘frontier logistics'," Douglas concludes.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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