The entire world seems to be going digital, yet the oil and gas industry is lagging behind all sectors, according to Deloitte’s digital maturity index. With technology becoming ever more pervasive and complex, and external forces putting pressure on revenues and costs, operating within a traditional and conventional mindset is no longer a viable recourse for upstream oil & gas companies. Standing still is not an option.
The case for digital
With an average score of 1.3 on Deloitte’s digital maturity index (check image above), the oil & gas industry scores considerably lower than most sectors.
While some operators have adopted point solutions such as agile processes or hiring a chief digital officer, failing to fully embrace digital with a combination of technical and people solutions is costing the oil & gas industry as much as $1.6tn in potential revenue.
That need not be the case. We are at an inflection point in digital technology. Costs of sensors, data storage and processing are falling. Algorithms are more sophisticated, processing power is increasing rapidly, and reliable access to the internet worldwide has become ubiquitous. Digital technology allows for more sophisticated analytics and artificial intelligence, and industries can now benefit from significant business and economic value for customers, shareholders, employees, and the wider society.
Digitalisation can revolutionise the entire oil & gas value chain, from exploration to production (via distribution) and onto customers (B2B as well as B2C). Within the upstream sector for example, digitalisation can be leveraged for the full automation of production rigs, the consistent monitoring of the flow of crude and its composition, more certainty in the process of finding new reserves, visual interaction with virtual representations of the field and all of its various components, and the continuous processing of data, with automated decision-making capabilities.
Not only does a digital transition improve operational activities, but it can also minimise human involvement in high-risk activities across the field, integrate supplier and operator ecosystems to deliver better results more economically, and reprioritise activities by using intelligent systems that use real-time, dynamic results.
Digital evolution
The industry needs to evolve from a traditional mindset to adopt a more innovative attitude, and fast. The structure of the industry is being challenged by internal and external forces, including: pressure on revenues and costs from price volatility, an accelerated energy transition due to demand for lower carbon alternatives that is supported by governments globally, and increased complexity in technology and global trade flows. In light of these significant structural changes, there is now a need for pervasive visibility and insights on cost and production, agile field development, and an integrated supplier and operator ecosystem to drive returns.
Oil & gas companies thus need to transition from the traditional, conventional ways of operating towards innovation and digitalisation.
Yet the sector seems to be biding its time. So far, the oil & gas sector has been conservative in its adoption of new technologies. At this pace, upstream companies may take decades to realise the true benefits of digital technology such as reduced costs, improved margins, and millions of dollar revenue, further exposing oil & gas organisations to external pressures hitting the industry.
Meanwhile, new, disruptive players are rapidly entering and reshaping the industry through their use of digital technologies. Google has invested approximately $6bn in third-party energy and mobility-related technologies and BYD grew from a $350,000 start-up to $8.5bn revenue generating company over 10 years by playing in the energy and mobility business. Depending on what your vantage point is, these new entrants can be seen as either a threat or an opportunity for partnership and collaboration within the extended ecosystem.
Are we there yet?
Some oil & gas companies have already jumped on the train of digital evolution. ENI has been employing predictive analysis systems that enable the optimisation of logistics, maintenance and well operating costs and advanced algorithms that reduce asset downtime and increase production rates. Shell has been employing artificial intelligence to predict when maintenance is needed on compressors, valves and other equipment, helping steer drill bits through shale deposits and leveraging real-time data to help geologists chart a more accurate course for the well, boost productivity and reduce drill wear-and-tear. Saudi Aramco has also been employing digital surface and subsurface technologies to optimise field development and operations and has also developed the Reservoir Engineering Integrated Environment (REOnline) tool, designed to help engineers better plan, develop, and manage fields and reservoirs.
Operators are at different points on the digital organisation spectrum. But while some have explored the benefits of digitalisation – by leveraging traditional technologies to automate existing capabilities – they have done so with little change to the organisation. Other operators have moved towards business, operating and customer models that are optimised for digital and are profoundly different from prior siloed and unsynchronised models.
But when it comes to transforming towards digital intelligence in the oil & gas industry, point solutions don’t work. A technical solution that only focuses on digital technologies and agile methodologies whilst ignoring the people factor, or vice versa, cannot lead to a quick adaptation of, and capitalisation on, the gains of digitalisation.
Revolution, not evolution
The oil & gas industry needs to fundamentally re-imagine and change how operations are conducted and managed across the entire value chain and do so without constraint.
As a starting point, organisations within the industry need to define a specific strategy for digital transformation, allowing for an integrated view of where digital delivers value across the business, rather than placing emphasis on the implementation of tactical digital solutions for incremental gain.
With efficiency still the focus, Oil & Gas companies should be bold and strive to create a culture of experimentation where the model is driven by “fail fast and learn faster”. A digital strategy based on strong digital leadership, combined with skilled and capable resources, and an effective operating model, can then allow organisations to harness the full capabilities of digital and generate significant value for all stakeholders involved.
