ARC Advisory Group

Low Prices Justify the Digital Transformation of the Oil & Gas Industry

Blog Post created by ARC Advisory Group on Jul 21, 2017

We have all witnessed a number of changing dynamics in the oil & gas industry over the last several years. Demand and production are both increasing, based on The International Energy Agency (IEA) Oil Market Report forecast that shows a worldwide average demand of nearly 96 million barrels of oil and liquid fuels per day. This works out to more than 35 billion barrels a year. Production reached 97 million barrels per day in late 2015, with forecasted demand crossing the 100 million barrels per day threshold towards the end of its five-year outlook period. Conversely, we have seen oil prices dropping more than 50 percent since June 2014, causing a collapse in operating margins that has driven companies to increase initiatives around efficiency, agility, and productivity to remain profitable. Some of these initiatives have driven the adoption of digital transformation solutions.

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One of the primary benefits of digital transformation is its ability to help identify problems in advance so corrective actions can be taken to avoid costly unscheduled downtime.

Knowledge retention is also a major concern for the oil & gas industry and must be addressed immediately, especially with an estimated 40 to 60 percent of the workforce projected to retire in the next 5 to 10 years. Software technology, along with a strong, well supported programs that helps retain knowledge of retiring staff, is a key component to the success of every oil & gas business.

The impact of extended low oil prices cannot be understated. The World Bank Oil Price Forecast does not have oil returning to $80 per barrel until 2030, so clearly we are in a “new normal” regarding oil prices and companies must plan accordingly. Short term, this means cutting costs to improve cash flow and lower financial risks. Medium term, it means finding new ways of working, which includes digital transformation, as well as partnerships and collaborations, along with mergers and acquisitions. Long term, it means using digital transformation to optimize operations to respond faster to an ever-changing global market and ensure consistent revenue growth. Long term, it also means integrating a new workforce of millennials and adopting workflows and a unified system of engagement that best leverages their native understanding of the technology and the smart tools that they use continuously every day.

Low prices creates many challenges for the oil & gas, include the need to increase revenue and growth by deploying technology and solutions that improve production rates and reservoir recovery, while simultaneously addressing asset integrity and costs by improving efficiency and productivity while reducing unscheduled downtime. Health, safety and environmental challenges remain for all oil & gas businesses to take steps to reduce accidents and improve regulatory compliance. Turnover of an aging workforce means finding ways to secure technical talent while deploying solutions to preserve this tremendous accumulated experience and knowledge. However, some of the latest trends and technologies in the oil & gas industry can be used to address these challenges. For example, IT/OT convergence has increased deployment of digital field devices and intelligent machines. The increasing availability of data and deployment of intelligent software, such as analytics, is boosting worker productivity, helping companies to make better decisions and reduce costs. Big data and analytics are helping optimize performance and maintenance to achieve higher levels of operational reliability, safety, and efficiency, and shifting maintenance from preventive to predictive.

After years of record-breaking $100+/barrel oil, the oil & gas industry grew in silos, with investments in areas, such as seismic technology, 2D and 3D modeling, and data collection, all without integrated plans for using that data for optimization. Aging assets can increase regulatory and compliance incidents. Reservoir and production engineers continue to work on extensive workflows on a daily basis just to meet production targets on depleting assets. Lower crude prices, compounded by budget cuts, make it imperative that oil and gas fields be run with much higher efficiency, flexibility, agility, and uptime; making digitalization a high priority.

By changing the approach, building scalability, accessibility, and extensibility; the oil & gas industry has the opportunity to gain more with less. Productivity, efficiency, and flexibility is what the oil & gas industry needs. To increase capital efficiency and profitability; reduce marginal costs; minimize downtime; improve health, safety and environmental conditions; and capture the knowledge of the retiring workforce and productivity gains hidden in data and workflow silos; the oil & gas industry must embrace digital transformation fully, from assets to the oil field; and from design to process and operations.

Digital transformation would not be possible without the convergence of IT & OT to connect operational data with business processes for an end-to-end lifecycle asset view. OT brings real-time connectivity and analytics, including applications for asset performance management, predictive analytics, asset integrity, and inspection-based risk scoring. IT brings business integration solutions that preserve existing IT and ERP investments. This includes applications to streamline logistics services; record historical and future planned maintenance; and generate reports for production rates and volume, inventory. IT/OT convergence can support end-to-end process excellence, with enterprise integration and visibility that leverages existing systems and the strengths of industrial products. These IT/OT-converged solutions should be built on an enterprise-wide, scalable platform that enhances operational uptime and accelerates digital transformation.

And finally, digital transformation in the oil & gas industry is often driven by the need to improve asset performance management. APM. APM enables intelligent asset strategies that balance three traditionally competing priorities: reducing costs, improving availability and reliability, and managing risk, which should help grow in profitability in a period where the low oil prices appear to be the new normal for many years to come.

“Reprinted with permission, original blog was posted here. You may also visit here for more such insights on the digital transformation of industry.

 

About ARC Advisory Group (www.arcweb.com): Founded in 1986, ARC Advisory Group is a Boston based leading technology research and advisory firm for industry and infrastructure.

For further information or to provide feedback on this article, please contactakanagali@arcweb.com

 

About the Author:

Craig Resnick

Vice President, Consulting

Craig is the primary analyst for many of ARC’s automation supplier and financial services clients. Craig’s focus areas include production management, OEE, HMI software, automation platforms, and embedded systems.  Craig has been with ARC for since 1999.

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