Oil companies are searching for ways to increase their efficiency and responsiveness.
The Internet is enabling a new way of intermediation in the oil industry.
Online exchanges and marketplaces hold many features an energy company could use the Web to reduce costs, including links to equipment catalogs and auctions, collaboration and information resources, and cost-saving ways of contacting business partners or suppliers. 
Companies will use more than one marketplace but they will do the majority of their transactions with the marketplace that provide them the best value.
However, despite the excitement and interest in Internet exchanges, many members of the industry are taking their time in evaluating the risks and benefits involved in doing business on line.
The energy industry is historically very conservative.
As in other vertical industries, online marketplaces started to spring up in the oil and gas arena as companies began to realize that the Internet was a good place to research procurement, service, and supply options as well as a potentially fertile market for reselling surplus and slightly used equipment.
There are three general levels of oil and gas exchanges: a catalog-type exchange, an auction site, and a community site, or e-hub. A catalog or technical book has limits: It can only weigh so much or read so much. The Web is literally boundaryless in terms of the volume of materiel that can be assembled.
Forming an online community allows exchange members to share their experience as well.
The main attraction of Web marketplaces remains their capability of lowering costs for participants. Because oil and gas companies operate in a low-margin environment, boosting bottom-line growth means being ever vigilant about costs of conducting business. 
The Internet gives companies a chance to reduce procurement costs and streamline the process by directly connecting buyers and sellers.

On the buy side, companies can post their bid requirements on exchange Web sites and wait for vendors to submit bids as well as use collaboration features found on some sites to keep their vendors aware of how the project is progressing.
Several large companies have made public pronouncements detailing their interest in online exchanges; BP Amoco, for example, has stated that it wants to conduct 90 percent of its procurement activity online by the end of 2000.

Yankee Group forecasts that business-to-business e-commerce transactions in the petroleum and coal industry will grow from $11 billion in 1999 to $76 billion in 2004.
Consolidation of the oil and gas industry over the past decades also affects e-business marketplaces: Although the larger companies have more money to spend, the buy side is less populous than in the past.

The marketplace is dominated by four or five technology, equipment, and service providers, and on the buy side the major integrated players are consolidating in huge mergers.

Development of new emarketplaces

 A host of oil and gas exchanges and online marketplaces are beginning to take shape, ranging from catalog sites to full community-oriented sites.
PetroCosm.com: An online marketplace headed up by Chevron and Texaco serving as an independent marketplace for the industry.
IndigoPool.com: Launched by oil and gas industry supplier Schlaumberg, serves as an information portal for companies.
UpstreamInfo.com: An information portal for oil and gas companies headed up by Chevron and EDS, along with other partners.
PetroCore.com: A product information and exchange site set up by PricewaterhouseCoopers, with support from BP Amoco and Chevron.
Shell Oil, BP Amoco, Tosco, and 13 other companies have joined forces to create an independent oil and gas industry procurement exchange, with the help of Commerce One. 
Electronic intermediaries have created marketplaces that enable automated ordering, billing and tracking through the connection of hundred of suppliers and buyers.
PennNET (www.pennNET.com), the e-business arm of PennWell Corporation, publisher of Oil & Gas Journal, is to launch a B2B marketplace using the Ariba (www.ariba.com) e-commerce platform.
PennNET's will be a marketplace for petroleum professionals to conduct purchase and sale of oil and gas producing properties, exploration prospects and will handle oil-field-related e-Procurement services world-wide. The site will offer auction, reverse auction and bid/ask exchanges, using expertise which Ariba gained from recent merger with Trading Dynamics Inc.

Advantages of these new marketplaces for buyers  and sellers

Buyers will quickly be able to access available inventories and purchases goods from hundred of suppliers.
Sellers will access instantaneously buyers throughout their regions, and around the globe.
Marketplaces will make the process of sourcing, comparing and securing equipment faster and more efficient for buyer, broker, manufacturer or distributor.
Electronic intermediaries will increase the responsiveness of the vertical industry.
Buyer will be able to buy materials from several suppliers with just a single purchase order.
They will also be able to compare costs, features, availability of proposals.
For sellers, Petroplace provides wide access to new markets and distribution channels, and lower the costs of transaction processing.
It creates and online community because sellers and buyers with same interests do transactions and share experiences.

Supplier Benefits

• Access to many buyers
• Scalability - regional vs. global access to potential customers
• First mover advantage
• Ability to shape the marketplace
• Sales support services

• Reduced cycle and lead times
• Tighter controls
• Reduced vendor inquires and accounts payable processing
• Reduced maverick buying
• Access to larger supplier base

For instance, PetroCosm provides a digital marketplace for the oil and gas industry to enable drilling, well completion, production, transportation and related activities.
However, electronic intermediaries should provide buyers and sellers a high level of security standards through encryption method and digital signatures for online transactions.
To develop their offer, electronic intermediaries develop partnership and alliances.
The combination of WellBid's online well planning and procurement service with Vitria's Enterprise Application Integration enhances WellBid's ability to provide fast, reliable communication services to companies with separate IT systems. Vitria's BusinessWare enables companies to quickly create and deploy business-to-business (B2B) e-commerce solutions by providing end-to-end software infrastructure products that combine:

•  business process management for modeling and automating complex business processes such as order fulfillment
• B2B integration for automatic exchange of business information and transactions with trading partners via public networks such as the Internet and EDI
• enterprise application integration for moving information and transactions in and out of internal IT systems
• real-time analysis for continuous monitoring and analysis of B2B business processes and related performance metrics.

WellBid has developed the leading procurement application for well drilling and repair.
 
 

The opportunity to develop asset management

It is expected that operational efficiencies will come from improved day-to-day property operations and cross-discipline communications, faster and more accurate technical and financial asset evaluations, and improved relations and reduced liabilities with non operating partners.
Despite the impressive gains in operational efficiencies achieved by most oil and gas companies in recent years, the integrated management of property data and the related property optimization remain the weak links in the chain of companies' upstream operations.
Limited use of "horizontal" portals for eProcurement will surface in 2001; however, the majority of procurement within the industry will occur via vertical, industry portals.

Impact of IT on the oil industry

In the way that computers and the Internet are radically changing our economy today, they'll change energy systems even more so in the future. Computers, the Internet and Global Positioning Systems will increase the efficiency of transportation.
E-business with its emphasis around connectivity will certainly help the consolidation of the industry.
Emarketplaces will support the convergence of the industry.

DRS innovations, a Hong Kong based start up, have been quick to realize that e-business communities offer a unique way to facilitate the emergence of new markets and have launched the portal ChinaOilweb.com. This will provide a point of entry into the rapidly growing Chinese Oil and Gas Industry. 
Energy exchanges and marketplaces are reinventing the way the oil sector does business. With companies like Enron doing 60% of their energy trading online, the traditional way of doing business is dead.

The New opportunity of Data Storage

This is a new business opportunity for Enron, which has already moved beyond core energy marketing and trading operations into fields such as metals and broadband communications.
 

Example of an electronic intermediary
Fuelspot is an independent trading, exchange and ecommerce portal for the energy products industry.
FuelSpot's user community includes commodity traders, major chain retailers, downstream companies, distributors and wholesalers, energy end-users, Web aggregators, carriers, shippers, and major oil companies.

FuelSpot's customers trade and exchange crude and refined oil products, natural gas, coal and uranium. They participate in online auctions for capital equipment, products and services, and stay on top of the latest valuable information via FuelSpot's targeted content, including real-time trade pricing data.
Buyers enjoy better price discovery as well as reduced staffing and expenses. 
Sellers profit from an expanded customer base, reduced operating expenses, and the anonymity of pricing.
 

Industry perspectives

E-procurement initiatives are away from the actual crude/product supply chain. Most of the current e-procurement offerings are dealing with MRO (maintenance, repair, operation items).
The energy e-procurement model may evolve towards an industry solution.
So there will not be just transaction ability on the net, but visual capability - drawings moving back and forth and visual collaborative working groups on a global scale. 
Such examples as virtual planning and on-line reviews of a 3D seismic drawing moves to a laptop, with one engineer in the North Sea, another in Houston and another in London simultaneously evaluating the prospect. So that's the upstream analogy.
A buyer will look, not only at its own plants when it needs a product but also at other plants and at the spot market.
It will be able to optimize on a larger scale, communicate visually and report progress and exceptions, once they have a reliable global, wide-bandwidth access.
It will be possible probably by the end of 2001, considering all of the miles of fiber-optic cable being put down and the resurgence of interest in satellite DVD.

With video, data drawings, objects moving at the same pace that you now have text and ASCI files, you will end up from moving transactions around to a more workflow, collaboration model, leading to better knowledge management and sharing of best practices with a lot higher business benefits potentials.

There will be a channelling of websites, some will be open, some will be secure, some will be shared with suppliers and some will be proprietary. 

Chevron is currently developing an e-commerce marketplace called Petrocosm.com, working in partnership with Ariba, Requisite Technology and Hewlett-Packard. 

Chevron has built their internet-based e-procurement system from scratch with Ariba.
 

The target is to use e-procurement for 80-90% of our materials expenditure of $800 million/year. With step-out to other business units Chevron is expecting to cut $200 million of costs of materials and services, based on an annual spending of $10 billion a year.
Petrocosm.com will be an independent operation handling e-procurement and supplier services, a trading exchange, logistics and financial services.

The digital marketplace must involve toward shared ownership. It cannot be dominated by one major oil company, but must be open to all in the supply chain and driven by industry standards. These new e-marketplaces won't work unless they have a robust and secure backbone and infrastructure.
There are still technical issues such as standard processing protocol or security.
In terms of spot trading on the Internet, there will be opportunities for third parties to get involved.
 New spot markets will also begin to happen, like transportation.
There will be a power redistribution among the actors of the oil industry within the coming years.