To be future-ready, oil and gas companies must focus on transforming their value chain and transforming operations to be ready for the fluid shift. To do this, new opportunities need to be seized.
Pradeep Sivakaminathan
The rise of natural gas as a primary fuel rewires the global oil and gas value chain, powering new opportunities and challenges for the players across the value chain. The oil and gas value chain will transform as demand for natural gas grows.
A massive change is on the horizon for the oil and gas industry. Demand for crude oil is still strong, but BP Energy Outlook 2018 predicts that consumption will plateau between 2030 and 2040. On the flip side, demand for natural gas will grow much faster than oil or coal over the next two decades, with its share in primary energy overtaking coal and converging on oil by 2040. Across the world, coal plants are already being replaced by natural gas plants.
A shift from crude oil to natural gas has huge implications for the oil and gas value chain, which is primarily liquid-based now. The process of producing, transporting, refining, and consuming oil is different from how natural gas must be handled, which means that a value chain transformation is on the horizon. Opportunities will abound for upstream players (oil field service providers, operators) and downstream players (refineries, pipeline companies, and retailers).
To be future-ready, oil and gas companies must focus on transforming their value chain and transforming their operations to be ready for the fluid shift. To do this, new opportunities need to be seized.
Upstream operators have plenty of exciting opportunities enabled by digital technologies to tap into, which include just-in-time natural gas, as well as portfolio and asset transformation. For downstream players, new opportunities on Liquefied natural gas (LNG) transportation, terminals, and last-mile distribution emerge while the challenge of refining capacity peak across the OECD countries manifests due to a shrinking market for hydrocarbons. The challenges can be addressed through optimisation and transformation of the operations by adopting digital technologies on a continuous basis.
Being future-ready means making small changes
The trend towards natural gas and away from crude oil is slow-moving. In an industry with huge capital investments, a wait and watch approach on trends which does not impact revenues and margins in short term is quite alluring. Many companies would rather punt on digitisation and the adoption of new business models into the future.
The adoption of digital technology in the industry has been a slow trickle up until now. Changes include sensorising subsurface and surface equipment, refining assets reliability, migrating applications and workloads from physical servers to the cloud, automation of processes, and the use of machine learning in a few cases.
But individual digital technology implemented as a localised point solution does not push the value needle and benefits start to plateau quickly. Disappointment over the results from this limited implementation dissuaded many companies from adopting new technologies that could transform their value chain. However, the digitisation of the oil and gas industry is irrevocable, unstoppable, and will be totally transformative.
Rather than pushing the problem into the future and playing catch- up years from now, companies can implement cost-effective opportunities now to be future-ready.
At the same time, solution providers must stand ready to deliver something that is valuable, that companies can consume and profit from right away. Promising a payoff 10 years down the road is not a story that sells. If the goal is to increase the speed at which the industry is transforming its value chain, payoffs must come sooner.
New digital solutions make full transformation possible
A full transformation of the oil and gas value chain will require data and AI-driven operations. The old method of various parties operating in isolation will no longer be sufficient in an industry that will look radically different in 20 years. An integrated and holistic digital strategy and approach will be the hallmark of oil and gas companies that are thriving in 2030 when crude oil begins a decade of flattening demand.
These companies will use a framework that connects each step of the value chain together and generates data with pervasive sensors, aggregate data stores and data streams in data lakes. By consolidating the previously silo-ed data, oil and gas companies can integrate, secure, and govern various data sources through automation, simplification, and self-service capabilities. Companies are already establishing digital backbone and low-cost sensor development focused on enabling maintenance, repair integrity and remote operations. This digital data management will enable industrialized business operations with digital automation powered by artificial intelligence and machine learning.
These sensors, digital backbone and last mile remote connection technologies, when combined with advanced analytics, will lead the search for ways to discover productivity improvement, reduce costs, improve efficiency, deliver consistent product quality, and drive transformation of the oil and gas value chain during the fluid shift.
At the same time, the adoption of digital technologies adds to the ever-increasing challenge of digital security. The severity and complexity of cyber threats continue to grow, making it imperative for businesses to reassess their security posture.
Platforms that leverage emerging AI, security analytics, and machine learning techniques to combat the onslaught of cyber-attacks will be vital for oil and gas companies.
The author is Senior Industry Principal – Services, Utilities, Resources and Energy, Infosys.
