MANAGING AND MITIGATING THE UPSTREAM PETROLEUM INDUSTRY SUPPLY CHAIN RISKS:LEVERAGING ANALYTIC HIERARCHY PROCESS Mahmoud Mohamed S. A. Ali Master International Transport Management and Logistics in Arab Academy for Science and Technology and Maritime Transport January 2014
12
Embed
MANAGING AND MITIGATING THE UPSTREAM PETROLEUM INDUSTRY SUPPLY CHAIN RISKS
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
MANAGING AND MITIGATING THE UPSTREAM PETROLEUM INDUSTRY SUPPLY CHAIN
RISKS:LEVERAGING ANALYTIC HIERARCHY PROCESS Mahmoud Mohamed S. A. Ali
Master International Transport Management and
Logistics in Arab Academy for Science and
Technology and Maritime Transport
January 2014
I n t e r n a t i o n a l J o u r n a l o f P e r s p e c t i v e s V o l u m e 7 , N u m b e r 1 , S p r i n g 2 0 1 2
I n t e r n a t i o n a l J o u r n a l o f P e r s p e c t i v e s V o l u m e 7 , N u m b e r 1 , S p r i n g 2 0 1 2
Page 2
ABSTRACT :
The oil industry supply chain continue to grow longer and more complex as the oil companies
relentlessly push deeper into uncharted territories searching for ways to mitigate risks of
disruption. The complexity of petroleum extraction, transportation and storage etc, poses
challenges to the petroleum industry. However, opportunities exist for petroleum companies
and regulators prioritize the risks of disruption at different phases or activities in the upstream
petroleum supply chain. The analytic Hierarchy Process (AHP) is used in this study since it
provides a decision support framework that cope with multiple criteria decision making
situations.
The study identifies six major types of petroleum supply-chain risks as perceived by petroleum
executives around the world. The findings suggest that transportation and
exploration/production are the two highest priority risks and the preferred method of
mitigating the supply chain risk, is to internalize and manage the risks, rather than pass them on
or stop the activity. Recent events in the petroleum industry have suggested that greater clarity
is needed in terms of who is responsible for managing risks, especially exploration/production
and transportation.
1. INTRODUCTION :
Although the petroleum industry has for several years made a major impact on global, national,
and local economies, the highly inflexible logistics network, has presented major challenges on
every node in the network (Jenkins & Wright, 1998) from the production capabilities of crude
oil suppliers, long transportation lead times, to the limitations of modes of transportation
(Hussain, 2006).
The petroleum industry activities are divided into three distinct entities: the upstream,
midstream, and downstream, while the supply chain begins with the exploration and
production of crude which subsequently are transported to the refinery where it is refined into
different products such as jet fuel, petrol, diesel, electricity, and petrochemicals, and then
transported through the product pipelines to storage terminals for distribution to end users.
Cheng and Duran (2003) focused on crude oil world-wide transportation based on the
statement that this element of the petroleum supply chain is the central logistics that links the
upstream and downstream functions, playing a crucial role in global supply chain management
in the petroleum industry.
I n t e r n a t i o n a l J o u r n a l o f P e r s p e c t i v e s V o l u m e 7 , N u m b e r 1 , S p r i n g 2 0 1 2
Page 3
According to Weisser (2005), petroleum supply chain risk categorization fall into source
dependence, facility dependence, transit dependence and structural risk, this includes natural
disasters, political blackmail, terrorism, war, civil unrest etc.
The petroleum industry supply chain is like the supply chain of any other industry, composed of
intricate entities that extend from the oil fields to the gasoline stations. The upstream
petroleum supply chain has always been considered complex compared to other process
industries, such as pharmaceuticals. However, the logistics function is one of the areas that
affect supply chain performance in the petroleum industry.
Although much research has been conducted on issues regarding the petroleum industry, with
the review of relevant papers and articles, it became apparent that a gap exists in the literature
whereby very little was mentioned or deliberated on regarding risks specifically in the upstream
sector of the industry. This study will address the upstream petroleum supply chain to
underline importance of risk analysis and risk mitigation.
1.1. The research problem :
One major problem associated with the petroleum industry is the high level of uncertainty/risk
from exploration, production, to tight transportation, and supply/delivery process. Risk
management involves identifying the supply chain risk events, assessing the probabilities and
the severity of impacts, prioritizing the risk event, and developing actions for mitigating the risk,
as well as the course of actions to consider in reducing the risks.
1.2. Research question :
Q1 : What is the problem related to the oil industry? Q2 : How risks are identified in the petroleum supply chains? Q3 : What are the procedure necessary to mitigate risk in fact, the oil supply chain?
1.3. Objectives :
Similar research on such topics has been conducted and it is possible that some other
researchers have come up with similar results. However, our study only adds to earlier research
that adopted similar methodology in modeling petroleum industry supply chain risk.
Risk assessment assists in allocating resources and prioritization of actions based on a
comprehensive picture of all significant risks in the context of the objectives of the relevant
I n t e r n a t i o n a l J o u r n a l o f P e r s p e c t i v e s V o l u m e 7 , N u m b e r 1 , S p r i n g 2 0 1 2
Page 4
entity. Approaches to manage petroleum industry transportation risk for example, specify some
man-made incidences which are due to malicious intent; therefore it is important that, the
assessment of transportation risk in the petroleum industry must include terrorism scenario on
the different transportation modes.
2. BACKGROUND OF THIS STUDY :
The phrase “supply chain” is always used to describe the logistics activities. The distinction
between the petroleum industry supply chains from traditional supply chains is that there are
intermediate markets where crude and/or products can be bought or sold between upstream
crude oil production and final retail delivery at service stations and other end users. The
petroleum industry activities are divided into three distinct entities: the upstream, midstream,
and downstream supply chain.
The upstream supply chain activities consist of various operations such as; explorations, which
involve seismic, geophysical and geological studies, while production operations involve drilling,
production, facility engineering and reservoir. Historically, the upstream sector has remarkable
influence on the operation of the overall supply chain since it has the ability to ‘push’ large
quantities of crude oil through the chain.
A second segment typically referred to as midstream, (although sometimes considered in the
upstream sector) consists of the infrastructure used to transport crude oil and petroleum
products to various refineries and storage tanks around the world.
The downstream consists of the processing, transportation, marketing, and distribution of
petroleum products, and it is usually characterized as a mature, rather competitive, and