The oil and gas industry are dealing with massive disruption on several fronts from increasing oil price volatility due to Coronavirus and the failed OPEC deal.
Combined with complexity of a rapidly changing energy sector where digital technologies, the drive for greener energy and demand for more consumer-centric services are putting shareholder returns at risk and reconfiguring policy mandates, industry players are forced to make a significant re-evaluation of energy value chains, assets and operations.
The way we produce and consume oil & gas is shifting. Renewable energy sources, such as wind and solar, are growing exponentially and are expected to account for nearly 70% of global electricity production in 2050. Transport is being electrified, with 50% of all new cars sold globally forecasted to be electric by 2033. Advances in digital technology are enabling these dramatic changes to our energy system and digitalization will play an important role in enabling the energy transition.
To realize that potential, the sector must start treating digital transformation like any other vital business process. That means redefining their purpose, goals and strategies to compete more effectively and innovate at a scale that creates long-term value.
Energy companies are increasingly investing in digital technology over the past few years, with global investment growing 20% annually since 2014, in 2016 it reached USD 47 billion.
Moreover, it is estimated that the oil-focused digital services sector will rise from $5 billion today to over $30 billion annually by 2025, contributing $150 billion in annual savings for oil companies.
In many respects, the energy sector has always been open to the opportunities digitalization can offer. For example, in the 1970’s, power utilities were considered digital pioneers, using the latest technology to support grid operation and management.
However, today technological developments are becoming increasingly vital amid pressures to cut carbon emissions and tackle the concern of reaching peak oil demand, by providing solutions to locate, extract and process oil and gas reserves in the most efficient and cost-effective manner possible.
As the oil and gas industry adapts their ecosystems, adopt new workforce strategies and make data-driven decisions at pace and scale, emerging technologies are key to gaining a competitive advantage.
So, what digital technologies are already having the biggest impact across the industry?
Artificial Intelligence (AI) and Machine Learning
The oil and gas sector may not generally be considered an AI innovator, however, with a recent report suggesting that the value of AI in the oil and gas industry will increase from $1.57 billion in 2017 to $2.85 billion by 2022, perceptions are soon set to change.
Today cloud-based AI platforms are being developed to analyse subsurface geophysical data, providing quicker and more accurate modeling of recently discovered and established oil deposits. Having the ability to accurately map underground oil reservoirs not only works to improve understanding of the size and value of the deposits, but it also means that drilling methods can be tailored to have maximum effect. Moving forward this will help energy companies to refine their drilling activity and make it easier to access deposits at a lower cost.
Moreover, offshore oil and gas companies can use machine learning systems to run simulations using predictive data models. For example, under pressure to cut emissions, AI can be used to assess the potential impacts of a new rig or drilling site or to evaluate the environmental risks of a proposed project, before any concrete plans have been put into action.
Aside from assisting upstream sectors, AI systems can also be instrumental in working to make oil and gas platforms safer. AI machine learning systems can monitor topside and subsea installations for offshore sites, enabling companies to identify potential problems or imminent failures before they occur. This can work to improve efficiencies from maintaining offshore infrastructure to improving employee safety.
Internet of Things (IoT) and Big Data
Digitalization across the oil and gas sector has the potential to play a crucial role in optimizing costs, whilst improving safety, by enabling predictive maintenance, performance forecasting and real-time risk management. As the IoT develops and more data is collated, it will become a crucial tool for energy companies in order to gain a competitive market advantage.
The accurate, real-time data made available by IoT devices will become invaluable when it comes to preventative maintenance and pre-empting problems before they develop into significant issues. For example, by connecting all items of machinery, sensors will be able to detect issues, which could go unnoticed by the human eye until a significant event is triggered. With even the slightest mechanical issues having a detrimental impact on productivity, identifying and resolving them before they become a problem will be both economically and environmentally beneficial.
Technology can deliver “big data” from nearly every area from drilling, production, operations and maintenance, however processing, analysing and developing insights from this data is perhaps more difficult. One of the biggest challenges is making data available to decision-makers across disciplines in a way that allows everyone to benefit from it.
In its simplest form, Blockchain is a public ledger that documents transactions. However, given its potential to speed up transactions and to reduce costs by limiting the need for intermediaries to oversee transactions, a collective of energy blockchain start-ups is beginning to develop.
Whilst the predominant use for blockchain now is to support peer-to-peer platforms, connecting energy producers directly with customers, moving forward there is great potential for blockchain within the energy industry.
For example, despite the potential for IoT to play a vital role in the energy sector, there are still several concerns surrounding the security of IoT connected devices. However, blockchain has the capacity to securely send and receive data, whilst also reacting to broader market fluctuations – therefore supporting IoT devices.
People and digital skills
Digitalization is not just about technology and big data. Improving digital skill capabilities through staff training and upskilling programmes is fundamental to running a future-proof business and to capturing the benefits of a digital transformation.
As a large part of the workforce retires, the next generation of workers taking their place will not have the same depth and breadth of experience and will also need different skills to succeed in a digital world. A talent acquisition and management plan could deal with deficits in digital expertise.
From AI and machine learning to remote sensing and robotics, digital technologies undoubtedly have the potential to make energy systems across the world more connected, efficient and sustainable.
However, whilst the digital leap for oil and gas is imminent, the move to an AI and technology driven landscape is also raising fears over security and privacy risks. For example, there are concerns that the extensive implementation of AI systems could expose energy networks and leave them vulnerable to cyberattacks. As a result, there is now interest across the industry to explore the potential for AI technologies to protect energy grids and limit the damage from targeted attacks.
The challenge will be not in the investment of technology, but in realigning business models to reflect a digital world. Businesses will need to identify and assess the value of their data, build necessary IT platforms to take advantage of new technologies, particularly IoT, promote digital thinking and a culture of innovation and execute digital opportunities when they present themselves.
Today the energy sector is facing unprecedented challenges. However, changes in operating models and the adoption of innovative technologies can re-invigorate energy markets and bring monumental cost savings to the industry.
About the Author
Boris Ivanov, Managing Director and Founder of GPB Global Resources. GPB Global Resources is an international group of companies, engaged in oil and mining projects. More here: https://gpb-gr.com