Ineffective supply chain management is a major driver of margin erosion in midstream oil and gas operations. This article explores how both hydrocarbon and non-hydrocarbon management impact profitability, highlighting key issues such as hydrocarbon loss, poor planning, and inadequate inventory tracking. By implementing Hydrocarbon Loss Control Programs, improving mass balance accuracy, and optimizing inventory and work planning processes, companies can significantly reduce waste and operational inefficiencies. A structured supply chain optimization strategy enables midstream operators to increase throughput, lower costs, and achieve sustainable margin improvement.

In a previous article, we discussed ways for Midstream Companies to increase margins by focusing on reducing operating expenses related to inefficient maintenance programs. This article discusses another key contributor to margin erosion, ineffective Supply Chain Management.  For midstream oil and gas companies, Supply Chain Management can be broken down into two main areas:  Hydrocarbon management and non-hydrocarbon management.

Hydrocarbon management involves the planning, scheduling, stock control, and custody transfer of hydrocarbon products.

With hydrocarbon management, hydrocarbon loss is one of the main causes of margin decrease and can cost midstream companies millions of dollars in lost value each year.  There are a number of causes for hydrocarbon loss including:

• Sediment and water intrusions
• Inaccurate measurements
• Retains

Best-in-class hydrocarbon loss is under 0.25% loss, while under 0.5% loss is considered achievable for the average company.

To prevent this loss, companies can employ Hydrocarbon Loss Control Programs that focus on Mass Balance. Our team of Hydrocarbon Loss Consultants is experienced in implementing these types of engagements in a cost-effective manner using customizable tools and training material to empower your employees to sustain the results.

Non-Hydrocarbon management is another contributor to margin erosion and there are many causes of inefficiencies. Two of the most common root causes are poor planning and poor inventory tracking.

Not having the proper tools, equipment, and parts available when there is an outage can be costly if it results in a slowdown or stoppage of product throughput.  Understanding the cost of this downtime, the holding cost of the inventory and the lead time to receive additional inventory is key in making risk-based decisions.  Improved planning practices especially as it relates to supply chain management and work management planning can be used to optimize and reduce the direct and indirect costs of inventory management.

The cost of consumables and parts is often not tracked well; however, a Pareto analysis on the usage of various consumables can often identify opportunities to reduce waste and unnecessary costs. Increased visibility allows for accountability and risk-based decision making. Furthermore, improved inventory tracking can prevent costs associated with stockouts, overstock, and obsolete stock.

Supply chain inefficiencies—both in hydrocarbon and non-hydrocarbon management—represent a significant but often overlooked source of margin erosion for midstream companies. By addressing hydrocarbon loss through robust mass balance programs and improving planning and inventory tracking practices, organizations can unlock substantial value. A disciplined, data-driven approach to supply chain optimization reduces costs, waste, and enhances operational reliability.

Companies that prioritize these improvements will be better positioned to strengthen margins, improve performance, and sustain long-term competitiveness.