Fueled by tech power
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The shale revolution that transformed the oil and gas (O&G) industry in the United States and Canada is set to go global, with the Energy Information Administration (EIA) estimating global shale oil resources at 10 percent of the world’s crude oil. The industry is investing in the development of offshore facilities that are expected to match the production levels of onshore fields over the next 15 - 20 years. Advanced enhanced oil recovery (EOR) techniques are also enabling companies to almost double the production value of existing wells. As the O&G industry pushes the frontiers of exploration and production (E&P), technology is helping it extract more value from each phase in the E&P process. Here are some of the most significant trends in the O&G industry for 2014 and the attendant technological implications.
Technology-driven supply creation
Even as the global demand for oil increases, the supply from non-OPEC producers in 2014 is expected to register its highest mark since the 1970s. In view of this increase, the International Energy Agency estimates that OPEC members could cut production by as much as one million barrels a day without affecting supply. The surge of shale oil supply from non-OPEC regions combined with an increase in E&P spends, expected to rise 6 percent to US$723 billion this year, has the potential to undermine the pricing power of OPEC. An increase in E&P activity will also result in a corresponding increase in IT spending to support the O&G sector’s geology and geophysics requirements and need for 3D and 4D seismic technologies. Additionally, subsalt and pre-salt plays in the Gulf of Mexico and offshore Brazil will bring Reverse Time Migration into focus. Overall, the sectoral spend on IT is expected to grow to US$49.4 billion by 2016.
Extracting inorganic growth
Though 2013 has not exactly been a great year for M&A activity, it is expected to gather momentum in 2014. O&G super-majors will attempt to redress their less than average performance in recent times by leveraging opportunities for inorganic expansion and growth. The potentially lucrative acreage, developed by independent players with productive shale plays, also has the potential to trigger a major asset reshuffle among leading O&G companies. The continuing regime of low capital costs and interest rates can create an additional incentive for companies to embark on restructuring to enhance value. In developing economies, the primary objective will be on driving innovation.
The downward pressure on gas prices coupled with rising E&P costs will push all O&G players into adopting enterprise-wide cost reduction measures. The shift towards unconventional plays and their unique operational challenges will also drive focus on increasing operational efficiency through IT. More and more companies will come to rely on technology to drive operational excellence, enhance business value and deliver competitive advantage.
Large O&G firms have traditionally relied on hedging their forward production to protect them from price volatility in the market. Hedging has also helped smaller players, major drivers of the shale movement in the US, de-risk their operations. As production increases on the back of an improved ability to exploit shale oil and gas reserves, hedging activities are also expected to increase proportionately. This trend will have to be supported by robust solutions and trading platforms that will enable O&G companies to manage their hedging decisions and investments and address their risk and compliance requirements.
Upgrading the security drill
Compliance in the O&G sector is a shifting goalpost because regulations are constantly evolving to keep pace with developments in the industry. With regulations becoming more complex and demanding, companies have responded by harnessing technology to stay abreast of their compliance obligations. Technology has also helped the sector to efficiently identify and manage risk. But even as it focuses on collaborative technologies such as cloud and mobility to enhance compliance, efficiency and revenues, cyber attacks are emerging as a significant threat to the business. It is predicted that these attacks will cost the sector as much as US$1.87 billion by 2018. Starting 2014, cyber risk management programs will become part of the daily drill for the O&G industry.
Finding and refining talent
Talent shortage currently figures among the top five business issues facing O&G companies. The still emergent shale revolution will only add to the pressure as companies scramble to identify and recruit talent with the right skills for the job. Apart from getting new talent onboard, managing attrition in this environment of shortage will also be a very high priority. The industry will aggressively focus on upgrading its existing training and development programs while simultaneously investing in automation and collaboration through learning management systems and knowledge-based engineering.
Mining for insights
Technological developments like measurements-while-drilling (MWD) and logging-while-drilling (LWD) enable O&G companies to generate a better understanding and extract more value from the drilling process. The application of predictive analytics to real-time drilling data can help mitigate risk, reduce spud-to-release times and enhance overall efficiencies of operation. The huge data explosion, in terms of both types and volumes, from multiple assets will require oil and gas companies to leverage emerging big data technologies to generate actionable insights that can drive additional business opportunities as well as strategic differentiation.
Managing oil and water
As the industry-wide E&P process continues to build momentum, water management will become an extremely critical aspect of overall performance. Today, water transportation accounts for as much as 25 percent of the overall cost of a well. Water management challenges will only amplify as regulators clamp down on conservation and environmental issues related to the use of water in the fracking process. Addressing this issue, either by reducing utilization, increasing recycling or using water substitutes, is of paramount concern in the industry. The water management space will also need to be supported by automated risk and compliance management systems that help the industry address emerging regulatory and environmental concerns. Moving forward, the market is expected to shift from an asset-intensive to a more knowledge-based model supported by business and IT consulting services for proper issue resolution.
For progressive companies in the O&G industry, technology represents the means to drive innovation and create competitive advantage. Even as they continue to explore hitherto uncharted territories, a new wave of technologies like cloud, mobility and big data analytics can help them uncover more value, discover new opportunities and deliver disruptive innovations that significantly enhance business value for all stakeholders.