The statement under consideration reflects the true picture of the global oil and gas industry. Over the years, there have been a steady increase in global energy demand partly as a result of the advancement in technology that facilitate further utilization of the hydrocarbon extracts more than it was before. As a result of the increased demand, there has been steady growth in the supply to match the global demand for oil and gas energy and associated products. This growth in the industry creates a wide range of opportunities as well as challenges across the upstream, downstream, midstream, and oilfield services sectors. Part of the challenges revolves around the changing regulatory environment, competition and the risks that minimize optimization of performance (Badiru & Osisanya 2013).
Increase in Global Competition
Competition in this industry is instigated by the increasing demand for oil and gas. Oil and gas play very significant role in driving the world’s economy, thus, exporting nations compete to gain competitive advantage in the oil global market to maximize their sales while importing nations fight to gain sustainable and reliable supply of oil and gas (Bozarth & Handfield 2008). Presently, 60 percent of the world’s 7 billion population’s daily energy needs is met by oil and gas while the remaining 40 percent is shared by other sources of energy like hydroelectric power, coal, nuclear and renewable energy sources, e.g. wind, solar and biofuel and tidal power among others. The oil and gas is used as fuels in keeping people warm during cold weather; used by millions to cook food, heat water, generate electricity to power appliances, and is used in industrial engines and in transport by cars, bus, motorcycles, train, ship or planes. This means that lack of fuel or increase in the prices of gasoline leads to economic effects. Further, oil and gas are raw materials used to manufacture items like fertilizers, synthetic rubber, and plastics fabrics that are used in nearly all sectors.
To meet world’s energy demand, the global oil markets are continually expanding, and companies and countries spend billions of dollars annually in oil and gas prospecting and maintaining and increase their oil and gas production. Presently, over 200 countries have committed funds to explore their the lands and territorial waters including the deep seas to find and produce oil and gas, create jobs and generate billions of dollars in national revenues. The initial leading oil and gas exporting regions include the Middle East, Latin America, and Africa scrambling for the importing regions in North America, Europe, and the Far East. Such oil and gas exporters compete to maximize their revenues, improve trade balances, and gain competitive advantage while maintaining control and sustainability of their natural resources through wise choice of project portfolio (Levine 2005). Similarly, importing nations need to minimize trade deficits and to ensure sustainability of supply, steady, reliable oil and ensure supply.
According to the survey done by Mckinsey Global Institute, world population growth is expected to grow especially in the developing counties and increased urbanization and that by 2025 only 440 cities in the developing countries will contribute up to half of the global GDP growth. As the population’s increases, consumption levels will also grow since demand in for real estate, infrastructure, hi-tech goods, cars, and general transportation that fully depend on energy resources increases. Mckinsey estimates that the world demand for liquid hydrocarbons is expected to grow at an average rate of 1.2% annually, with the greatest consumption being in the transportation sector that is 90% dependent of oil as the principal energy source (Lukoil 2011).
Many oil and gas companies around the world increasingly adopt project-based methodology in the management of their exploration and production activities to improve efficiency, maximize the production and to gain competitive advantage that helps them create an edge over your competitors. For a company to gain competitive advantage, it calls for strategic planning and extensive research on the needs of oil and gas industry, adoption of conventional technology, ensuring adequate capital, and adequate market for the products (Kerzner 2013). Project-based management styles allow the project managers to pool together adequate resources in terms of expertise, technology and capital for the capacity needed. Project management defines the roles and objectives to be achieved within particular time period and ensures that the (Larson & Gray 2011).
Advantages of Having a Project Manager
Having skilled project managers in the oil and gas industry is instrumental in helping companies and countries to implement complex, project-based activities that are completed by different teams. This method allows the project to be manned with highly qualifies staff who are techno-savvy with the modern oil exploration and production technology. The specialty meets increasingly vital role in several companies in which the oil and gas companies are organized around a projects not in functional departments. This method is preferred because it allows the professional staff to concurrently work on several projects within the portfolio and the project managers only evaluate the performance of staff members on a quarterly basis (Levine 2005). This leaves the project partners or senior management team to control resource allocation and reach consensus on the priorities of all projects. In this case resources are allocated depending on the project priorities.
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The initial methods involving work done through functional departments resulted in bureaucratic challenges that substantially hurt profitability. In this case, the control by functional departments in which staffs are drawn from different departments minimises the focus of the organization and may lower the success by nearly 40%. This challenge is addressed through adoption of project based methodology in management of the oil and gas production activities. The objective of the method is to solve the perennial prioritization and resource allocation challenges initially faced and to give the project managers more power and control over the overall running of the exploration and production activities (Pearce 2004).
Rationale between the Strategic and the Operational Elements from
A Project Perspective
To be competitive in the oil and gas industry, a number of things need to be considered by both strategic and operational level management of the organization the project managers.
- Regulatory and Fiscal Competiveness
Every company in the oil and gas industry around the world need to pursue regulatory and fiscal competitiveness in order to be among the most competitive within their regions. This is achieved through adopting environmentally friendly and responsible oil and gas development at the strategic level of management and is implemented by the project managers at the operational levels (Slack, Brandon-Jones & Johnston 2013). Achieving environment responsible production involves, elimination of the routine flaring commonly experienced at the oil and gas drilling and production wells. This plan had been fully adopted by British Colombia energy firm, which has set a target to reduce flaring by 50% by year 2016. Further, the company established policies and measures to minimise air emissions in coordination with the Ministry of Environment, enhances the Oil and Gas Environmental Stewardship Program, that is charged with the responsibility of ensuring sound environmental land and resource management in Northern America (Gordon & Paterson 2007). In summary, the BC Energy Plan embraces a triple bottom line approach to competitiveness, which supports an attractive investment climate, promotes environmentally sustainable utilization and development of B.C.’s rich resources, and by aiding communities and First Nations (Badiru & Osisanya 2013).
- Infrastructural Development
Oil and gas companies need to develop adequate capacity adequate to transport large volumes of oil and gas across regions. This involves establishing enough and quality infrastructure involving storage and pipes adequate to support the development of oil and gas from the wells to the refineries and safely delivered to the consumers. This should help in addressing impediments to economic development such as transportation and labour shortages. The infrastructure development and adoption of modern exploration and drilling technology will support the development of both conventional and unconventional resources, promote exploration and development of offshore oil and gas deposits as well as the deposits in the interior basins.
Offshore oil and gas development requires very advanced technology and stringent environmental safety regulations that will ensure absolutely no leakages of gas and oil into the deep sea that may have devastating effect on the marine life (ISO 2010: Tidd, Bessant & Pavitt 2005). The strategic and the operational managers in all regions must work with the government to ensure that offshore oil and gas resources are harnessed in an environmentally responsible and scientifically sound way (Gardiner 2005). British Colombia energy firm has perfected this and coordinates well with federal government in the US. Further, offshore oil development calls for participation of the company (s) in marine and environmental planning to effectively and sustainably manage marine life and the offshore oil and gas basins, and to develop and enforce a comprehensive community involvement program that outlines a benefits sharing framework between the company and the communities, as well as the First Nations (Bendiksen & Young 2005; Kerzner 2013). Similarly, there must be international arbitration process in case a company flouts international law (Blackaby et al. 2009).
Infrastructural developments are massive investment decisions made by strategic level managers of an organization. This involves the cost and capacity. Project managers are then charged with the responsibility of practical implementation of the strategic vision by ensuring that the work done is quality and to the standard within the project deadline to enhance competitive advantage, which in turn results into an increase in well-paying jobs and subsequently growth of the economy.
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This essay established that the statement under study reflects the true picture of the global oil and gas industry. As competition increases, companies around the world also change their management styles and the current project management approach to gain and maintain their competitive advantage. Competition in this industry is instigated by the increasing demand for oil and gas. The demand is because oil and gas play very significant role in driving the world’s economy, to an extent that the exporting nations compete to gain more markets and gain competitive advantage over competitors while importing nations fight to gain sustainable and reliable supply of oil and gas. Many oil and gas companies around the world increasingly adopt project-based methodology in the management of their exploration and production activities to improve efficiency, maximize the production and to gain competitive advantage that helps them create an edge over your competitors. Project based methodology facilitates pooling of resources needed to ensure efficient management of the resources and maximising production at minimum cost.