Bringing the digital transformation forward

 By Peter Ward

At the start of 2018, the energy industry dared to believe that a years-long period of low oil prices was coming to an end. Assuming the rally can last, oil companies may have a happy conundrum on their hands – where to spend the money. One area with major potential for investment is technology, and represents a chance to bring forward the industry’s digital transformation…

The reason behind the hope is an upturn in the fundamentals of the oil market. The International Energy Agency predicts that demand for oil will grow by 1.3 million barrels per day this year, while OPEC expects a 1.5 million barrels per day increase in 2018.
And the supply side, which has caused so many of the problems, appears to be calming down. U.S. crude inventories were low at the end of last year and although many predict they will increase during the year, the tightening of an oversupplied market has been welcomed. If production can stay relatively low, then oil prices may be able to shrug off the current market turmoil and return to $70 per barrel.

Embracing digital

During the downturn in prices energy companies were encouraged to embrace digital changes, as the increased efficiency could widen profit margins and make the new price of oil workable in the long term. If prices do enjoy a sustained rally, the temptation will be to invest money elsewhere, as the need for efficiency and belt tightening eases. But perhaps a healthier outlook would be to embrace the digital transformation regardless of oil prices, and if they do go up, to use the extra income to make it happen faster.
The benefits of digital technologies for the oil and gas industry are pretty clear. By embracing technology, companies can increase productivity, make their operations safer and cut costs. Digitizing processes in oil and gas presents more challenges than other industry. This is partly because of the cost of overhauling the systems in place, and also because of the nature of the critical infrastructure in place, which needs to be safe from cyber-attacks and hackers at all times. But nonetheless, oil and gas companies are finding ways to press ahead with the implementation of new technology.

According to a Deloitte Insights report, there are 10 phases of digitization for the oil and gas sector. These are split up into three stages, the first of which is making physical processes digital, such as adding sensors to equipment to capture data, and mechanizing processes.
The second phase is when companies start improving the usability of data captured by sensors, and integrate changes which are borne from the data. Technology in this stage includes big data analytics, wearable technology, interactive workstations and augmented decision making. The final stage is making the digital physical, according to Deloitte, which argues that automation and virtualization can take the sector to a new level of productivity.

The time is now

The report calls on oil and gas companies to make the shift towards digitization now. “It’s time for action. While going digital has mostly become the norm now, it perhaps makes more sense for O&G companies to seize the opportunity and scale up the impact, especially in today’s lower-for-longer environment that requires new operating and capital cost models,” the research reads.
For those who believe there are lower oil prices ahead, the message is clear: digitization must happen now. “The new reality seems to have set in — waiting for a significant price recovery may be a long haul,” said Andrew Slaughter, executive director, Deloitte Center for Energy Solutions, Deloitte Services LP in late 2017. “It possibly has never been truer now that the low-cost producers are the winners. The bottom line is that companies should focus on cost discipline and operational efficiency. Digitization is likely the next frontier in this new normal, offering a lifeline for new efficiencies, cost reductions and productivity.”
Predicting the future of oil prices can be extremely difficult. But no matter whether the prices skyrocket or plummet, the digitization of oil and gas will help the industry become more efficient and safe, and that’s a good thing if you’re flush with cash or not.

about the author
Peter Ward
Business and technology reporter based in New York. MA in Business Journalism at Columbia University Journalism School 2013. Five years experience reporting in the U.S., the U.K., and the Middle East.