e-Biz Could Boost U.S. Petroleum Industry

But not all industry segments will benefit equally, study finds

Boston  March 8, 2002  Selective deployment of e-business solutions in the U.S. petroleum industry could yield cost savings up to $7.1 billion, or 9 percent of the industry's $82.9 billion in annual costs, but some segments of the industry are likely to see greater benefits than others, according to a new study.

The study, by consultancy Strategy Analytics, analyzes the potential impact of e-business initiatives throughout the petroleum industry value chain, and the author suggests that the highest savings are likely to come in the refining, distribution and exploration and production (E&P) segments of the industry.

"e-Business will not change the oil patch into a rose garden," warns report author Randall Nottingham, director of energy market strategies at Strategy Analytics. "Only selective deployment for design collaboration, workflow coordination, inventory management and procurement facilitation will provide positive [return on investment] in short order."

In his study, Nottingham predicts that e-business technologies could produce 20 percent savings of affected cost in the E&P area, representing some $1.8 billion, or $0.83 per barrel of oil, for the U.S. industry. e-Business could net additional savings of 15 percent of affected costs in refining and distribution, or $2.0 billion in each of those segments.

However, the transportation link in the petroleum value chain will offer modest returns from e-business investments, totaling perhaps some $900 million in annual savings, according to Nottingham's estimates.

In addition, the consultant writes in an abstract of the report: "The marketing and retail segment is not particularly attractive to cost-saving e-business initiatives. We estimate that only about 25 percent of costs would be affected and that industry savings would amount to only about $300 million."

He also notes that any competitive advantage that early adopters gain from their e-business initiatives will disappear when other companies catch up by implementing their own e-business projects. "We will know that we have arrived at this point when the 'e' in e-business finally disappears and we can all get back to being in the energy business," Nottingham concludes.

The report includes a survey of the players in the petroleum e-business market space. The aftermath of the dot.com boom and bust has left a small number of solution providers focused on the petroleum industry. Trade-Ranger, the industry-backed marketplace formed by Shell, BP and a dozen other leading petroleum companies, is the top player in the procurement marketplace. Other players include property and asset management sites such as Indigopool and NetworkOil (now Network International), as well as workflow coordination services such as Wellogix.

In the refining arena, PetroVantage provides a collaborative workflow environment and decision-support tools designed to increase the speed of petroleum trading, allowing real-time transaction management and value chain optimization.

An abstract of the report is available at http://www.strategyanalytics.com/cgi-bin/ems-reg/ems-register.cgi.