If you took a quick glance at the May 6 cover of The Economist with its picture of several offshore oil rigs and accompanying text proclaiming The World’s Most Valuable Resource, you could be forgiven for thinking that this was yet another story about the oil & gas industry. Upon closer inspection, however, it’s office buildings fronted by names including Google, Amazon and Facebook rather than production equipment on those rigs, and the story inside is all about how it’s data that’s increasingly driving the economy.
The reason for the cover comes from the comparison the article makes between data and oil: “Data are to this century what oil was to the last one: a driver of growth and change. Flows of data have created new infrastructure, new businesses, new monopolies, new politics and – crucially – new economics. Many a battle will be fought over who should own, and benefit from data.”
It is perhaps ironic then that the oil & gas industry has been somewhat of a laggard when it comes to digitalization and extracting and using data. In January, BP chief executive Bob Dudley acknowledged as much, expressing the view that the sector is “way behind” the auto, aviation and power industries in its use of sensors and generating data, which could help improve operations in areas as diverse as reservoir exploration and personnel safety.
In another sign of a once perhaps rather skeptical industry coming round to the joys of all things digital, at the OTC 2017 event earlier this month, ExxonMobil chief computational scientist Thomas Halsey emphasized the importance of digital technologies like data analytics and machine learning: “If you don’t know how to use and deploy them, you are not going to be in business in this industry.”
Inseparable from the discussion of digitalization in the industry is economics. Aside from the oversupply situation driven by factors like the North American shale revolution and Iran back from exile as an exporter, the oil & gas sector faces issues around demand growth. While absolute demand continues to rise and is expected to do so for the next couple of decades, given rather subdued global growth and the rise of renewables, this demand is increasing less quickly than previously anticipated.
The International Energy Agency (IEA) in its April Oil Market Report cited weaker momentum in Russia, India and the OECD countries for its forecast of 1.3 mb/d global demand growth in 2017. This is a deceleration from 2016’s 1.6 mb/d growth and the second consecutive annual decline. And on May 12, following announcements from China and India indicating desires to move to much faster electric vehicle adoption, the IEA revealed it was reviewing its vehicle related oil demand forecast. China plans for non-gasoline vehicles to account for at least 20 percent of annual vehicle sales by 2025, and India has ambitious plans to electrify all vehicles in by 2032
While it’s notoriously difficult to predict the trajectory of oil prices, current supply/demand economics indicate it’s unlikely we’ll see a return to heady days of $100+ per barrel anytime soon. And in much the same way as on an individual level you would all look to cut costs (switch off the lights), and limit spending (put off buying that big screen TV) when faced with curtailed income such as a job loss, an operator’s behavior cannot be the same when its revenue is essentially cut in half.
In particular, straitened circumstances put a renewed focus on operational efficiency, which is a measure of how much it costs to achieve a given level of output e.g. a barrel of oil. In good times, it’s tempting to let things slide and ignore obvious opportunities to improve efficiency – such as cutting energy usage, boosting worker productivity, and increasing equipment uptime – but it’s definitely not the way to go when things go south.
ARC Advisory Group recommends the adoption of appropriate technology as a means of increasing operational efficiency levels and improving overall plant performance, and regular readers of this blog, particularly of articles from colleagues like Tim Shea and Peter Reynolds, would know that Industrial IoT and analytics are becoming increasingly important pieces of digitalization efforts in the oil & gas industry.
Next week here in Singapore, ARC will be participating in a webinar with the Asia Pacific division of Schneider Electric Software. Together we’ll be exploring how Industrial IoT and advanced analytics technologies can help mitigate many of the challenges faced by the oil & gas industry and how forward thinking companies are already realizing efficiency gains and performance improvements. The webinar takes place on Tuesday May 30 at 2pm Singapore time (2am EDT). A recording of the webinar will also be made available to all those who register.