2000 06 26
E-Commerce Will Result In Restructured Industry 
Shaun Polczer, Daily Oil Bulletin

Business to business e-commerce has the potential to result in a dramatically restructured oil and natural gas industry, speakers to a Petroleum Technology Alliance of Canada seminar said last week in Calgary. 

Depending on how fast changes take hold, a major restructuring of the sector could be in the offing by 2005, said Pat Sandall, mid-market services executive for Western Canada for International Business Machines Corporation. 

"E-business is much more than a technology trend," she said. "What we're seeing is a wholesale shift to a networked economy." 

Use of integrated networking technology is passing through an "evolutionary" to a "revolutionary" phase that will restructure the entire business process across a broad range of industry sectors, including energy, Sandall suggested. 

The first phase began around 1995, when static web pages were adopted, and progressed to the current integration of core business processes through information technology (IT). This is leading to the formation of new business models in anticipation of a shift to online marketplaces, she said. 

Improvements in hardware and software, such as broadband Internet and wireless networking, will push advances literally into the stratosphere, with satellite supervisory control and data acquisition systems, remote monitoring and online procurement of goods and services. 

And it won't stop there. "Procurement of goods and services are likely to be the low-hanging fruit," said Sandall, predicting that the online trade in petroleum-related products and services in the United States will eclipse $147 billion (U.S.) within the next five years. 

Marty Wittstrom of Chevron e-Business Development Company said changes in the energy industry are being driven by a combination of long-term downward pressure on commodity prices, (in constant dollars) and rising finding and development costs. 

"We are at the mercy of the market," he noted. A radical restructuring "is the only way we can continue to deliver a litre of gasoline for less than a litre of bottled water," he said. 

"Chevron has gotten into it in a big way," Wittstrom said, outlining the company's strategy of seeding start-ups to facilitate online markets and build a new procurement infrastructure for the oil and gas industry. 

Through its e-Business division, Wittstrom said Chevron isn't buying stakes in IT companies so much as it is investing in partnerships to advance the transition of its own network-based business model. The company also expects to potentially profit from the anticipated growth phase of business-to-business networks. He indicated Chevron will likely sell its stakes in the start-ups once a period of consolidation takes hold, likely after 2005. 

"This is the next industrial revolution," Wittstrom said. "You can't ignore the changes that are taking place. Even capturing a modest amount of value is a significant prize." 

He said it is important for companies to have "back office" processes streamlined to facilitate a shift to online business. 

The transition to a networked business model started at Chevron as far back as 1984, when the company adopted the first application for direct deposit of payroll cheques, Wittstrom said. The company has gradually progressed by "webifying" its entire internal business processes -- on a global basis -- by giving each employee web and e-mail access. 

The shift has led to greater collaboration between joint-venture partners and divisions separated by geography in addition to increased operational efficiency. On projects, such as large offshore drilling programs in Thailand, the result has been to cut cycle times as much as 70%. 

"You can't do it (e-commerce) because it's trendy, you have to have a goal in mind," he said. 

Wireless broadband networks are also going to have a huge impact on the energy industry, predicted Brenda Sali, regional vice-president for Ericsson Internet and Wireless Solutions, which will begin integrating voice, data and communications services starting this year. 

The energy sector will be well positioned to embrace the technology for the same reasons it was quick to embrace cellular, she predicted. "The oil and gas industry is such a great business for wireless because of the remote nature of the industry," Sali said. "The technology is here today and moving very quickly." 

Everything from banking, monitoring of field operations, nominations, procurement, reviewing seismic and stock trading will all be facilitated using the next generation of hand-held devices, that will integrate traditional cellular services with the Internet. By 2002, 10% of e-commerce is expected to be conducted wirelessly, she noted. 

In the longer term, it is conceivable that corporations will no longer require an office location to conduct virtually all business functions, Sali said. "The power of mobility is very fantastic and it's out there today," she said. 

Brad Gaulin, managing director of e-Energy Inc., said oil and gas companies will realize differing benefits depending on size and focus. While larger companies stand to make big gains by shaving a few percentage points off administrative costs, smaller firms may see greater returns by cutting cycle times and gaining operational efficiencies in the field, he said. 

"The benefits are not equal," Gaulin said. "We're in the middle of a learning process, without examples to follow. The jury's still out as to what's going to work." 

Neil Sanderson, a principal of Sierra Systems Group Inc. said increased band width is driving down the cost of transactions and "forcing some disintegration of the value chain." In the near future, "band width will be available to distribute applications right out into the field," said the representative of the information technology services firm. 

The challenge of IT, Sanderson said, is to create an infrastructure to support the pace of change. In addition to reliability issues, approximately 40% of IT budgets are spent integrating existing systems, resulting in "interface spaghetti," he said. 

 "If you're not adapting to your customer's needs, likely, your competitor is," Sanderson said.  
 

Nickle's Energy Group has served the industry's information needs through its flagship publications, the Daily Oil Bulletin and the Canadian Oil Register, since 1937. Nickle's is a division of HCN Publications Company.

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