How digital can help oil & gas companies navigate COVID-19

Boston Consulting Group comments on the role of digital technology in responding to the coronavirus crisis

Digital, Digitalisation, Covid-19, Coronavirus

COVID-19 has shaken the global community to its core, with ramifications for all sectors around the world as a direct result. The oil and gas industry is no exemption, and the outbreak has created a demand shock in the market as social distancing reduces movement and daily travel for more and more of us each day.

With the current oil price in the low $20 per barrel range, with a further risk of falling below this range, expectations within the industry are that oil demand growth will be mostly flat, well below the 1.2 million barrels per day (MMB/D) growth demand projected just a few months ago, and this will likely be revised down further as large gatherings are canceled, schools keep their doors closed, and companies continue to implement policies to mandate remote working.

The oil and gas industry has been grappling with a range of complex issues, even before the event of recent weeks – energy transition, increasingly volatile oil prices, government regulations, disruptive technologies, intensified global competition.

These factors increase the risks of even the most efficient and sustainable companies. Without a better picture soon, and COVID-19 and the challenges on oil prices adding to the list of problematic factors, firms in the Middle East should embrace new digital business models and adapt them more prominently across their scope of operations. Inevitably, they will come under considerable pressure in months ahead:

  • No restrictions on oil production will see new oil price lows, excess stock, and a daunting supply overhang
  • A long-lasting sub-USD 40 price environment will cause acute financial and operational stress, and last year’s results suggest an average dividend breakeven for companies analyzed at -USD 61 per barrel

These ramifications will continue to impact the oil and gas sector, and it is increasingly unlikely that the current global difficulties will subside any time soon. The longer the situation continues, the more frequent the effects will be felt. To navigate this crisis, ensure continuity, and ultimately achieve sustainability, companies in the Middle East can explore the adoption of new business models to reduce costs – and digital is a viable option.

How digital can help reduce costs during the COVID-19 crisis and beyond

As an example case to showcase the value proposition of digital during adversity towards the industry, firms in the Middle East can reflect and apply on using a combination of technologies; in this example, leveraging the Digital Twin and maintenance optimization technologies.

Digital Twin technology enables companies to optimize operating processes, improve capital investment in a virtual world before applying them in the real one, while maintenance optimization help companies address a number of issues in planning and executing routine maintenance programs by taking advantage of big data sets, natural language processing tools, and failure-pattern recognition.

By combining the two digital tools, Digital Twin could support the preparation of the different maintenance interventions for a campaign model, and when integrated with smart planning and schedule solutions, oil and gas firms can deliver impactful results in better OPEX through better risk management, preparation, and schedule optimization by at least 15% of gains in productivity.

The value that such insights would bring to companies in the Middle East cannot be ignored, and these digital perspectives would undoubtedly place them in a favorable position moving forward.

Indeed, oil and gas companies have always made use of technology. However, they have been slower than organizations in other industries to adopt the latest wave of digital transformation – missing an integrated digital strategy, important capabilities, and concrete action plans.

By correcting this, companies can enable, adapt, and upskill personnel and the organization itself to embrace digital transformation. Moreover, they can unlock tremendous value from new data and analytics, transform technology capabilities to support new digital initiatives, and leverage the power of newly established ecosystems to harness the full potential of digital strategies.

As a case in point to highlight the significant value that can be unlocked through digital in upstream activities :

  • 50% - 60% of reduction in data interpretation time and cost
  • Up to 70% reduction in engineering hours plus higher-value field concepts
  • 20% - 30% faster well delivery and more productive wells
  • 20% - 40% reduced maintenance cost by improving uptime using predictive maintenance and digital twins

Deploying digital is prudent and sustainable

For companies in the Middle East, focusing on digital can increase performance. We have seen that organizations have been able to reduce costs with better efficiency in time spent to interpret data using advanced computing, machine learning, and artificial intelligence (AI) technologies. Similarly, the Internet of Things (IoT), big data analytics, and the increased use of drones have improved operational efficiency and reduced cost, while digital twin, machine learning, and AI have assisted major companies in improving project economics.

Admittedly, adopting digital technologies alone isn’t enough, and companies will need to analyze the role they will play in the digital ecosystem, identify the partners they will need to work with and acquire the capabilities that they need to succeed. Doing so will enable companies to capture the benefits of digitalization, mitigate threats, and take advantage of disruptions – all of which are essential to sustainability.

From a regional perspective, the oil and gas sector could well be navigating through a period of uncertainty for quite some time. However, the current crisis could be a catalyst to accelerate transformation agendas while keeping an agile approach. Adjusting priorities and digital use cases portfolio by being responsive to short term strategic directions and engaging with the profound change of operations is key to prepare for the future to ensure OPEX/CAPEX optimization, production efficiency, and HSE performance.

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Oil & Gas Middle East - June 2020

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