Artificial Intelligence, Blockchain, and More: How digital technologies are poised to lead the oil and gas industry into the next era of operational and financial excellence
October 29, 2018 | Singapore | OSEA2018 Industry Insights
OSEA2018 Conference speaker, Harshit Sharma, Lux Research shares his insight on four key technologies playing a significant role in the digital transformation of oil and gas
Harshit Sharma, Practice Lead, Lux Research
The “Digital Oilfield” has been one of the most discussed topics in the oil and gas industry in the past few decades. Whether oil prices soar or crash, digital technologies are often touted for finding more oil, extracting it more efficiently, and most importantly, keeping producers financially in the black. However, there are several emerging digital technologies that have yet to see widespread adoption, which could further enhance the operational and financial performance of the oil and gas industry. As a matter of fact, in 2017 the World Economic Forum (WEF) in collaboration with BP projected that a full digital transformation of the oil and gas industry could create over $1 trillion in economic value for the industry players.
Digitalization, however, is not new, the oil and gas industry has led the adoption of several technologies, such as seismic data acquisition and data processing technologies, at a far greater rate than many other sectors. With that, as the oil and gas internet of things (IoT) continues to expand, the range of technologies and vast amounts of data available at every single stage of the upstream process could be overwhelming – bringing along both opportunities and challenges in innovation. While there are several technologies, Lux Research believes the following are the top four digital technologies that will have the greatest impact in the digital transformation of oil and gas.
- Downhole communication: Sensors form the cornerstone of any IoT system in the oilfield for data acquisition and communication. To date, the industry has innovated heavily in fiber optics and acoustic telemetry for downhole sensing. For example, BP Ventures, has invested in two novel startups for downhole sensing. Silixa, a developer of distributed fiber optic solutions for flow imaging and fracture analysis and XACT Downhole Telemetry, an acoustic telemetry service provider for drilling operations as deep as 30,000 feet. However, despite the benefits these technologies offer, there are limitations, as these sensors are exposed to high pressure and high temperature during operations. Moving forward, there are potential innovations in downhole sensing as developers look to deploy acoustic sensors that produce accurate fracture imaging and monitoring for shale operations.
- Edge computing: As with many industries, oil and gas has pretty much migrated to the cloud, such as Shell and Chevron with Microsoft Azure and Total with Google Cloud. Despite these notable relationships, challenges remain in remote environments, particularly for offshore projects where lack of connectivity and high latency remain troublesome and unresolved. Edge computing offers a solution in such scenarios with several startups such as Osprey Informatics and Ambyint currently building solutions for the onshore market. As the interest in offshore projects continues to grow, we expect a higher adoption of edge computing solutions with several existing companies pivoting towards the offshore industry for new opportunities.
- Artificial intelligence: Probably the most highly anticipated technology to date and one with the largest impact for digital solutions in oil and gas, primarily due to its applicability in almost every aspect of the value chain. For example, Shell, one of the leaders in artificial intelligence adoption in the industry has made a series of strategic investments to build its own portfolio of artificial intelligence providers. In 2015, Shell invested in synthetic drilling well log developer Quantico Energy Solutions who creates simulated logs. In a recent case study, Shell claimed potential savings of over 80% in logging costs by deploying Quantico’s solution. Outside Quantico, Shell also has investments in Intelie, Maana, and C3 IoT. While Shell and several of its peers, BP, Total, and Chevron, are actively involved in artificial intelligence, the rest of the industry has yet to catch up. Moving forward, mid-sized oil and companies and downstream refiners will gradually adopt artificial intelligence solutions as well.
- Blockchain: Blockchain has garnered significant amount of interest in every industry globally, but a truly tangible benefit and return on investment (ROI) has yet to be discovered. While blockchain has made headway in financial services, food supply chain management, and even healthcare, the oil and gas industry still lags in adoption, with the only notable announcement in Shell’s and BP’s 2017 energy trading platform collaboration. Despite the slow momentum, blockchain can be a significant disruptor for oil and gas in the years ahead. Although organization and cultural issues will pose challenges for blockchain adoption, the industry has proven its openness to integrate new digital technologies into its operations in recent years.
While these four key technologies will play a significant role in the digital transformation of oil and gas, there will be several other innovations likely to have an equal impact. More importantly, these technologies will not be deployed in a silo and will likely require the development and deployment of complementary technologies and new business models. Irrespective of your position in the oil and gas value chain, two key takeaways emerge when thinking about your own digital transformation.
First, it remains critical to identify the business proposition and use case for digital technologies first. While many have been swept up in the hype of digital transformation, more than 80% of time digital transformation projects fail due to a lack of clarity on the right application, the right data, and how to measure success. Identifying the value creation is important before deploying any digital solution. Second, identify your core expertise and evaluate the benefits of building your own digital platform versus bringing in outside technology – the classic “build or buy” dilemma. But as highlighted above, several oil and gas companies have found success using external collaborators, be it startups or major technology companies, and continue to look outward for innovation rather than focusing on developing technologies internally. As the oil and gas industry continues to evolve and the rise of digital technologies permeates through its value chain, it will transform the operational and financial excellence of those who adopt technologies early and integrate it seamlessly into its physical, organizational, and cultural infrastructure.
For more insights, join Harshit Sharma at the OSEA2018 Conference on 27 November in Singapore at the Masterclass titled ‘The Roadmap for Smart Oil 2030’.
Harshit Sharma is an Analyst on the Energy Transition team at Lux Research.