Oil in your supply chains

Roger OakdenGlobal Logistics

Oil in your country.

Has your business given any thought to a future with less oil and higher prices? Our economies and social systems operate the way they do because of oil but, if your country is not an oil producer, what are the prospects?

In the Asia Pacific region, Australia used to produce a high proportion of its oil needs, but imported oil for transport has reached more than 90 percent of total use in 2013. In the ASEAN countries, oil imports currently account for about 45 percent of demand, but are likely to rapidly increase with falling production and increasing demand.

America’s has an advantage that while domestic production of oil has increased, demand continues to reduce, due to vehicle usage targets and reduced industry demand. By 2020 it could be that only about a quarter of oil consumption will be from imports.

Forecasts should always show a range and probability, due to uncertainties about the assumptions used. Forecasts of crude oil prices for 2016/17 range between U$105 and U$120 per barrel, with the potential for higher price spikes – there is no sign of prices reducing.

The lower end of the range is similar to prices in early 2014. Relatively steady prices over the next couple of years could be due to supplies being in a plateau and global demand not increasing. But what happens as we approach 2020, which the International Energy Agency (IEA) considers the year of peak oil, when global demand will be greater than supply?

Recognising the challenge

Between now and then production is unlikely to increase due to declining rates of output from existing oil fields, combined with slow rates of economic growth in many countries, leading to low investment by oil companies and producer countries. On the demand side, developed countries are experiencing an increased uptake of gas by industry and the (currently slow) uptake ย of electric and hybrid vehicles; overall there is the continual improvement in fuel efficiency of vehicles. However, the savings could be offset by increasing demand for oil in China, India and other developing countries.

How much recognition of this likely scenario is there? Some transport companies are forward thinkers; dual fuel trucks have been purchased and development of hybrid and electric trucks is progressing; some distribution companies have installed solar panels on warehouse roofs and electric fork-trucks are in use. Some airlines have trialled bio fuel.

But there are a lot of businesses that have not given the situation a thought and why should they? At the global level, organisations such as the IEA have been talking about potential problems; in the Asia Pacific region, APEC and ASEAN have issued reports, but in countries of the region there has been near silence.

Politicians do not like proposing policies that will change behaviour and oil is a political ‘hot potato’; so, I do not expect public strategies for energy security and infrastructure developments in countries to take account of potential changes in the oil situation. It will therefore be up to you and your business to make your own plans for accommodating change.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...