| A streamlined process
Oil companies are searching for ways to increase their efficiency and
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
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
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
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
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
IndigoPool.com: Launched by
oil and gas industry supplier Schlaumberg, serves as an information portal
UpstreamInfo.com: An information
portal for oil and gas companies headed up by Chevron and EDS, along with
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
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)
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
Electronic intermediaries will increase the responsiveness of the vertical
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
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.
Access to many buyers
Scalability - regional vs. global access to potential customers
First mover advantage
Ability to shape the marketplace
Sales support services
Marketplaces enable supply chain
Reduced cycle and lead times
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
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
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
Sellers profit from an expanded customer base, reduced operating expenses,
and the anonymity of pricing.
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
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
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
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
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.