Digital transformation is not a technology-led solution. But it will. Source: U.S. Bureau of Labor Statistics Digitization of Oil and Gas Markets in 2019 - Understanding the Impact of IIoT-based Monitoring - ResearchAndMarkets.com December 18, 2019 08:39 AM Eastern Standard Time The iconic image of “roughnecks” — overall-clad workers with oil-stained faces handling equipment on a drilling rig — has not changed much over the past few decades, even as the industry is recognized for its technological innovation. More specifically, digital oil field technologies allow companies to capture more data, with greater frequency, from all parts of the oil and gas value chain and analyse it in real or near-real time. Often during the time of crisis Operator companies such as Shell, Exxon Mobile, ENI, ADNOC, ARAMCO etc. It is a business-led transformation that leverages technology. Statoil has launched a centralized and integrated digital improvement program. Each company needs to develop its own specific digital transformation road map. To a large degree, it entailed digitization and some effort towards digi… The case for becoming digital Statoil’s objective is to increase significantly its use of data, analytics, and robotics to improve safety, reduce its carbon footprint, and improve profitability. We help our clients address their most pressing strategic and commercial challenges. ICIS 2020. All dimensions of a company and its operating ecosystem (its suppliers and external partners) need to be digitally enabled. The customer thought they were spending US $480 million on rig charges... their actual spend was 1.7x higher. And how digitalisation saved one unconventional producer US $1 billion. 2015 marked the worst recession in the Oil and Gas Industry since World War II. That’s the cost saving on offer from digitalisation in upstream over the next five years. That’s the annual cost saving on offer from digitalisation in upstream over the next five years. Research shows that average production efficiency dropped in the past decade, while the performance gap between industry leaders and other companies widened, from 22 percentage points in 2000 to around 40 percentage points in 2012. Two good examples are Cognite, a technology company focused on upstream operations in the Norwegian part of the North Sea, and Baker Hughes General Electric, which was created in 2017 in an effort to industrialize digital capabilities. Accenture's energy consulting services in the oil and gas industry can help you company thrive in the digital world. Our own experience confirms this significant potential. He has over 20 years of experience in the oil, gas, utilities and mining sectors, working with the boards… Read More Simon Flowers is Chief Analyst and Chairman for Wood Mackenzie. Although many oil and gas companies are trying out new digital ways of working, no one can claim to have “cracked it” just yet. “Not your father’s oil and gas business: Reshaping the future with upstream digitization.”. What’s new is a number of technologies that have emerged over recent years outside of the oil and gas sector. From your experience, how should oil and gas companies see the current digital evolutions and how will business models in the oil and gas industry be impacted and changed? As we’ve discussed, Lower 48 companies are more advanced in their adoption of digitalisation than their conventional upstream peers. The oil and gas sector has a relatively long history with digital technologies, notably in upstream, and significant potential remains for digitalisation to enhance operations. PowerAdvocate believes that the foundation of successful digitalisation is good data. (For more insights on how operational efficiency is achieved through the application of technology, please refer to “Not your father’s oil and gas business: Reshaping the future with upstream digitization.”). The companies that really embrace this trend – utilising their data as an asset and scaling the application of digital technologies – will be the ones to benefit the most. US $75 billion each year. While large volumes of data in the past could be a problem, Big Data is now an asset. As operators explore new ways of working, some companies will be pioneers in digital solutions, and others will be fast followers. Always view this as a business-led — as opposed to a technology-focused — exercise. And E&P companies will likely not be the ones to develop new digital technologies and solutions; these will likely remain the preserve of the largest players with deeper pockets. Putting Digitization in the Pipeline Oil & gas businesses face additional challenges in adopting digital technologies, which is slowing their adoption rate compared to other sectors. As with all new business models, there will be associated risks. Digitalization is touching every part of Repsol; Upstream, including the development projects, exploration, downstream, the corporate center and it will change how we plan, we develop, we monitor and we are managing our businesses while we are at the same time improving margins and efficiency, lowering costs and delivering long-term value. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Although many oil and gas companies are trying out new digital ways of working, no one can claim to have “cracked it” just yet. As digitalisation permeates the upstream sector, successfully managing the cultural impact across organisations will dictate the success of digitalisation. This information was powerful. Similarly, Aker has a stake in the new technology startup mentioned above, Cognite, which is headed by a former Microsoft executive. Digitization hasn’t quite yet ripened into a full-fledged revolution in upstream oil and gas. Many upstream companies have for some time been using elements of digitization, which we define as the strategic business value of data-based technology that includes the Internet of Things (IoT), cloud computing, and artificial intelligence. What are geophysicists and engineers if not data scientists? The reason for this fairly piecemeal approach to date is the industry’s aversion to catastrophic risk, which is well known. This unconventional producer found US $1 billion of savings in their third party spend. The value of data analytics is potentially transformative in the oil and gas industry. Moreover, the industry faces a complex set of challenges including geographically dispersed assets, legacy assets that may be in long-term production decline, and operator (the lead E&P company on a project) versus non-operator (a partner in an E&P project) status. Sign-in to our platforms to access our extensive research, our latest insight, data and analytics and to connect to our industry experts. The application of “digital twin” technology opens up the possibility of replicating physical assets from fields to equipment in digital form, allowing companies to model scenarios to optimize everything from production to maintenance. That said, there is an enormous amount of interest in and expectation around the benefits that digital solutions can bring. Drilling, performance monitoring, and production optimization could become highly automated. Senior executives need to make sure they have the right capabilities in place when it comes to the mix of engineers and data scientists. Note the iconic hires for the NCS, such as Statoil recruiting a new chief digital officer. We also need to appraise and understand their impact on our overall profit margins. Digital transformation of a company needs to be holistic and address all the elements of the operating model. Further digitalisation in the upstream oil and gas industry in the future is likely to initially focus on expanding and refining the range of existing digital applications already in use. Companies need to approach digitization from the perspective of building new capabilities and leveraging technology across all key aspects of the value chain. PowerAdvocate, Wood Mackenzie’s sister company, does exactly this. The customer found that they could determine where they were paying different rates for the same equipment in a specific play; they could ensure that they were always paying the lowest negotiated rates; and they could improve their negotiating leverage with some suppliers. These efforts are far more advanced in the do wnstream context. Everything from strategy and capabilities to organizational structure and culture will need to be considered and potentially reconfigured to reflect a digitally enabled business. Benchmarking data also illustrate the broad opportunity for improvement. The biggest changes will be automated drilling technology, such as that being developed by Rockwell Automation, and predictive maintenance, like the solution offered by MapR and Mtell. Digitization holds key to unlocking oil and gas industry's potential New and disruptive technologies, structural simplification, and the opportunities offered by digitization could potentially transform offshore operations as well as enhancing productivity from existing capacity, making the industry more productive, more agile and more prepared for a sustainable future. Oil and gas companies were pioneers of the first digital age in the 1980s and 1990s. It is critical that the oil and gas sector attract and retain talent that is technologically focused. Satyam Priyadarshy (Halliburton): The oil and gas industry started its digital revolution a decade or so ago.This first revolution is now known as digital oilfields or some variant of it. Still, L48 operators have adopted Big Data initiatives and advanced analytics and been rewarded. Best-in-class players do not incur higher costs to improve productio… Crude oil was traded as low as $30/bbl[1] in the third quarter of 2015. Where and how is digitalisation likely to impact upstream oil and gas? “Siloed” digitization does not provide the cross-functional insights across multiple assets that are needed to drive efficiency and value at the enterprise level. Those operators that can design and embrace a digital strategy that works for them will be well-placed to succeed in a new digital era of oil and gas. Fill in the form to talk to Greig about digitalisation in upstream. The company has committed an investment of 1 billion to 2 billion Norwegian kroner ($128 million to $257 million) in digital and emerging technologies, to be executed through the center of excellence. Combine these advances in technology with the fact that the sector is heavily focused on making productivity improvements, and it is easy to appreciate why companies are increasingly excited by the potential of digital solutions. Aker BP, which aims to become a preeminent E&P independent player on the Norwegian continental shelf (NCS), sees digitization as one of the cornerstones of its strategy to improve efficiency and reduce full-cycle breakeven costs to less than $35 per barrel for new developments. We will reach a 7% reduction in production costs thanks to: advanced algorithms to ensure reduced asset downtime and higher production rates; and, predictive analysis systems, based on big data, which allow us to optimize maintenance, logistics and well operating costs. Offshore oil production began with the Argyll field in the Central North Sea (CNS) in 1975. According to research, the three biggest digitalization priorities for the oil and gas sector in 2020 are cloud-based applications (47%), data platforms (44%) and AI (27%). In theory this is a great pairing: a highly innovative industry and the latest digital technologies. It is setting up a digital center of excellence with a holistic road map for digitization stretching out to 2020. The cost curve for tight oil has been materially lowered, and digitalisation has played a critical role. Mingaleva Z., Shironina E., Buzmakov D. (2021) Implementation of Digitization and Blockchain Methods in the Oil and Gas Sector. The Oil & Gas industry is adapting to the new era of digitization which is rapidly changing the ecosystem in all areas of business but especially Upstream. Digital has the power to help the sector reap the most from its boom periods and avoid the worst damage when things go bust. The upstream oil and gas sector is well behind other industries when it comes to being digitally enabled. Operational excellence, with assets operated much more efficiently, could be achieved through the use of predictive maintenance and drone technology. The UK’s oil and gas sector is dominated by production from offshore areas, which account for virtually all of UK output1. From a technology perspective, the growth of data analytics coupled with the industrial IoT is generating new ways of optimizing workflows. What’s more, PowerAdvocate and this customer used the cleansed, enriched data set to do more sophisticated analysis about third party supplier productivity by adding information from production management and field data capture systems. By continuing to browse the site you are agreeing to our use of cookies. They let you easily navigate your way around the site and allow us to improve its performance, or even recommend content we believe will be of most interest to you. Find out when you purchase this insight. PowerAdvocate started with an analysis of the customer’s third-party spend. Please see www.pwc.com/structure for further details. Based on these figures, a graph was generated showing the distribution of fatal and non-fatal accidents in 2007 in the upstream sector. In: Antipova T. (eds) Integrated Science in Digital Age 2020. All stakeholders around new field development —including the host government and the oil service providers and contractors — need to be digitally enabled. Conventional upstream has likely made the least progress, despite the size of the potential gains. Digital transformation is proving to be a true game-changer for Exploration & Production. literature suggest that the oil and gas industry has begun major digitization initiatives. Looking beyond the financial benefits of digitalisation, there are opportunities to improve health and safety across the industry by  moving workers from the field to the office. The industry produces Big Data, but advances in analytics, including machine learning and artificial intelligence (AI), provide new ways of interpreting this data, producing previously unknowable insights. Companies need to ask themselves what they are really good at and what they want to be famous for — and then figure out how digitization can help. Reducing the current heavy reliance on paper is one of the most significant benefits of digitization in oil & gas, both in economic and environmental terms. Drilling for data: Digitizing upstream oil and gas. Traditional operators are concerned by the emergence of unconventional players with differentiated, market-leading digital capabilities. Businesses stand to benefit from the sharing of data, knowledge, experience and insights as cross-functional teams form. Our research finds that the effective use of digital technologies in the oil and gas sector could reduce capital expenditures by up to 20 percent; it could cut operating costs in upstream by 3 to 5 percent and by about half that in downstream. As illustrated in Exhibit 1, savings can be realized in operational excellence (such as more efficient maintenance and better operation of assets); in the supply chain; in the use of artificial intelligence; and in the use of integrated platforms (connecting the organization with external partners). A coherent road map could help make sense of the digital muddle and drive more value. Although best-practice examples from leading companies might be emulated, digital solutions ultimately need to be bespoke and meet the business needs and challenges of each individual operator. Our benchmarking analysis of North Sea offshore platforms illustrates the efficiency challenge that many oil and gas companies face. Subscribe to our trusted data and analysis for global energy, chemicals, metals and mining industries. Generally, the digital oil field encompasses both the tools and the processes surrounding data and information management across the entire suite of upstream activities. Production of natural gas began in 1967 with the West Sole field in the Southern North Sea. And produced hydrocarbons from the nanodarcy permeability of shale rock. Innovations in the conventional business take many years to penetrate the sector. But how close is the industry to achieving this? But there is a disconnect; the E&P sector is conservative when it comes to adopting new technologies. IoT will enable companies to digitize, optimize and automate processes in mid-, up- and down-stream that were previously unconnected. For an industry that has been on a market rollercoaster in recent years, it is now looking to digital technologies and agile methodologies to improve operational efficiencies to underscore its future. The upstream oil and gas sector is well behind other industries when it comes to being digitally enabled. Identifying opportunities to spend more efficiently yields powerful savings, but PowerAdvocate also worked with this customer to help them to identify ways to hold costs steady in rising markets. Distribution of injuries and illnesses with days away from work in drilling oil and gas wells, by event, 2007. Despite a deluge of digital advancements, upstream oil and gas companies have been slow to seize the opportunity. As assets become increasingly connected to the network, it is important to protect critical digital infrastructure against cyber-attacks — by monitoring threats, identifying vulnerabilities, building robust controls, and promoting a culture of security awareness. Finding this balance between technical and technology capabilities is likely to prove one of the trickiest challenges for chief strategy officers and chief information officers. All rights reserved. Upstream technology and innovation solutions help you source, manage and advance strategic technology developments across the oil and gas value chain. Moreover, advances in cloud computing and edge analytics mean firms do not need a supercomputer or a Supermajor's IT budget to capitalise on this opportunity. The customer could then understand the competitiveness of their rates and negotiate accordingly. Some of that has been through technologies that sort and operationalise data to unlock structurally lower costs. As a result of these activities, PowerAdvocate’s customer found US $1 billion of savings in their third-party spend. Decision making could be transformed, as the use of augmented reality and digital twins would underpin the simulation of “first oil” — the initial amount of oil that emerges from a field that’s being commercially drilled — before final investment decisions are made. If you would like to learn more about how we use cookies and how you can manage them, see our Cookie policy. Natural resources research for financial services, Oil Field Services & Original Equipment Manufacturers, 2020 Featured Reports - Power & Renewables, The digital imperative: why upstream oil and gas is embracing advanced analytics, Visit the PowerAdvocate blog, Cost Insights. We believe there are some basic guiding principles that companies should consider when developing their digital business models: In its 2017 Digitization & Energy report, the International Energy Agency estimates that digital technologies could cut production costs by as much as 20 percent. There is no one successful digital template to follow. Microsoft Azure, Amazon Web Services and Google Cloud make cloud storage and analytical engines available to everyone. Here are some guiding principles for operators starting out on a digital journey. Annual cost saving potential in the next five years, based on currently known technologies. And given that drilling exploration wells can cost hundreds of millions of dollars, drilling in the right place can yield sizable savings. In so doing, it offers increased safety of our operations and profitability of our businesses. Yet look at a modern-day automotive manufacturing plant, where lines of workers assembling individual car parts already have been largely replaced by robots. Unconventional players in the US, driven by the overall cost competitiveness of that market, are probably the furthest along the path to realising the benefits of digital transformation. The oil and gas industry is not a stranger to this and is progressing towards digital maturity. PowerAdvocate believes that the foundation of successful digitalisation is good data. For example, Aker Solutions is working closely with Statoil to develop the Johan Sverdrup field using data from a common digital twin. Eni has developed its own supercomputer, the HPC4, which is used to process data on oil and gas reservoirs. This analysis revealed that, in fact, one low-rate wireline supplier was nearly 40% less productive than a more costly, but more productive vendor, identifying a multi-million-dollar opportunity. © 2019 - Sat Dec 19 19:43:00 UTC 2020 PwC. Given the increasingly sensitive nature of offshore operations in terms of health, safety, and the environment, operators need to be sure digital technologies can be deployed without risk to operations. With a total impact of $930 billion estimated from oil and gas within the next decade, it’s little surprise that the industry is showing huge interest in leveraging IoT. The oil and gas industry has always been at the cutting edge of technological innovation. As we’ve said, energy firms are at different points in the digitalisation journey. In late 2019, Recab’s partner Congatec introduced a new rugged class of embedded edge server technologies designed for the digitization of the upstream and midstream oil and gas industry. The prize of going digital is clear, but for most companies, getting there is not easy. In our latest research, we take a closer look at the likely impact on the upstream sector. Companies need to develop their own digital transformations because there is no “best practice” model in the sector to replicate. Here are a few examples: At the other end of the spectrum, there are smaller exploration and production (E&P) companies starting to explore digital transformation. The trend toward digital innovation is accelerating across the sector because companies are much more focused on cost and driving operational efficiencies in an era of relatively low oil prices. As a first step, they are setting up pilots across their organizations to assess how best to apply digitization, as well as to identify the key digital capabilities that need to be developed. You only need to look at what CEOs of the biggest oil and gas companies are saying to realise the strategic importance being placed on digitalisation. The new embedded edge computing platforms are designed for extended temperature ranges, with optional conformal coating to protect against the effects of salt water or condensation caused by … We've extracted oil from deep underground in the harshest offshore environments. Identify the greatest business challenges and assess how digital technology can help. OEMs and rig owners are also at a crossroads as upstream oil and gas faces digitization. Now upstream companies can maximize oil production while minimizing gas lift, flare, energy consumption or other constraints. The analysis also provided more granularity on how that spending was composed of rig operating charges, rig standby time, and tools, materials, and consumables. Buy our reports to address business challenges and make better commercial decisions with objective insights, analyses and data. The analysis unlocked by this dataset was telling: PowerAdvocate found that hundreds of millions of dollars were incorrectly understood. Cognite is in effect the oil services player of the future, focused on digital solutions with the objective of accelerating and driving digitization on the NCS. This customer thought they were spending US $480 million on rig charges; PowerAdvocate’s analysis identified nearly US $800 million in spending. Why are we nonetheless seeing a gradual awakening in this sector? DUBLIN, May 28, 2020 /PRNewswire/ -- The "Radical Innovations Transforming Upstream Oil & Gas Industry" report has been added to ResearchAndMarkets.com's offering.. Submit your details to find out more about how we can help you and your organisation. Upstream executives are right to be sceptical of promises to transform cost structures; they have been burned before by these kinds of promises. PowerAdvocate discovered a difference in productivity between two suppliers of 40%. As the industry evolves digitally, HR executives will need to think carefully about how they attract a new generation of technologically savvy younger people. The upstream oil and gas sector has faced a variety of challenges such as unpredictable oil prices, changing patterns of demand and ensuring safe working conditions at remote sites. Digitization is Fueling Growth in the Oil and Gas Business Digitization is the buzzword in the oil and gas sector as it’s seen as transformative for the future of the industry. Examples of these elements are 3D seismic technology, unmanned oil and gas installations in the Dutch and Danish parts of the North Sea, and advanced reservoir modeling. But how close is the industry to achieving this? Building a digital organization needs to encompass stakeholders beyond the company itself if the full potential of efficient operations is to be unlocked. We use cookies on the public areas of our website. In the past, capabilities may have focused on technical expertise to deliver excellence in engineering projects. On that basis, anyone in the industry talking about digitalisation may legitimately ask, "what’s new?” What does seismic interpretation deal with if not Big Data? The iconic image of “roughnecks” — overall-clad workers with oil-stained faces handling equipment on a drilling rig — has not changed much over the past few decades, even as the industry is recognized for its technological innovation. 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