Netherlands – Eric Wesselman, Partner
Partner at KPMG Netherlands and oil and gas leader Eric Wesselman discusses some of the broader topics currently affecting the Dutch oil and gas sector today, from the low oil price to a lack of communication and collaboration between companies.
What impact will the current low oil price have on upstream operations in the Netherlands?
We fully expect that there will be some consolidation in the oil and gas supply companies: highly leveraged companies will suffer in particular, because they will be more highly scrutinized. Oil and gas operators are looking to cut costs, and this pressure is transmitted across the entire supply chain. The longer the price stays low, therefore, the higher the pressure will be on these suppliers and service providers.
On the operator side, many of the original operators on the Dutch shelf have been replaced by international producers that aim to squeeze the most out of their assets’ remaining potential. Is this sustainable given the low oil price? If the investment has already been made, and they have workable techniques to continue production, then it may well be. However, this might mean that we don’t see new operators coming to the Netherlands – but again, it depends on how long the low oil price remains.
What does this mean? I think one of the first results we will see is increased collaboration in the supply and service industry. KPMG recently conducted a study on the oil and gas industry in the Netherlands, which concluded that the future is bright here, but that there is still a lot of potential remaining in terms of collaboration and innovation happening between companies. This is especially true considering that more companies are coming to the Netherlands all the time, the talent pool is beginning to dry up, and companies need to be agile and innovative enough to stay ahead of the game. When price becomes the key differentiator, companies need to start looking at collaboration models.
Companies also need to think smarter to reduce prices. Perhaps as a result of local content policies, companies with global footprints often do things differently depending on where they are in the world: in the North Sea, they look at reducing go-to-market time on new infrastructure, but in Southeast Asia, their biggest priority might be doing more with fewer assets. In order to improve bottom lines, these companies need to practice this, set up the infrastructure to enable it, and make it an aim to bring technological innovations into new markets.
Is the gas roundabout concept something that is still worth pursuing as a country, given the current gas supply situation in Europe?
We have five licensed gas storage facilities in the Netherlands. I have understood that it has been mainly CO2 that we have stored in there to date. Considering a scenario where Europe would need to establish security of supply, the Netherlands has a lot of gas reserves available because of the Groningen field. Storage to effectively deal with peak demand seems a viable scenario. Next to that it is expected that an additional wealth of gas reserves will be coming to Europe – mainly from US shale gas supply. The volatility of the gas price may change as a result. The gas roundabout could play an important role in this scenario.
Can you give us a broad overview of the refineries in the Netherlands today, and where they need to be improving efficiency?
I’m not a refinery specialist, but I can tell you what I know. There is an overcapacity in refinery in the larger European context today, and as a result, margins are very tight at these refineries. Meanwhile, the recent projects that KPMG has done in the refinery area have all been about squeezing out the last drop of profit –hydrocarbon mass balance, how crude goes in and how much finished product comes out, and optimizing processes. This also extends to the downstream supply chain, where companies are trying to get everything they can out of their operations.
Is the Netherlands still a competitive global refining center for multinationals?
It is, because of the country’s geographical location, its ports and its access to the sea. Maritime, road and rail links with Europe and the world make refineries here very accessible, which is why refining capacity here continues to be competitive globally.
In general, the Dutch are very good at collaborating. As an anecdote a Maltese ambassador once told me how he compared his countrymen to the Dutch by saying that the Maltese, an island nation, collaborate less than he had seen in the Netherlands. Maltese he joked, had to fight each other for a glass of water, but the Dutch had to collaborate or else they would drown. That’s why it’s in the Dutch culture to cooperate: from the center of the country, water is pushed from farm to farm until it reaches the sea. If we didn’t do collaborate in this way, the country would be submerged. The Dutch are willing to challenge, but also to share knowledge and resources, and that makes us unique. It also affects how we look at the world: we see ourselves as part of the world we live in rather than separate from it, we are successful, because we can easily connect with other individuals, companies and countries.