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Could all the industry transact on one network?

Thursday, May 19, 2022

Efforts are underway to develop an 'Energy Supply Chain Network' by joining together a number of purchasing / supplier networks the oil and gas industry is part of, but with no company in overall control.

It would make our industry's procurement and fulfilment of orders simpler if everybody used one network. But companies would baulk at the idea of having a network controlled by one company.

One way forward is that the existing purchasing networks in the industry find a way to connect together, with a common legal framework, procedures and policies. Buyers and suppliers in the industry can make their choice between joining up to a buyer or supplier network, or if they are large enough to develop their own systems, joining up directly to the network. Nobody is in overall control

Efforts are underway to develop such this, supported by OFS Portal, a transaction network owned by oil and gas service companies.

How it can work

Supply chain transactions involve a lot of communications - requesting information, proposals or quotes; responding to bids; updating catalogues; managing data; managing contracts; making and confirming purchase orders; confirming receipt of goods; issuing field tickets; sending and responding to invoices; making payments and receiving them.

Much money can be saved by automating much of this, but only if there is agreement about what exact documents should be issued, when, and in what format, and other contractual obligations. This can be handled if both buyers and suppliers are in a network. But there is a limit to the extent that one network can grow, given that companies are reluctant to allow the organisation which controls this network to itself have a lot of influence in the industry.

But if we have multiple networks and systems, we can quickly end up with a complex web, particularly with companies buying or selling through digital services which handle multiple buyers and sellers.

This is what is happening today, with much movement towards use of digital networks for procurement today but also a growth in the complexity from having multiple systems, says Chris Welsh, CEO of OFS Portal. 'It is a complex web of integrations that a supplier has to put together."

OFS Portal is itself one of the largest transaction networks in the oil and gas industry. It is owned by oilfield service companies Baker Hughes, Halliburton, Schlumberger and Weatherford.

OFS Portal was established in 2000, with a goal of standardising the way that data is managed between supplier members. It also provides standard agreements for use of third-party platforms, data ownership and data transaction standards.

OFS Portal works closely together with PIDX, an organisation which develops digital standards for transactions. It has 'electronic data agreements' with 500 operators and 'interoperability agreements' with 45 cloud providers.

Energy Supply Chain Network

The idea is that the 'Energy Supply Chain Network' can be formed initially by bringing together four major procurement networks which are used by oil and gas industry customers.

These networks are PEPPOL, a network for European government procurement (the name stands for Pan European Public Procurement Online); EESPA (European E-invoice Service Providers Association), which has 98 cloud service providers as members; the Business Payments Coalition (BPC) a US organisation, backed by the US Federal Reserve; and Connect Once, another US company.

These four networks have formed a working group called the Global Interoperability Forum to work out how they can connect together. Mr Welsh is also chair of this group.

By making it easier for companies to join the network, it could encourage companies which do not do most of their business in the oil and gas industry to use it for their oil and gas transactions, for example telecom suppliers. It could also help oil and gas services companies broaden their reach beyond the oil and gas industry.

A further benefit is that this global energy supply chain network could make it easier to share emissions data, Mr Welsh says.

Today's focus on climate data means that suppliers are asked to provide carbon footprint data about their products and services. An Energy Supply Chain Network can manage the agreements on what data should be shared, including pre-transaction estimates and post-delivery final figures, and what processes should be used for its calculation and audit.

Mr Welsh envisages that the Energy Supply Chain Network would have what he calls a four-corner model. The four corners are all digital systems. The buyer's procurement or ERP software; the buyer's purchasing network; the suppliers' network; and the individual supplier's procurement or ERP software.

Once this is set up, buyers and suppliers will only need to connect once to the network of their choice. Then they will be able to immediately connect to all of their trading partners, if they are connected to a network which is part of this broader network.

This way, 'the e-delivery network supports not only the low volume, low tech suppliers, but also the high-volume connections,' Mr Welsh says.

'This is the next step for us, the next evolution, how we can deliver e-commerce faster and cheaper.'

Large integrated suppliers, which include many OFS Portal members, would not need to connect to a suppliers' agent. This means that when this model is widely adopted, the need for OFS Portal may case to exist, Mr Welsh says.

Developing such a global integrated network can be seen as "a natural evolution of what OFS Portal has been maintaining the last 20 years.'

For it to work, all of the networks involved will need to standardise their policies, procedures and legal agreements, so everybody follows the same rules on critical details such as how data should be handled.

This network can be more 'loosely coupled' compared to the networks we currently have, where it is much easier for more companies and more networks to join. "People want quicker, faster connections," Mr Welsh says.

Mr Welsh imagines that it will take 3 years to do establish. 'We know digital end to end is the way forward,' he says.



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