May 3, 2021
By: Isabell Bücher
Digital Transformation & Industry 4.0 in Oil & Gas
Digital transformation and industry 4.0 have been on the map for process manufacturing for a number of years. But the pace of adoption accelerated enormously during the disruption of COVID-19, and continued at double-speed as companies struggled to cope with the changes of the post-COVID world.
But while digital transformation spread everywhere, there are significant variations in the challenges, priorities, and adoption rates among different industries. Each sector has its own story to tell and we’ll be exploring various industries and their transformation journeys in a series of blog posts.
The State of Digital Transformation in Oil & Gas
The oil and gas vertical lagged behind other process manufacturing sectors when it comes to digital transformation. High oil prices helped blunt the need for operational excellence that drove other sectors towards digitization. Additionally, most oil and gas companies are massive and complex, but smaller, more nimble companies are earlier digital adopters and fare better in digital transformation. Sprawling oil and gas companies faced little competition from agile, digitally-transformed competition.
COVID-19 forced the sector to embrace digital transformation, when oil and gas prices plummeted due to lockdowns and travel bans. The need to lower operating costs, cut waste, and drive operational efficiency became more acute in the face of a drop in revenue. The market turbulence caused by the invasion of Ukraine and the fast-moving global energy transition helped emphasize the importance of successful adoption of Industry 4.0. That said, progress is slow. According to McKinsey, only 30% of oil and gas companies have scaled digital technologies successfully, and while most are running digital transformation projects, some 70% are stuck in the pilot phase.
Key Trends in Digital Transformation in the Oil and Gas Industry
Reducing Operating Costs
COVID-19 and the attendant crash in oil prices focused oil and gas companies’ attention on the need to reduce operating costs, cut waste, and increase operating efficiency. That need didn’t disappear with the end of the pandemic. On the contrary; rising energy prices refocused the need for European refineries, in particular, to cut energy usage so as to compete with American refineries whose energy costs are around half of their own.
Because oil and gas companies are so large and complex, even small leakages and inefficiencies can cost billions of dollars. The average oil and gas company loses between $38 million and $88 million in unplanned downtime every year, and overbuys supplies to the tune of billions of unnecessary dollars because there is no integrated view of upstream operations.
Oil and gas plants also have to deal with variations in crude and feedstock quality, which make it difficult to predict fouling and corrosion in equipment. Contaminant levels are hard-to-detect and can speed up corrosion and fouling and damage wastewater treatment systems.
Increasing Efficiency with Advanced Analytics
As a result, implementing an integrated data strategy which encompasses smart sensors, advanced analytics, and integrated data platforms, is a high priority. Advanced analytics is top of the list, with McKinsey consultant Ying Wan Loh pointing out that analytics-driven yield energy and throughput improvement can increase profit per hour by up 50 cents per barrel. Big data analytics is the top trend that executives predict will positively impact their business growth in the next 3 years.
An integrated data strategy can enable oil and gas companies to spot impending part failure and correct it while repairs are small and inexpensive; prevent overspending on materials and assets; and reduce energy and materials wastage through inefficient processes.
Increasing Resilience with a Remote Workforce
COVID-19 highlighted the vulnerability of oil and gas companies. The average oil rig depends heavily on a human presence, but the pandemic forced companies to adopt tech solutions that allow rig engineers to work remotely. Process automation adoption was key to helping companies function during COVID-19, and the trend is still strong.
Plants are also increasingly adopting digital twins, which enable maintenance teams to carry out root cause analysis remotely through smart glasses, and to complete repairs without putting any employees at risk. With digital twins, owners and vendors can track the performance of equipment and look for ways to improve it.
Improving Environmental and Safety Profile Proactively
Over the past few years, the general public has turned a lot more attention to the environmental damage caused by oil and gas companies. The sector is struggling to recruit the best new talent, because of a widespread negative perception of its carbon footprint and safety issues.
Oil and gas companies are also encountering new regulatory frameworks designed to limit carbon emissions. Decarbonization is now the second biggest area of concern for oil and gas executives, and the energy transition is gathering pace and weight.
Digital transformation offers the opportunity for plants to be proactive in cutting emissions and reducing energy waste. Advanced analytics that detect failures and inefficiencies help increase safety, reduce waste, and boost energy efficiency by ensuring that all equipment and processes are always in top operating order.
What is Holding Back Oil and Gas Digital Transformation
The biggest obstacle is a serious skills gap. According to Bain and Company, there’s been a growth of well over 100% in roles connected with analytics and data science in the industry, but few people with the relevant skills are interested in working in oil and gas. Only a third of energy sector leaders feel confident that they have the skills needed for the energy transition,
The skills gap is nothing new; in 2018, Deloitte warned that the lack of midstream operative and digital experts, in comparison with the ongoing hiring of more construction, maintenance, and materials experts, would hamper organizations from transforming digitally upstream.
However, the lack of skills is not the only obstacle. Oil and gas companies preside over legacy assets and outdated infrastructure. A long-term emphasis on growth over maintenance caused companies to neglect the digital upgrade of assets. Oil and gas companies now dream of advanced analytics monitoring centers that can respond quickly to anomalies within pipes and rigs, but first they need the IIoT sensors that would detect leaks and abnormalities. In many cases, the aging pipeline infrastructure isn’t equipped with the technology to gather data.
Additionally, there’s a lack of digital alignment between different parts of the oil and gas ecosystem. Fuel transportation and storage capabilities are far more advanced than upstream activities, but even here we see that terminal operations are much more mature than tank management systems. Many companies invested heavily in technology for the field, but don’t have an integrated data system. Discrete units operate within extensive oil and gas companies without effective coordination or collaboration, strengthening data silos across the ecosystem.
In the Oil and Gas Sector, Digital Transformation Has a Long Journey Ahead
The varying pressures of COVID-19, war in Ukraine, and the energy transition drove oil and gas companies a long way down the path towards digital transformation, but there is still a significant gap between them and other, more advanced sectors. The sector needs to build up the necessary talent, culture, and infrastructure for a long-term and effective digital transformation, but the ball is already rolling.