Digitalisation: A new era for oil and gas
As early as the 1980s, oil & gas companies began to adopt digital technologies, with a focus on better understanding a reservoir's resource and production potential, improving health & safety, and boosting marginal operational efficiencies at oil fields.
The Digital Transformation Initiative (DTI) is a project launched by the World Economic Forum in 2015 as part of the System Initiative on Shaping the Future of Digital Economy and Society.
It is an ongoing initiative that serves as the focal point at the Forum for new opportunities and themes arising from latest developments in the digitalisation of business and society. It supports the Forum’s broader activity around the theme of the Fourth Industrial Revolution.
The following is the Executive Summary of a White Paper – Digital Transformation Initiative: Oil and Gas Industry – published by the World Economic Forum in collaboration with Accenture:
The oil and gas industry is no stranger to big data, technology and digital innovation. As early as the 1980s, oil and gas companies began to adopt digital technologies, with a focus on better understanding a reservoir’s resource and production potential, improving health and safety, and boosting marginal operational efficiencies at oil fields around the world.
A wave of digital oilfield initiatives swept through most of the industry in the 1990s and the early part of this century. However, for most of this decade, the industry has not taken advantage of the opportunities that derive from using data and technology in a meaningful way. A single drilling rig at an oilfield, for example, can generate terabytes of data every day, but only a small fraction of it is used for decision-making.
As other capital-intensive industries (such as aviation and automotive) have revolutionised their business and operating models through a holistic application of digital technologies, the opportunity for the oil and gas industry to leverage the transformational impact of digitalisation has become more evident.
The industry is now beginning to pay heed. The growing consensus is that the oil and gas sector is on the cusp of a new era. A second wave of business and digital technologies looks set to reshape it, propelled by a series of macroeconomic, industry and technology trends:
Disruption in supply, demand and commodity prices: The industry is witnessing one of its worst downturns, driven by a supply-side disruption. At one point, commodity prices had fallen by more than 70% compared with June 2014 levels. Just as some early signs of recovery have emerged, another disruption may be on the horizon, driven, on this occasion, by peak demand for oil.1, 2 This disruption will maintain pressure on hydrocarbon prices and prompt energy companies to focus more intensely on reforming their portfolio and taking a greater role in the energy transition.
Rapid advances in technology: The growing sophistication of platforms, as well as mobility, surveillance, connectivity and storage technologies, coupled with the ability to process and analyse data rapidly, enhance agility and support real-time decision-making and execution.
Changing consumer needs and expectations: Across industries, consumers expect increased engagement, personalisation and speed. They are also paying more attention to environmental issues, which influences their energy choices; seeking transparency from companies in different areas (e.g., emissions or hydrocarbon sources); and growing in technical sophistication by being connected to multiple technology and digital platforms.
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Despite these fundamental shifts, many of the digital initiatives to date within oil and gas could be seen as conservative and with limited impact on existing operating or business models. Much of the effort so far has been evolutionary; companies are making incremental performance improvements through the selective use of business and digital technologies. These include basic proactive maintenance procedures, reviews of completed operations and the use of rudimentary data sets for all parts of the oil and gas value chain.
At present, the traditional approach of selectively adopting a set of technologies and unsystematically implementing digitalisation might not be suitable. Instead, the industry could benefit more by pursuing a revolutionary agenda with digital as a backbone. Digital transformation has the potential to create tremendous value for both the industry and society as a whole. Such a transformation will require organisations to implement a focused digital strategy, sponsored by the chief executive officer and executive teams, and a culture of innovation and technology adoption. It will also need investment and commitment to revisit and revamp processes, infrastructure and systems; and, a willingness to collaborate across the ecosystem. All the enablers required for a successful transformation will have to come into play for the industry to harness digital's true potential.
Four themes are central to the digital transformation of oil and gas over the next decade:
Digital asset life cycle management: New digital technologies combined with data-driven insights can transform operations, boosting agility and strategic decision-making, and resulting in new business models.
Circular collaborative ecosystem: Applying integrated digital platforms enhances collaboration among ecosystem participants, helping to fast-track innovation, reduce costs and provide operational transparency.
Beyond the barrel: Innovative customer engagement models offer flexibility and a personalised experience, opening up new revenue opportunities for oil and gas operators, and new services for customers.
Energizing new energies: The digitalisation of energy systems promotes new energy sources and carriers, and supports innovative models for optimising 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.
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Putting a value on digital transformation
This value-at-stake analysis3 aims to assess the potential for digitalisation in the oil and gas sector to unlock benefits for the industry, its customers and society more generally over the next decade (2016-2025). Key findings from this analysis include the following:
Digital transformation in the oil and gas industry could unlock approximately $1.6tn of value for the industry, its customers and wider society.
This total estimated value from digitalisation can further increase to $2.5tn if existing organisational/operational constraints are relaxed, and the impact of ‘futuristic’ technologies, such as cognitive computing, is considered (for which there is insufficient evidence to make a definitive value assessment at this time).
Digitalisation has the potential to create around $1tn of value for oil and gas firms.
Digital transformation in the industry could create benefits worth about $640bn for wider society. This includes approximately $170bn of savings for customers, roughly $10bn of productivity improvements, $30bn from reducing water usage and $430bn from lowering emissions.
Environmental benefits include reducing CO2-equivalent (CO2e) emissions by approximately 1,300 million tonnes, saving about 800 million gallons of water, and avoiding oil spills equivalent to about 230,000 barrels of oil.
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Barriers to change include regulatory frameworks that are struggling to adapt to a new era of data sharing along value chains; a lack of standardisation in data coming from sensors; an inability to share information across the ecosystem; and the challenge of recruiting millennials to replace an ageing workforce.
Moreover, some senior industry leaders have not yet made the necessary shift in mind-set to embrace digital's potential value. This is particularly so when digital is considered at odds with deeply entrenched safety concerns, which can be triggered, for example, by discussion of unmanned assets.
Structural inhibitors that may result from such a conservative approach are another key barrier to digital transformation, as in the industry's lack of desire to take a more experimental, ‘fail-fast’ approach because of concern about the potential consequences of change.
Recommendations for successful digital transformation
Digital transformation could transform the way people work and live at a scale comparable to major industrial revolutions of the past. While digital transformation has tremendous potential to benefit industry and society, it is by no means guaranteed that its full value will be unlocked.
To do so, all major stakeholders – including coordinated regulatory efforts to maximise the value of digitalisation for society and across industries – must engage in focused collaboration and determined action. Successful digitalisation will require collaboration between industry leaders, communities and policy-makers. A series of recommendations for both the industry and other stakeholders have been developed:
Recommendations for the industry
Make digital a priority for senior executives: Digital transformation, like any other transformation, needs to be sponsored from the top. This includes setting a clear vision, committing funding and resources, and actively championing the change-management effort associated with it.
Drive a culture of innovation and technology adoption: While not everything will be developed in-house, companies will need to open up to new ideas and ways of working.
Invest in human capital and development programmes that promote new, digital thinking: Ultimately, a digital-savvy workforce is both a foundational enabler of transformation and a key driver for maximising value capture.
Put in place a methodical approach for developing and/or industrialising new capabilities: This includes decisions about whether to build or buy capabilities, and a programme-management approach to scale up technology and digital platforms.
Reform the company’s data architecture: Data sits at the heart of digital transformation, so the harmonisation, integration and interoperability of data platforms are critical.
Identify opportunities to deepen collaboration and understanding of sharing-economy platforms: This will allow for sidestepping the potential pitfalls brought by changing customer preferences shaped by the rise of the sharing economy.
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Recommendations for policy-makers, governments and broader society
Develop global data standards: This includes policies related to data sharing and security, and encouraging transparency in operations.
Foster an ecosystem for innovation: Policy-makers, governments and wider society have an important role in driving future prosperity. The onus has shifted today onto governments to not only help build the innovation ecosystem, but also innovate within their organisations to unlock value and meet their constituents' ever-changing and diverse needs.
Create clear regulatory frameworks: These will promote the shift towards the low-carbon economy and support a more inclusive society. Such frameworks can contribute to a broader reform agenda for greener, more resilient and inclusive growth.
Data generation, sharing, analysis and storage are important enablers of digital transformation – for example, in adopting the Industrial Internet of Things, or collaborating within the ecosystem.
Governments should ensure that current concerns on the privacy, usage, security and interoperability of data can be resolved. Today, governments are expected to observe the development of digital technologies and be open to a dialogue with the industry on best practices related to collecting, sharing and using data.
Finally, the industry, governments and civil society will not maximise the benefits of digitalisation to the industry, wider society and the environment if they each act separately on these important topics. Instead, addressing digital transformation with a multi-stakeholder approach stands to reap potential gains that have never been greater.
1 Upstream: The analysis of upstream has been focused on estimating the impact on a barrel of oil equivalent of production. The analysis has been further divided into the following different oil play areas: (a) Onshore Middle East; (b) Shelf; (c) Onshore Rest of the World; (d) Deepwater; (e) Extra Heavy Oil; (f) US Light Tight Oil; (g) Onshore Russia; and (h) Oil Sands.
2 Midstream: The analysis has been focused on pipeline companies, and the impact has been calculated on operating profits.
3 Downstream: The analysis considered the impact on the refining throughput, as well as the impact that digital could have in increasing throughput or reducing costs.