It is already clear that the energy industry will experience the hardest turbulence since the pandemic outbreak. Consequently, oil and gas companies that aren’t equipped with robust data analytics tools and aren’t prepared for the 2022 disruption will suffer the most.
So, for you to avoid that and keep ahead of the competition, we have created an ultimate guide with a detailed list of actions. With it, you will be able to secure your business and meet the upcoming challenges efficiently.
Emerging risks across global supply chains
It’s becoming apparent that changes in oil and gas production are inevitable. Whether you support the new course or not, you need to adjust to energy transition trends and meet modern market demands. Everything is at stake right now, and your company’s future depends on how quickly and intelligently you respond to disruption. But first, let’s see what potential consequences you may expect in 2022.
Top 5 implications of the Russia-Ukraine conflict for global supply chains
Tensions run high daily, and they have already left an imprint in the form of rising prices for commodities, a clean energy transition boom, and high volatility in the oil and gas market. And we shouldn’t forget about widespread uncertainty, panic, and economic slowdown in numerous countries.
As you can see, future risks connected to these two countries won’t go unnoticed. So, what main areas of the global supply chain should you consider for insurance and risk management?
1. Energy resources
It’s a known fact that the European Union is reliant on Russian natural gas and crude oil. As the world’s second-largest exporter, Russia produces around 10M barrels of oil daily. And it currently covers almost 40 percent of the European gas demand. Meanwhile, Ukraine is a strategic gas transportation hub that also has its own gas reserves, exploration of which is halted due to warfare.
Experts already forecast that oil prices may reach $150/barrel, which will provoke new oil and gas supply crises and inflation worldwide. The EU also imports more than 8 percent of its diesel fuel demand from Russia. But energy transition initiatives that European countries started in March 2022 could eliminate this dependence.
Iron ore, uranium, and steel account for a quarter of Ukraine’s exports. The country also supplies around 50 percent of neon gas globally. While Russia produces neon gas, too, it’s Ukrainian factories that purify it. At the same time, Russia supplies 43 percent of the global market for palladium. It’s also one of the leading exporters of platinum, titanium, aluminum, zinc, lead, nickel, and copper. Thus, the conflict will disrupt numerous automobile, semiconductor, medical, aircraft, and machinery businesses.
3. Agriculture, petrochemicals, and fertilizers
Both countries are major exporters of meat, wheat, sunflower oil, barley, rye, corn, milk, and vegetables, as well as fertilizers and petrochemicals. Ukraine is the “breadbasket of Europe,” with its 25 percent export of all grains. So, the war poses a dangerous food supply disruption risk that could lead to famine, increased prices, and crop yield problems in some consumer countries.
Russia covered approximately 30 percent of metallurgical coal and more than 60 percent of steam coal demand in Europe. As the EU bans Russian coal import, it’ll deal with a temporary resource shortage and pricing rollercoaster. Yet it won’t be as crucial as with gas or oil supply. In 2021, the United States already increased its coal export by 23 percent, so it’s more than ready to expand cooperation with the EU and substitute Russian resources.
5. Staff augmentation and outsourcing
Interos also assessed that software development, BOT, and IT consulting services are fundamental for 13 percent of supply relationships between American and Ukrainian or Russian companies. Hiring IT workers in these countries is also popular worldwide. Now the conflict brings a talent shortage that could be critical for the global software and hardware engineering industry.
Overall, the Russia-Ukraine crisis is one of the most disastrous and unpredictable since WWII. Moreover, it puts global supply chains at great risk. So, oil and gas leaders should ask themselves, “How can I keep providing my customers with high-quality services?”.
5 actions to address supply disruption risk and secure business continuity
As the pandemic proved, too many energy companies weren’t ready for unprecedented work conditions. This time, you need to think proactively and strategically to protect your business from emerging supply chain risks.
Here is what you can do to boost your supply chain resilience in 2022:
1. Create a crisis management team and emergency action plan
Set up anti-crisis “headquarters” to analyze and prioritize immediate and long-term effects of supply chain risks on logistics, infrastructure, materials, and workforce. Empower your team with tools and decision rights to catch early risk signals and maintain your supply flow when an emergency happens. Task your chief procurement officers to develop risk profiles for all suppliers and establish full-on multitier transparency.
If you already have a risk mitigation framework, test and upgrade it for the most acute risks. Allocate a budget for redesigning products and processes, switching to alternatives like renewable diesel supply, buffering capacities, backing up transportation flows, and more. Case in point: EIA projects the US biodiesel supply to drop through 2022 in favor of renewable diesel as we strive for sustainability.
2. Diversify your supplier portfolio
It’s imperative to review your dependence on Ukrainian and Russian providers. The supply chain risks mean vulnerabilities that you have to address today, not tomorrow. So, negotiate business continuity plans with your major suppliers to understand whether you should seek other providers. Enhance your supplier base traceability and diversify a portfolio to support more reliable operating models and prompt recovery. For instance, if your business relies on diesel supply from Russia, you should start looking for another supplier.
3. Make a company-wide inventory
Urge your procurement teams to determine resources, assets, and talents your business requires in the short, medium, and long terms. Ask them to map supplier dependencies for each separate procurement area. You need highly increased observability of all inventory data to mitigate any supply chain risks that can arise due to the Russia-Ukraine crisis.
When you identify the most pressing industrial and workforce needs, increase your inventory for them and plan a strategic stock for everything else, too. If your company operates in conflict regions, consider reconfiguring your labor pool in the most critical capacities.
4. Digitalize your risk management: automation is the key
Aim for digital innovations across all operational levels. Replace legacy and manual tools with robust automation software to ensure limitless agility and proactive planning for your company. The right technology stack will help you identify supply gaps, track market conditions, predict volatility, and mitigate supply chain risks.
You should also leverage advanced data analytics solutions to enable real-time analysis, transparency, automated alerts, and better decision making. Invest in staff augmentation and IT talent acquisition to support enterprise digital transformation initiatives without compromising business continuity.
5. Strengthen cyber security protocols
Do you remember the infamous cyberattack on Colonial Pipeline in 2021? It crippled the gas supply chain and endangered society through fuel shortage. If the hack were to have lasted longer than five days, an energy collapse would have been inevitable. Not surprisingly, authorities believed Russian hackers were behind it. Now the Russia-Ukraine crisis has moved into cyberspace as well. Russians attack Ukrainian governmental and critical infrastructure systems daily.
However, Ukraine isn’t the only target, so our experts recommend reassessing your current IT protection measures. As you digitalize your supply chains, stronger cyber protection becomes critical. Conduct internal and external security audits to detect weak spots throughout the value chain. Ramp up cybersecurity software, protocols, policies, and regulations to prevent malicious activity and monitor cyber risks. Use the latest tools and methods to avoid outdated practices.
Looking ahead: accelerate business growth amid the crises
Undoubtedly, geopolitical tension poses crucial risks to global supply chains. And we have no idea how or when the war will end. However, prices will stabilize with governmental support, and energy transition will be a solution to the supply shortage. International oil and gas companies will cover the EU’s energy demands. And even now, Ukraine has started its sowing campaign in 20 regions.
And as brutal as it may sound, during the Russia-Ukraine conflict, you should become a self-disruptor and transform the global supply crisis into an opportunity. Assemble a forward-thinking anti-crisis team to assess your supply chain risks and apply a preventative approach. Then, modernize your IT operations and reinforce the existing processes with data analytics platforms to eliminate immediate threats and create new value streams. Moreover, embracing risk management automation will enable you to maintain operational resilience.
As your priority is to ensure stable business growth, you’ll need a sustainable supply chain risks management program focused on customer-centricity and agility. Make sure you also have all the required specialists and instruments to monitor and govern your strategic initiatives. Your enterprise should also have a cross-functional operating model to back them up and support rapid recovery capabilities. Only this combination will yield you a competitive advantage.