Study finds that oil and gas industry costs could rise by another 10% in 2023

(OM) The latest analysis from McKinsey & Co. reveals that oil and gas industry costs could increase between 6% and 10% in 2023 due to labor uncertainties and raw materials inflation.

The analysis finds that primary operation tasks, such as regular inspections and maintenance, are becoming more expensive as labor rates grow upwards of 9% per annum and costs for steel casings and tubing also rising at 5% per annum. This, coupled with spiraling marine and aviation logistics prices, is causing increasing operating expenditure rises.

According to McKinsey, the study examines how oil and gas companies are grappling with the business fallout of sustained global inflation, geopolitical developments in Europe and Asia and increasing economic headwinds. The analysis details how the supply chain risk caused by these factors is affecting field operations and project delivery, with traditional mitigation strategies proving inadequate.

McKinsey notes that organizations that are taking measures to secure their supply chain and avoid market volatility are seeing significantly less inflationary pressure, saving ~15% on costs.

The study details key high impact levers that can mitigate supply chain reliability risks that could be used to pivot away from the typical cost-reduction mindset, including:

  • Early procurement in strategic projects to accelerate long purchase times by adjusting the sanctioning period.
  • Revising the approval gating process or enabling earlier budget approvals.
  • Improving the risk-reward ratio in major contracts to incentivize performance and consolidate contract volumes.
  • When it comes to staffing, enhancing offshore execution efficiency and digitizing inspection data could make the workplace more appealing.

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