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Digital Transformation in the Oil and Gas Industry

I recently read the 36 page report entitled The Digital Transformation Initiative in the Oil and Gas Industry, the study for which was conducted by the World Economic Forum in partnership with Accenture. I wrote my own summary and analysis on the study to save you time and clarify some of the confusing aspects of the paper. Enjoy!

This study surveyed oil and gas companies regarding what technologies they are investing in over the next 3–5 years and formulated broader technology themes, which were broken down into initiatives and enabling technologies. It wasn’t clear how the surveyed technologies fit in with these themes, initiatives, and “technologies” (which were different from the surveyed technologies), so I did a little more analysis and linked them all together. I also generated some recommendations for oil and gas companies regarding where to focus R&D efforts over the next 3–5 years. I start by summarizing the data into understandable graphics with commentary, and then describe the themes, initiatives, and enabling technologies in more detail.

First, a look at what technologies the Oil and Gas industry is investing in:
The top areas of focus over the next 3–5 years continue to be Big Data/Analytics, IIoT, and Mobile Devices.

The fastest areas of growth over the next 3–5 years are Robotics & Drones, Artificial Intelligence, and Wearable Technology.

Figure 1: Investments in Digital Technologies

Per the DTI for Oil & Gas white paper, there are four digital themes central to the digital transformation of the Oil & Gas industry. Within each theme, several major initiatives are taking place. Each initiative is enabled by applicable technologies.

Notes about the graph in Figure 1, above:
A. The industry’s investments in the next 3–5 years for Big Data/Analytics, IoT, Mobile Devices, Cloud, and Collaboration & Social Tools, which were the biggest focuses of yesteryear, are flat or shrinking. These technologies’ applications are so broad that these focus areas are converging into a base platform for more focused applications which are enabled by these broader platform technologies. Thinking about Geoffrey Moore’s Crossing the Chasm and the technology adoption lifecycle, these technologies are past the “early adopters”, and are well into the “early majority” of pragmatic thinkers.

B. Robotics and Drones, Artificial Intelligence, and Wearable Technology, are in the early stages, and industry investment in these technologies, is accelerating. The number of Oil and Gas companies investing in Robotics and Drones is increasing by 115%, Artificial Intelligence is up 43%, and Wearable Tech is increasing by 83%. (Note: The percentage point increase indicated in the chart does the analysis a disservice regarding the magnitude of change taking place.)

C. It should also be noted that the technologies in the graphic above from the white paper do not align nominally to the “technologies” listed in the body of this white paper, but rather, the above technologies may each be used in concert with others to accomplish one of the enabling “technologies” of each initiative listed below.

Figure 2: Investment Trends

The graph in Figure 2 above shows the change from today compared to the next 3–5 years in how many oil and gas companies will be investing in each technology area. This gives a much clearer indication of what most oil and gas companies have already made significant investments in over the past few years, and are deeming as established technology vs what technology is at the forefront of the digital transformation of the oil and gas industry.

Unfortunately, the technology areas shown in Figure 2 are not the same as the “technologies” listed as enablers to the digital initiatives in the body of the white paper. Figure 3, shown below, was created to show both the potential value of each digital initiative, along with the corresponding digital themes they fit into, as well as the corresponding technologies listed in Figure 2 above.

The Digital Asset Lifecycle Management Theme holds the most potential value for the Oil and Gas Industry. The most valuable technology initiative is Advanced Analytics and Modeling, followed by New Era of Automation, and the Connected Worker (See Figure 3).

Figure 3: Potential Value of Technology Initiatives Chart with Alignment to of “Technology Areas” from Figure 2

Now, I’ll explain what all of that means:

Per the DTI for Oil & Gas white paper, there are four digital themes central to the digital transformation of the Oil & Gas industry. Within each theme, several major initiatives are taking place. Each initiative is enabled by applicable technologies. The themes are outlined below with their initiatives, enabling technologies, and the value at stake for these initiatives.

New digital technologies combined with data-driven insights can transform operations, boosting agility and strategic decision-making, and resulting in new business models.
New Era of Automation Initiative
Technologies:
Autonomous Operations & Robots — Automated processes in operations using robots and robotic control systems. Examples include replacement of human rig hands on drilling platforms with robotic machines and automated monitoring of process operations with the ability to react to situations by opening relief or re-rout valves and notifying maintenance crews of a needed fix.
Remote Operations Center — Remote Operation Centers are essentially the industrial answer to “working from home”. Instead of venturing out to offshore platforms, workers can now perform operations from onshore locations. This is also very valuable for operating multiple dispersed locations in tight oil/shale plays.
Predictive Maintenance — Predictive maintenance (PdM) techniques are designed to help determine the condition of in-service equipment in order to predict when maintenance should be performed. This approach promises cost savings over routine or time-based preventive maintenance, because tasks are performed only when warranted.

Advanced Analytics & Modeling Initiative
Technologies:
Operations Optimization — Operations optimization has the potential to unlock the most value for the industry (approximately $275 billion) and encompasses a range of technologies and tools. In upstream operations, these include reservoir modelling, well-design optimization, artificial-lift optimization, downhole monitoring, connected rigs and predictive analytics. Their combined impact can be significant in reducing operational costs and increasing production.
Cognitive Computing — Cognitive computing is the simulation of human thought processes in a computerized model. Cognitive technologies can ingest varied data sets fluidly and carry out target analysis and simulation, thereby reducing the risk involved with the analysis and selection of well sites and increasing the probability of realizing a return on invested capital.

Connected Worker Initiative
Technologies:
Wearables — Wearables are sensors, interfaces, processors, and other connected technology which are worn on the person of an oil and gas professional. These can help give the worker real-time updates, alerts, and information, as well as send information, updates and alerts about the worker or his environment to a remote office or control center through the cloud or a private network infrastructure.

Applying integrated digital platforms enhances collaboration among ecosystem participants, helping to fast-track innovation, reduce costs and provide operational transparency.

Real-Time Supply/Demand Balancing Initiative
Technologies:
3D Printing / Additive Manufacturing — Additive manufacturing, or 3D printing, refers to a computer-assisted process that creates three-dimensional objects by depositing successive layers of material. Objects can be of almost any shape and are produced from digital 3D models or other electronic data sources. In the not-so-distant future, 3D printers could transform a supply chain into one that is globally connected, yet still totally local. In essence, 3D printing creates a close relationship between design, engineering, marketing and manufacturing, opening up the possibility of shifting some manufacturing away from low-wage countries and closer to the customer base in developed economies.

Digital Information Sharing and Operational Transparency Initiative
Technologies:
Blockchains / Smart Contracts — Blockchain is a form of digital triple-entry bookkeeping. It acts as both a database and a network by allowing both data and value to be transferred via a distributed system that runs, records and compares multiple copies of secure, encrypted transactions; it does so in near real time on multiple computers. No single machine contains all the information needed to extract information and value from a transaction. The only way to convince the system to believe a false transfer is to gain control of more than half the devices in the network. Thus, the more devices that run blockchain software, the more secure it becomes.

Innovative customer engagement models offer flexibility and a personalized experience, opening new revenue opportunities for Oil and Gas operators, and new services for customers.

Digital Customer Service Initiative
Technologies:
Hyperlocal Mobile Fuel Options (On-demand fuel delivery) — Instead of customers driving to petrol stations, digital services, such as hyperlocal mobile fuel offerings, aim to bring the fuel station to the customer. Additional services, including tyre pumps and maintenance check-ups, can be bundled with the mobile fuel station to enhance safety and raise vehicle mileage for customers. While Oil and Gas incumbents have yet to embrace this business model, several start-ups (e.g. WeFuel, Filld, Mobile Fuel, Yoshi) have already begun to operate in this way.

Omnichannel Retail & Experiential Services Initiative
Technologies:
Targeted Digital Marketing — Omnichannel retail aims to capitalize on the time customers spend at petrol stations; it seeks to help fuel retailers learn more about their customers so they can develop personalized offerings. To take advantage of omnichannel opportunities, petrol stations can offer additional services, such as digital banking or allowing customers to pick up parcels bought online. Loyalty programs can also be used to improve customer retention. At present, convenience stores selling gasoline in the US generate on average approximately 30% of their revenues and 66% of their profits from sales of non-fuel products.

The digitalization of energy systems promotes new energy sources and carriers, and supports innovative models for optimizing and marketing energy. To remain relevant to customers, the Oil and Gas industry must understand the full impact of these changes on the broader energy system.

Consumer Energy Choices Initiative
Technologies:
Alternative Energy Choice & Platforms — Millennials in general are very focused on global issues, such as climate change and air pollution, and are willing to make bold changes, such as switching to eco-friendly energy providers or brands to help tackle these challenges. Approximately 76% of millennials prefer an eco-friendly car, while 50% have plans to purchase an electric car. This shift to renewables, along with the emergence of electric cars, could lead to profits of $65-$70 billion migrating from Oil and Gas companies to the broader energy ecosystem. Upstream players stand to be most at risk, with approximately $60 billion of their profits potentially migrating to this broader ecosystem.

In observing the Oil and Gas Industry investment trends, it appears that while Big Data/Analytics, IIoT, Mobile Devices, and Cloud are still the industries’ top investments. The investment in these technology areas will level off or shrink over the next 3–5 years, indicating their maturation and stabilization in the industry. In other words, companies have already invested in and developed these technology areas and are on to the next wave of innovative tech areas, which include Robotics and Drones, Artificial Intelligence, and Wearable Technology.

In observing of the potential value metrics of each digital initiative in the oil and gas industry, it appears that the three technology initiatives with, by far, the most impact are “Connected Worker”, “New Era of Automation”, and “Advanced Analytics and Modeling”. The “enabling technologies” for these initiatives are Wearables, Autonomous Operations & Robots, Remote Operations Center, Predictive Maintenance, Operations Optimization, and Cognitive Computing.

Regarding Technology Areas:
Continue to strengthen foundational technology areas such as Big Data/Analytics, IIoT, Collaboration, and Mobile, but begin to focus more attention and effort on Robotics & Drones, Artificial Intelligence, and Wearable Technology.

Regarding Technology Initiatives:
Begin to align investments in the above technology areas with the most impactful value creating initiatives, components of which include Wearables, Autonomous Operations & Robots, Remote Operations Center, Predictive Maintenance, Operations Optimization, and Cognitive Computing.
See graphic in Figure 4 below.

Figure 4: R&D Investment Recommendations for Oil & Gas Companies for the next 3–5 Years

Now, the final recommendation is a little crazier, but looking at the “Energizing New Energies” theme, battery and electrical storage technologies represent a $70B loss for the industry over the next 3–5 years. That number will continue to grow.

Oil and Gas companies should begin the process of disrupting their own business by investing R&D dollars into battery and electrical storage technologies, because they are in the business of extracting and converting resources into useable energy, and batteries are the technology that are contending with oil and gas for powering machines. As up-and-coming battery technology players deliver better and better products for automotive and industrial equipment power, the demand for oil and gas will continue to decline.

Although there will always be uses for oil and gas, the future will see these oil and gas companies converted into more diversified energy companies if they are to remain at the top of the list of energy players.

Now, go improve something.
-Matt

© Copyright 2017 Matthew C. Hinson

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