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Resources  /  Blog  /  AI Revolution in Oil and Gas Procurement: Streamlining Operations for Success
Sourcing Education

AI Revolution in Oil and Gas Procurement: Streamlining Operations for Success

October 10, 2023

The COVID-19 pandemic forced countless industries to become more lean, agile, and innovative, and the oil and gas industry was no exception to the trend. Forever changed by global lockdowns, volatile consumer demands, and increasing pressure to go green, oil and gas companies have shifted dramatically since 2020. 

Experts are calling this era a “great compression,” where major players in the industry are forced to digitally transform, do more with less, and place a greater emphasis on operational and process efficiencies.

In this post, we’ll take a look at the key factors driving change in oil and gas today. Then we’ll discuss how AI and other innovative technologies in procurement are removing current complexities, allowing oil and gas companies to reduce costs, optimize supply chains, and make data-driven decisions.

Adapting to Disruption: The Evolving Landscape of Oil and Gas

Oil and gas is one of the largest industries in the world, with a market value of $4.6 trillion. With one of the highest profit margins in the energy sector, it’s no surprise that, prior to the pandemic, oil and gas companies stuck to the status quo and leveraged their power to do whatever they pleased. The industry’s biggest players believed people would always need their products, they would always make money, and margins would always be high.

oil rigs at dusk

But suddenly, everything changed. In April 2020, oil prices dropped from $18 a barrel to roughly -$37 a barrel, going negative for the first time ever on record. As businesses and governments shut down around the globe, oil companies scrambled to quickly offload crude oil into an extremely oversupplied market.

Though oil prices rebounded fairly quickly, the dramatic collapse was followed by a difficult recovery journey. In the U.S., oil and gas companies laid off 107,000 workers between March and August 2020 alone. Globally, the industry laid off 2.3 million workers throughout the COVID-19 crisis, leading to lean operating conditions that have lasted into 2023. On top of these challenges, oil and gas companies are dealing with global inflation, supply shortages, and ever-mounting pressure to move toward low-carbon solutions.

As a result, the industry’s efficiency is falling while operational costs rise. Budgets are shrinking, project milestones are off track, and key suppliers are struggling to meet industry demands. It’s a perfect storm that’s forcing oil and gas companies to put a laser focus on procurement best practices and operational efficiency. 

Driving Efficiency and Compliance: AI’s Role in Oil and Gas Procurement

AI technology offers a host of benefits for oil and gas procurement. Companies that leverage the technology are poised to significantly improve efficiency, cost-effectiveness, and decision-making in the industry. Here are four key advantages:

Cost Reduction

Oil and gas industry costs increased 7-15% in 2022, and another 6-10% increase is expected by the end of 2023. Likewise, labor rates are growing at more than 9% per year. AI can overcome this hurdle by using predictive analytics to review historical data and predict future prices and trends in the market. This helps procurement teams make informed decisions and negotiate better contracts, potentially saving significant costs.

Supply Chain Optimization

Worker strikes, labor shortages, and significant supply shortages have created a vicious supply cycle for the oil and gas industry, forcing companies to carry out work under more dangerous and expensive conditions. AI can help companies manage these and a host of other supply chain risks by analyzing factors like weather patterns, geopolitical events, and market dynamics. By optimizing inventory levels and ensuring timely procurement of essential materials, companies can cut costs by 15%.

Vendor Management

Global inflation, geopolitical issues across Europe and Asia, and a slew of other factors are making vendor management increasingly difficult for today’s oil and gas companies. In this uncertain environment, supplier risk assessments play a key role in reducing supply chain disruptions. AI can accelerate the process by assessing supplier performance and evaluating the financial stability and reliability of vendors.

oil refinery at night

Compliance and Risk Mitigation

The oil and gas industry is highly regulated across several levels of government. Likewise, the 2016 Paris Agreement has put even more pressure on the industry to comply with global climate goals of limiting global warming to 1.5 degrees. AI helps companies ensure that procurement processes adhere to industry regulations and compliance standards, reducing the risk of legal and financial penalties.

Overall, AI technology enhances the capabilities of oil and gas procurement teams by providing valuable insights, automating routine tasks, improving risk management, and optimizing the supply chain. These benefits can lead to significant cost savings and improved operational efficiency, which are critical to staying nimble and competitive in today’s landscape.

Unlocking Efficiency and Resilience: Arkestro’s Role in Oil and Gas Procurement

From extraction and transportation to refining and distributing, oil and gas industry supply chains are incredibly complex. They span the globe and involve multiple stakeholders, intricate logistics, and myriad interconnected processes. Arkestro helps oil and gas companies manage this complexity by empowering procurement teams to make their best buying decisions, faster and at scale.

Arkestro’s Predictive Procurement Orchestration platform is innovative and user-friendly. It combines the power of machine learning, game theory, and behavioral science to reduce vulnerabilities in the supply chain and simplify even the most complex global operations.

Here are just a few ways Arkestro can help oil and gas companies navigate the current challenges of the industry.

  • Predictive Analytics: With Arkestro, procurement teams can make better, more informed decisions that save money and reduce operational costs.
  • Supplier Negotiations: Natural Language Processing (NLP) streamlines supplier negotiations, answers inquiries, and facilitates communication with suppliers.
  • Data-Driven Decision-Making: AI provides valuable insights by processing large volumes of data, helping procurement professionals make data-driven decisions to optimize operations and reduce costs.
  • Scalable Insights: Arkestro can analyze vast datasets quickly and efficiently, allowing for scalability in procurement operations, even as the company grows.
  • Real-time Data Analysis: AI tools process vast amounts of real-time data from sensors, news sources, and market reports to provide up-to-date market intelligence. This information helps procurement professionals make agile decisions.
  • Predictive Risk Modeling: Arkestro helps identify and assess various risks, including supply chain disruptions, geopolitical factors, and market volatility.
oil rig in the distance in the ocean

Unlocking Success with Arkestro

The complexities of the oil and gas industry demand advanced procurement technology, predictive analytics, and strategic risk management processes. Arkestro’s Predictive Procurement Orchestration gives oil and gas professionals these tools, helping them tackle all categories of spend and gain insights that drive real action.

Request a demo today to learn how your procurement team can drive better buying decisions at a faster rate with Arkestro or visit our Oil and Gas industry page to learn more!