The impact of travel restrictions on oil and gas supply chains
Director, Performance Improvement, Sub-Saharan Africa
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Many countries are now seeing falls in Covid-19 transmission rates, with some governments taking tentative steps to relax lockdowns. For the oil and gas industry, the expectation of some recovery in economic activity has brought good news in rising oil prices as Brent moved above $30 per barrel.
However, it is becoming clear that restrictions on international travel will remain in place for a sustained period: according to recent analysis by the Pew Research Centre, over 90% of the world’s population lives in countries that have implemented restrictions on arrivals for non-citizens and non-residents and over 39% in countries with closed borders. Analysis by Wood Mackenzie shows that over 95% of global hydrocarbon production comes from countries with travel restrictions – with one-third of production from countries imposing quarantine on arrival.
International air travel has been severely hit: the total number of global commercial flights is down approximately 70% on the previous year. Many commentators, including our sister company Verisk Maplecroft, a world-leader in risk assessment, now anticipate travel restrictions will remain in place until at least the end of the year.
The impact is being felt across the industry: production is being shut-in; rotation patterns for operations staff are becoming increasingly complex and costly as organisations adjust to quarantine rules; and projects are being delayed due to the inability to move people and equipment. In Kazakhstan, for example, the Tengiz oilfield, which produces 500 thousand barrels per day, is at risk of closure after over 900 cases of Covid-19 were reported among workers.
Operators can no longer rely on ‘hot shot’ overnight air freight of critical equipment as their emergency lifeline – maintenance and supply chain teams will need to plan better, and further in advance, to ensure that the right equipment and services are available when needed.
The risk to business continuity is real – and building supply chain resilience is a priority now more than ever before. Operators need to shine a light on the hidden vulnerabilities in their supply networks, looking beyond their immediate vendors and at the ‘tier 2’ and ‘tier 3’ suppliers. They will need to test the response capabilities of their suppliers, and the overall supply chain, to disruptions such as Covid-19. The most successful organisations are extensively probing the depths of their supply chain, continuously seeking to improve their supply chain’s resilience, and building risk-reduction strategies into everyday business.