Study: Low Oil Price Gives Industry Chance to Pursue Digital Transformation

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Oil and gas companies see today’s turbulent oil price market as a chance to gain competitive advantage by harnessing new technologies, according to the findings of a recent Cisco Systems survey.

Today’s low oil price environment means that oil and gas companies must find new ways of operating more efficiently and reducing costs. Cisco’s study found that oil and gas companies are now seeking to complete the shift digital oilfield technology, or Internet of Everything (IoE) technology, according to Cisco. IoE is the networked connection of people, process, data and things.

Forty-eight percent of respondents participating in a Cisco Consulting Services survey of 550 oil and gas professionals in 14 countries – including a mix of upstream, midstream and downstream professionals – found that data quality was the number one area of operations that needed improvement to make more effective use of IoE technologies.

Over the next 24 months, survey respondents said they planned to boost investment in technologies to boost operational efficiency of existing projects or reserves and maintenance of assets and infrastructure. The survey also found that leaders must improve operational efficiencies and asset life to stay competitive without cutting costs through layoffs and project cancellations.

One example is offshore platforms, which generate between 1 terabyte and two terabytes of time-sensitive data per day. This data is typically transmitted through satellite communication; this process typically takes more than 12 days to move to a central repository such as the cloud. Using edge analytics lets oil and gas companies determine whether data should be sent to the cloud for analysis or analyzed at the edge of the network, where data is collected, such as sensors from drilling equipment. This is known as analytics on the edge.

Faster problem resolution was the primary business benefit cited by survey respondents of IoE, who also said they believed that IoE would boost operational efficiency mainly in the upstream oil and gas value chain. The benefits of this faster decision-making abilities include improved visibility into operations, better quality solutions and enhanced worker safety, said Smith. Experts can work together using real-time data to solve problems, even if they’re not all in the same location. Experts can guide field workers on how to solve problems without having to fly to a location.

Not only are speed and accuracy critical, but worker safety as well. Wireless and sensor technology allows oil and gas companies to trace workers and see whether they’re safe or in danger. Companies then can respond more quickly. This technology ‘also can take people away from dangerous locations and operate a site completely remotely,” Smith said.

The need for remote operational capacity is growing as oil and gas companies explore deeper, harsher environments such as the North Sea. This means that oil and gas companies also will have to embrace innovational technology and collaboration to meet future needs.

Smith said Cisco was surprised that 48 percent of survey respondents cited data as the primary area where improvements need to be made to take advantage of IoE technology. Only seven percent cited more things as an area that needed improvement.

“On the other hand, as you look at oil and gas, there is already a lot of data being collected, and that data remains at locations, in systems, and can’t be brought together from system. Our interpretation is that there already is a lot of data; to get results, investment needs to be made in using data already available.”

With that it’s not about the data but the data analytics, Smith said. The survey found that analytics was the primary driver for investment to allow companies to make faster, better business decisions, either through automation or better decision-making by experts. Cisco found that over half of survey respondents thought IoE could potentially automate from 25 to almost 50 percent of manual processes. Fifty-six percent of respondents identified production optimization as the process with the most IoE-drive automation benefits, ahead of maintenance and business operations.

For a medium sized oil and gas company with $50 billion in annual revenue, IoE could create a $538 million annual profit increase add 11 percent to a company’s bottom line in terms of cost reduction and revenue improvement, Nico Smit, managing director for the global energy industry at Cisco Systems, told Rigzone in an interview. Seventy-two percent of these benefits are derived from cost reduction, while the remaining 28 percent are from increased revenues.

Oxford Economics, which partnered with Cisco for the survey, estimates that the adoption of IoE technology by the oil and gas industry could generate growth of up to .8 percent, or $816 billion, for gross domestic product over the next decade. To calculate this number, Oxford incorporated into its Global Economic Model Cisco’s $600 billion IoE Value at Stake estimate for the oil and gas industry over the next decade, including productivity gains, reduced operating and capital expenditures and IoE adoption cost of $180 billion. The estimate is based on both increased supply and greater demand, resulting in a ‘positive supply shock’ for the global economy, Cisco said in a statement.

Protecting customer, transactional and geological data was named as the chief security concern of survey respondents as the number of cybersecurity incidents against energy companies grows. According to the Department of Homeland Security, 53 percent of all cybersecurity incidents in the six months ending in May 2013 occurred in the energy sector. Respondents cited process control systems as the second biggest security concern, followed by IT systems.

Digital oilfield technology can enhance productivity and efficiency in operations, but companies will need to align their IT and OT domains to complete the digital transformation, Cisco found.

“Though the industry has been working on digital technology, it’s still very siloed,” said Smith. “The way you look at successes on a particular process or company or particular site, but not truly integrated operations. A lot of data is just not accessible, and is going unused. This silo situation, when we compare to other industries such as manufacturing, utilities and mining, is very large in oil and gas. There are different systems with different processes not talking to each other, and data is not aligned.”

Accessing data can be a challenge, and while everybody would like to have fiber optics in connections, that’s not always possible, Smith said. 

“The ability to analyze data much closer to where it’s generated is absolutely a direction in which the industry needs to go,” said Smith. “The bandwidth needed to bring home all that data to a central location is just not available.”

Sixty percent of survey respondents were mostly concerned about information, while only one percent were concerned about the security of industrial control systems.

“Typically, if you’re more of a business person, you’ll focus on intellectual property. If you’re involved industrial control systems, you’ll focus more on that,” Smith commented.

Cisco found that a major factor behind oil and gas companies’ decision not to link their systems together is because they think they will be more vulnerable to cyberattacks, Smith noted. However, he pointed out that major cyberattacks such as Stuxnet came through laptops and thumb drives.

“We argue that security by obscurity – is not making you safe. It actually is giving you a false perception of safety if you don’t have the cybersecurity mechanisms in place. It also hinders a lot of the conversation about digital technology and changing how the industry works.”

Cisco sees cybersecurity as an enabler for digital transformation, and the convergence of IT and OT promotes strong cybersecurity strategies, Smith said.

The pressure on oil and gas firms today to reengineer the way they do things means that people and technology will need to be brought together, and that standardization of processes in the oil and gas industry is needed, Smith said.

Not everything in the survey findings came as a surprise, but it was nice to have people in the oil and gas industry support some of Cisco’s assumptions, Smith noted.

“I’ve heard it and seen it before,” said Smith, adding that he can remember when oil was trading at $10/bbl.

At that time, the industry had to reprocess the way it did engineering. This led to a lot of technological innovation. The trend occurring today is the digital tsunami, with consumer and enterprise electronics making its way into oil and gas industrial control technology, such as sensors and portable and wearable devices. This transformation is much bigger than other transformations that have occurred in the past two decades.

The industry has made great progress on digital energy, but now it’s time to build on that foundation to make industry hyperaware, predictive and agile using enterprise-level data management tools, Smith said.

Building on this digital foundation includes reshaping the oil and gas workforce. Experts that remain need to be brought into a more virtual world where they can work in a central environment and guide people using technology to bridge distances and expertise. At the same time, younger workers entering the oil and gas industry “couldn’t live a day without Ipads” and connected are used to skype and social media platforms, gaming with people they haven’t met before.

“If the oil and gas industry wants to attract those top employees and prevent them from going to Apple or Google or Cisco, they need to offer a work environment that fits where they want to work,” Smith noted. “To be able to do that, industry needs to break down silos and break down walls between IT and OT.”

 

 

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