A few weeks ago I wrote an updated article about Just in Time Manufacturing and it’s use in the manufacturing of vehicles, mainly the assembly lines. Well, I then read a fascinating article about how this concept was used in another related industry – oil extraction.
It seems that over the years, the cost of extracting oil has been rising and so has waste, inefficiences have crept in and therefore the profit per barrel has diminished, especially as the price of a barrel has plummeted over the last two years.
North Sea oil has become a low profit commodity with much of the oil extracted being delivered at a loss. The Britsh Government has been demanding that the producers adopt the processes that had saved the car industry – a Just in Time methodology.
The article I read focused on a company called Aera Energy based in California and jointly owned by ExxonMobil and Royal Dutch Shell. They treat themselves as the Toyota of the oil industry by using the methodology to reduce waste and to decentralise decision making.
They have documented the processes used and tried to standardise on them as well as other business tools to improve efficencies. In addition, they have built good working relationships with their suppliers to ensure that some workload is farmed out to experts.
Aera are specialists in onshore drilling and extraction and there is a discussion taking place to see how much could be mapped to offshore exploration and extraction as although the processes would be similar, the technology and inputs would be different. If it does translate, then there is hope for the North Sea producers and any company engaged in this activity to deliver oil to the market more efficiently and with greater quality. The downstream benefits could also be higher if the oil is then easier to refine because it is cleaner. This would also see a much more environmentally aware business and we could see smaller companies make a difference in the market too.
Apparently there is still a huge amount of oil estimated to reside under the North Sea, so any improvements in extraction would not only help the car industry but it would also help the plastics and other related industries that need oil as an input to their products.