Now is the Time for Digitalization in the Oil & Gas Industry
The oil & gas industry has never had it easy. Fortunes rise and fall with the price of each barrel of oil that arrives in the market. Subject to the ‘Boom & Bust’ economy, with every lay off and loss incurred during low oil prices, the industry awaits the inevitable rise in the price of oil in order to make investments that will yield returns, and thereby profits. In between, the industry has to cope with a spectrum of challenges - long gestation periods, geo-political uncertainties, government policies, financial recessions, and natural disasters. This is the way things have been for over one hundred years.
In recent times, the rise of shale oil production in the USA and competition from increasing investments in renewable energy technologies like solar and wind has made the industry more vulnerable. The boom of $100+ a barrel is over and $50 - $60 a barrel is the new norm. But things are set to change dramatically and for the better.
Drilling into IT for efficiencies
Oil stalwarts can no longer wait for the ‘Boom’ to happen. The industry needs to unlearn what it knows and find a way to be profitable at $50 a barrel. It is important to recognize that the industry’s ability to invest in innovation is sensitive to the price of oil. During the downturn that began in 2014, when prices dropped to the $30 range, companies were simply focused on keeping themselves afloat with positive cash flow. But with the current price at $60, the very same companies are now at a turning point, where they can afford to make investments, however modest, in innovation to help them be more competitive. In fact, even if the prices were to go up to $80 or $90, there is little likelihood of companies going back to doing things the old way, which was to strive for maximum profits with more production rather than earmark a larger budget for innovation.
Traditionally, IT investments made by the oil & gas industry were restricted to managing information systems and streamlining processes around support functions like HR. They were rarely used to improve the bottom line. The 4th Industrial Revolution is promising new ways of driving efficiencies in the industry to insulate it better against a volatile ecosystem. It is compelling the CTOs and the CIOs of oil & gas companies to join hands to find better ways of doing things at the field level in order to tide over fluctuations in the price of oil that often threaten their very survival.
Companies have started investing in digital technologies like Big Data, Analytics, Automation & AI, 3D printing, Internet of Things (IoT) and more in order to optimize core operational activities like production, maintenance, safety, and asset management by integrating IT with operations.
More importantly, availability of new business models such as Pay as You Use have made it possible to invest in the new technologies without committing to huge investments.
Key strategic imperatives in the digital journey
Scalable IT: Digital technology is not new to the oil and gas Industry. The digital oil fields (DoFs) are over a decade old - connecting remote oil & gas fields to operations centers from where asset performance could be monitored and decisions made based on real time data.
What is new in the digital space within the oil and gas industry is different consumption patterns and flexible pricing being offered by software companies. It is the new focus on IoT, machine learning and analytics; the change in attitude within the industry which is now considering outsourcing ‘innovation’ to partners because they see the value in digitalization.
And through it all, it is the concept of scalable IT. The Cloud based As-a-Service model has opened up very attractive options to oil companies that have thus far been susceptible to the boom and bust cycles. With this model, one need not worry about investments lying idle during a downturn nor make additional investments for scaling up when the boom arrives.
Infosys AI Report: Opportunities
60% of O&G already experiencing disruption due to AI technologies
79% organizations’ future business strategy will be informed through opportunities available by deploying AI technologies
Source: Infosys AI report
Digital Technologies: Digitalization is used to create a singularity between the physical assets and the associated data which is collected in real time and then analyzed, visualized and utilized for taking business decisions that lead to greater efficiency. It is about industrial internet (automated remote operations), unmanned aerial vehicles (real-time information from remote installations), cognitive computing (appraising exploration blocks), robotics (pipeline leakage detection), augmented reality (visualizing complex equipment), nano-technology (self-healing pipelines), or 3D printing (on-demand parts replacement in remote locations). It is about moving towards a world where the digital and the physical merge to provide information that is real-time, relevant and actionable for the workforce in order to make informed decisions.
In this context, exploration has a new connotation in the industry. It is about drilling deeper into IT enabled capabilities to find new value in their business. It is about being the first to explore technologies that can transform business beyond simply managing systems or storing information. It is about using it to:
- Automate difficult, dangerous and repetitive tasks
- Store, visualize and analyze data to make smarter decisions
- Integrate operations with IT through connected devices for greater efficiency
Lastly, exploration is about using technology when you need it, and at costs you can afford so as to be free of the booms and the busts of the industry in the years to come.