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Logistics and Transport BE 303 E Supply chain of the Shtokman field development project by Veronika Afanasyeva Spring 2009 Abstract Supply chains are always fairly complex, and each industry’s chain has its own quirks and characteristics. The strategic nature of the product makes the oil and gas supply chain distinct from other industries. The given work sets a task to investigate the supply chain in oil and gas on the example of the Shtokman gas and condensate field development project. It is quite a challenging mission if to take into consideration the size of the project and its unique character. The given research is conducted to develop and extend the supply chain theory in oil and gas industry. The research objectives lead to use the theory-oriented type of research with stress on theory testing. Under these circumstances, the single-case study method and semi- structured interviews as a primary source of data are chosen. To build the entire supply chain of the Shtokman project there is a need to describe it first. The history of the field exploration, selection of partners, engineering concept of the project are reflected in the empirical part. Additionally, the project’s description includes the transportation system and marketing strategy of natural gas and LNG distribution. Moreover, the environmental and political aspects of the project which are essential for oil and gas field development find its reflection in the practical part of the work. The analysis of the project with regard to the received from interviews data and other reliable sources of information helps to build the supply chain in the Shtokman project and put value on the supply chain integration and cooperation. The concept implements the theory in practice and develops some propositions that characterize the supply chain in oil and gas industry. Here is a main contribution to the theory development. The research confirms importance and relevance of the stated problem. The future replication studies are significant in order to enhance the generalizability of the findings. I Foreword This Master Paper is an obligatory final assignment for the Master of Science in Business Program at the Bodø Graduate School of Business, with Logistics and Transport chosen as the specialization. The author would like to thank the Associate Professor of the Molde University College, Øyvind Halskau for his supervision, constructive critics and valuable comments for improvement of the research work. The author is very grateful to the PhD in Economics and the Senior Research Assistant of the Institute of Economic Affairs of the Kola Research Centre, the Russian Academy of Science, Alexey Fadeev who took part in the process of gathering primary data for the study. He provided the researcher with rich and relevant information, advices about additional sources of data and assistant in checking the validity of the processed interview. The author also would like to thank the Doctor of Engineering Science, Professor, Savelyev Yuri who encouraged the researcher for this work and provided with relevant and “hard-to-get” sources of secondary data. The author takes full responsibility for the contents of this Master Paper. Errors and deficiencies should be ascribed to the author. Bodø, May 18, 2009 ___________________________________________________________________________ Veronika Afanasyeva II Sammendrag Industriens mangfold av under leverandører, suppleringskjeder og samarbeids partnere gjør at hvert enkelt felt har sine egne særtrekk og kjennetegn, og samtidig ofte komplekst sammensatt. Olje og gass industrien skiller seg ut med eget “supply chains”, noe som skal belyses, ved å se nærmere på Shtokman gass og kondensat felt utviklingsprosjektet. Det er både utfordrende og komplisert med tanke på omfang og størrelse på prosjektet, samt dets unike karakter. Denne aktuelle undersøkelse og belysning er utført med tanke på å utvikle og teste teorien rundt supplerings kjeden innenfor olje og gass. Under disse omstendighetene er enkelt studier og flere intervjuer base for betraktninger og valg av data. Får å bygge opp Shtokman’s “supply chain”, må det beskrives først. Historie om felt undersøkelser og utnyttelse, valg av samarbeidspartnere, ingeniør virksomhet, er belyst i den empiriske delen. I tillegg til prosjekt beskrivelse, inkluderer det transport system og markeds strategi for naturgass og LNG distribusjon. Dessuten er de miljømessige og politiske sidene for prosjektet,hvilket er vesentlig for olje og gass utvikling, å finne igjen i den praktiske delen av oppgaven. Analysedelen av oppgaven basert på data fra intervjuer og andre pålitelige kilder, er med på å bygge leverandør-suppleringskjeden av prosjektet, og sette det i perspektiv. Tanken er å implementere teori i praksis, samt utvikle noen forslag som er karakteristisk for leverandør-suppleringskjeden innenfor olje og gass industri. Her ligger hovedbidraget til teoriutviklingen. Denne oppgave og undersøkelse bekrefter viktighet og relevanse for denne problemstillingen. De fremtidige supplerende studier er betydningsfull for å forbedre utviklingen på dette området. III CONTENTS Abstract ............................................................................................................... I Foreword ............................................................................................................ II Sammendrag ......................................................................................................III CONTENTS .......................................................................................................................... IV List of tables ............................................................................................................ VII List of figures ........................................................................................................... VII Introduction .........................................................................................................1 Background of the research ......................................................................................... 1 Problem statement ....................................................................................................... 2 Limitations to the research ........................................................................................... 2 Structure of the Mater Paper ........................................................................................ 3 1. Methodology ...................................................................................................4 1.1 Introduction ............................................................................................................ 4 1.2 Research objectives and type of research .............................................................. 5 1.3 Strategy of research and unit of analysis ............................................................... 8 1.4 Data collection methods ...................................................................................... 10 1.4.1 Qualitative vs. quantitative data ............................................................ 10 1.4.2 Primary data .......................................................................................... 11 1.4.3 Secondary data ...................................................................................... 13 1.5 Reliability, validity and sources of errors ............................................................ 14 1.6 Conclusion ........................................................................................................... 15 2. Supply chain in theory ..................................................................................16 2.1 Introduction .......................................................................................................... 16 2.2 Definition of supply chain and supply chain management .................................. 17 2.2.1 Components of SCM............................................................................. 18 2.3 Structure of supply chain ..................................................................................... 22 2.3.1 Upstream and downstream activities .................................................... 22 2.3.2 Length and breadth of supply chain ...................................................... 23 2.3.3 Push and pull types of supply chain ...................................................... 23 2.3.4 Network structure.................................................................................. 24 2.4 Integration of supply chain .................................................................................. 26 2.4.1 Design of supply chain.......................................................................... 28 2.4.2 Selection of suppliers ............................................................................ 30 2.4.3 Cooperation within supply chain .......................................................... 32 Types of cooperation .......................................................................... 33 2.4.4 Characteristics of successful cooperation ............................................. 37 2.4.5 Specific factors of supply chain integration.......................................... 38 2.4.6 Benefits of supply chain integration ..................................................... 40 2.5 Logistics and supply chain ................................................................................... 42 2.5.1 Importance