Converting challenges into opportunities with digital

Geopolitical tensions, energy transition, years of low oil prices and the rise of new global players have created instability, anxiety and uncertainty in the oil and gas market, disrupting companies’ business plans and, in some cases, threatening their long-term survival.

While oil prices have seen a short-term boost following the drone attacks on Saudi Arabia’s production facilities, volatility is here to stay. In the US, fluctuating prices coupled with high debt burdens and investors’ reluctance to provide new capital has led to a wave of oil and gas bankruptcies.

The current climate requires a forward-thinking strategy to navigate current turbulence and adapt for long-term success. Facing multiple pressures and increased competition, oil and gas companies need to lean into new technologies to lower costs and improve efficiencies if they are to survive and thrive. These technologies – the catalyst of the ‘Fourth Industrial Revolution’, or Industry 4.0 – are transforming every link in the oil and gas supply chain, from extraction to the end consumer.  

What is Industry 4.0?

Born out of a confluence of technology disruptions – including Big Data, analytics, the Internet of Things, extended reality, artificial intelligence, unmanned aerial vehicles and blockchain – Industry 4.0 ultimately hinges on the ability to integrate data with physical processes.

Many companies have already begun adopting new and emerging technologies, streamlining processes, increasing capital productivity and improving decision-making across the supply chain.  

This digital transformation is not likely to slow soon. In BDO’s 2023: The Near Future of Oil & Gas, we predict that the digital oilfield market, consisting of the Internet of Things, analytics and cloud computing, will surpass US$20bn by 2023.

How Industry 4.0 catalysed the US shale boom

During the oil downturn of 2014, US companies were hard-pressed to find methods and areas that had low production costs. But thanks to advancements in horizontal drilling efficiencies, producers have been able to dramatically increase the speed and scope of production, making the Permian – and the US overall – one of the most profitable areas for shale production. The US Energy Information Administration forecasts that US shale production will average 12.2m barrels per day (bbl/d) in 2019, and 13.2m bbl/d in 2020.

Horizontal drilling is by no means a new technique, and is not an example of digitalisation in the oilfield. Rather, it is enhanced data collection and analysis – driven by edge computing, more flexible data storage and sophisticated analytics – that is leading to greater precision before drilling even begins. Oil and gas companies’ ability to replicate and sustain early successful digitalisation initiatives will be key for cutting costs and maximising output – an important goal in a volatile environment. While US shale producers showcase Industry 4.0’s potential, they are not the only energy players who are adopting new technologies and transforming their operations.  

Supply chain innovation

Maintenance and safety

Boasting a true eagle’s-eye view, drones are eclipsing traditional inspection methods and facilitating early detection of oil and gas leaks in difficult-to-access locations such as offshore drilling sites. In the midstream sector, drones equipped with thermal imaging systems can help identify points of vulnerability across the world’s million miles of pipelines.

Increased connectivity

Increased data integration and information-sharing up and downstream could allow companies to adjust production levels in real-time, based on inventory data from storage facilities, rate of distribution and forecasted demand.

Exploration

Exploration and production (E&P) companies moving into the next generation of seismic imaging are experimenting with 4D models that integrate production data to map changes in reserves’ oil and gas levels. These advances aim to more precisely pinpoint the quantity of resources and the lifespan of each well.

Production

E&P companies can leverage data from sensors to determine which drilling methods combine the right mixture of sand, water and chemicals to maximise a well’s output. Drillers can also be automated to increase production and reduce costs.

Storage

Improvements in data management allow for remote tracking of inventory levels and monitoring systems to automate temperature control.

Transportation

Equipping railcars and tracks with smart sensors and thermal detectors can provide real-time geolocation data and monitor key safety features to minimise the risk of derailments.

Refining

Real-time geolocation data can alert refineries to delays on incoming crude oil feedstock. Smart sensors enhance monitoring the safety and functionality of all processes. Augmented reality applications can improve training efficacy and plant performance.

Distribution

Predictive analytics help companies to forecast demand with greater accuracy, seamlessly communicate data with suppliers and automate production levels.

The next shale giant

We expect that Saudi Arabia will grow its capabilities and investments in unconventional oil and gas production abilities, and it could go on to become a global player in shale and LNG by 2023, competing with the US and Russia. Saudi Arabia will need to match its investments in production capabilities with Industry 4.0 technologies to catch up with existing global players if it wants to compete in the global market. We also expect that Saudi Arabia will purchase assets in the US, China, Russia and Australia to diversify its portfolio, which could hasten its rise to global LNG competitiveness – especially since many of those countries are already using Industry 4.0 technologies throughout their operations.

What’s next?  

The way that oil and gas companies integrate their data, communicate and work together will continue to evolve with the adoption of new and emerging technologies. These new efficiencies will be vital to the success of the global oil and gas industry amid increased competition, volatile oil prices and market turbulence. Companies that 
can lower their input costs and increase efficiencies through Industry 4.0 tools and technologies will be best positioned to navigate these forces and compete in an ever-changing environment.

By Clark Sackschewsky, Natural Resources National Leader, and Jeffrey Pratt, Supply Chain Leader, BDO US

Picture Credit | iStock