The oil sector is facing headwinds. Whether rapidly falling oil prices due to geopolitics and demand shocks or criticism from governments and the public about climate change, oil companies have a lot on their mind. The current price volatility brought on by the global response to Covid-19 will likely force oil companies to reduce capital projects and operating expenses in the coming months, if not years. Against this backdrop, digitalization brings a chance for resiliency and modernization. Investing in artificial intelligence, drones, augmented reality and cloud computing is a positive move for oil companies that want to reduce operating expenses and breakeven costs, and to reflect the care they take in ensuring the safety of employees and limiting greenhouse gas emissions. Automation, training and remote employee work are top of mind for oil companies, responding to Covid-19, and all of these technologies depend on a strong corporate digital foundation. In the past year there have been a plethora of digitalization strategy launches by the oil and gas sector. Our analysis quantifies the benefits of digital technologies to the oil sector, draws a link between decarbonization and digitalization, and ranks the leading oil companies based on their plans, progress, and IP.
There are both push and pull factors that have spurred companies to digitalize. There are regional factors which contribute, like the number of similar wells or tricky geologic features. In the upstream, unconventional fields in the U.S. have been using analytics to benchmark similar wells, extend their productive lifespan and optimally site wells. New data sources have provided opportunity for collaboration in parallel with the rise of open source platforms, blockchain consortia and marketplaces as companies sort out which of their data creates a competitive edge and which is more valuable when aggregated with competitors’.
Push factors:
Pull factors:
More certainty around production, asset uptime and market participation given current oil price volatility
Potential to improve production, especially in unconventional fields
Potential for new field discoveries
Technology buzz can be a useful recruiting and PR strategy
Falling cost of sensors and computing power; benefits of cloud computing and software-as-a-service
Where are the benefits?
Digital technologies are used across the oil and gas value chain but in differing degrees. Historically, companies have collected data and analytics on their upstream operations to improve production and benchmark wells. But the falling costs of sensors and computing have strengthened the economics for using IoT technology to reduce costs downstream. Retrofitting project for older plants will lead by European refiners facing collapsing margins, and new megaprojects in Asia and the Middle East will likely have analytics already built in.
"However, the highest potential for digitalization is to use analytics to find and recover more oil. "Upstream, oil companies have owned the largest commercial supercomputers for decades to process enormous amounts of seismic data to discover new reservoirs. Now, oil majors are taking advantage of the flexible and scaling resources of the cloud to lower costs and accelerate their exploration. They are also investing substantial funds – $400 million per year for the Total and Google collaboration – to identify use cases for machine learning to better identify promising projects and optimally site wells within a field.
Digital technologies can reduce oil refinery operating costs by $0.44/barrel, equivalent to 11.5% of operational costs in the U.S., according to BloombergNEF. However, very few refineries have fully adopted these technologies.
Labor is often the largest operating cost for refiners, except for material inputs like crude. Digital technologies can accelerate knowledge transfer, increase on-site safety, enhance productivity and centralize engineering experts. Predictive maintenance is being applied to aging assets to flag future failures. BNEF expects this can cut unplanned downtime by 25%. These technologies can reduce the cost of refining oil, increase asset flexibility and serve the oil market better. But they also mean refiners have to adopt cloud computing, invest in talent, and make new partnerships with technology firms.
