An Inside Look at Digitizing the Oil & Gas Industry
The oil & gas industry has historically lagged behind other sectors when it comes to digital technology. Many oil & gas companies still rely heavily on paper, making it difficult to adopt emerging technologies like the Industrial Internet of Things (IIOT) and virtual reality (VR). The challenges of implementing a digital strategy in a hardware-oriented industry like oil & gas have slowed progress in this area, but digital transformation is rapidly becoming a strategic requirement rather than an option.
To help oil & gas companies in their journey towards digital transformation, a new downloadable guide is here to help: “Plans, Papers and Pipelines.”
We also have created a new infographic to highlight the potential benefits for oil & gas companies that go fully digital. You can also read more about how digital transformation can help this industry excel below our infographic.
Defining Digitization in the Oil & Gas Industry
The World Economic Forum’s Digital Transformation Initiative discusses the growing role of digitization in the oil & gas industry. Technological advances such as hydraulic fracturing and horizontal drilling are able to reach previously inaccessible shale resources, keeping the price of crude oil low. Other developments such as the proliferation of electric vehicles are also affecting the balance of supply and demand. These factors are combining with the increasing need for digitization to create the potential for disruption in the oil & gas industry.
Analysts expect this industry to approach digital transformation more cautiously than other sectors, but technological developments such as the cloud, big data and social media still have the potential to bring about great changes in oil & gas. For example, cloud computing can break down the silos that are restricting businesses agility. Big data analytics are also needed to analyze large amounts of data from different sources, which is a routine requirement in the oil & gas sector. Social media is becoming an indispensable tool for enhancing relationships with customers.
Digital transformation can allow a business to combine these technologies in ways that provide much greater benefits than using them separately. This capability provides oil & gas businesses with a new level of intelligence that goes beyond merely improving efficiency and reaching out to customers more effectively.
How the Oil & Gas Industry Benefits from Digital Transformation
The World Economic Forum assessed the oil & gas sector’s potential benefits from digital transformation in a 2017 white paper that covers the decade from 2016 to 2025. The key findings include a total value of about $1.6 trillion in value, which increases to $2.5 trillion when considering future technologies like cognitive computing. Oil & gas firms will receive about $1 trillion in value, with wider society receiving benefits worth another $640 billion.
The majority of the societal benefits come from the reduction of paper used by the oil & gas industry. CO2-equivalent (CO2e) emissions would be reduced by about 1.3 billion tons, providing an environmental benefit worth about $430 billion. The elimination of paper would also save about 800 million gallons of water for a benefit of $30 billion. Beyond that, customers would save about $170 billion and achieve productivity improvements worth another $10 billion.
The benefits of digitization to the oil & gas industry is only reinforced with an analysis published by the Boston Consulting Group in 2019. The analysis shows benefits in the following areas:
- Field development
Digitization can benefit exploration by using machine learning to reduce the time and cost of data interpretation by 50-60%. Field development will see savings in engineering of up to 70%, with the addition of field concepts with a higher value. Furthermore, digital transformation will improve well delivery times and productivity by 20-30%. As for operations, the study reports, “connected workers in upstream operations, who benefit from improved safety in the field and have access to information on demand, could be up to 15% more productive than their non-connected counterparts.”
Barriers to Successful Digital Initiatives
While the benefits of digitization are clear, many oil & gas firms have yet to adopt fully digital processes. The 2018 Global Digital IQ is a survey by PricewaterhouseCoopers (PWC) that describes the challenges of digital transformation in the oil & gas industry. Overcoming these obstacles generally requires executives to increase investments in digital processes, training and technologies.
Only 41% of the oil & gas executives in this survey indicated that their transformation initiatives even have a digital component. The two largest barriers to these efforts are inflexible processes and a lack of workers with the needed skills, just as it is in other sectors. Thirty-eight percent of respondents reported they had inflexible or slow processes as compared to 39% for all sectors. A lack of properly skilled teams was a barrier for 42% of oil & gas executives, whereas the average figure for other sectors was 37%. Retention of these workers also created a challenge to digital transformation for 33% of oil & gas respondents, with only 24% of those in other sectors citing retention as a barrier to digital transformation.
The threat of digital disruption was also a significant finding for the oil & gas industry. Only 19% of the respondents in oil & gas cited this factor as compared to 31% in other sectors. Outdated technology was a barrier for 24% of oil & gas executives, with 29% citing this factor in other sectors. A lack of support was a challenge for 25% of oil & gas execs.
Tying Digitization to Direct Business Needs
Oil & gas companies work with extremely thin margins. Therefore, for companies making the case to go digital, there needs to be a clear tie back to the business value.
The 2018 Global digital IQ survey clearly shows that oil & gas executives are primarily investing in digitization to cut costs, with 54% of respondents reporting this benefit as the most important to them. In comparison, only 42% of respondents from other industries indicated that cutting costs was the driving factor behind their digital investments. Increasing profits was the second most important reason for digitization for oil & gas executives at 44%, as compared to 41% for executives in other sectors. Improving customer experiences is also a significant reason to adopt digital technologies, although the figure of 41% was the same whether or not the respondents were from the oil & gas industry. Enhancing brand and reputation was comparatively less important to oil & gas executives at 37%, whereas 43% of executives outside this industry cited this benefit of digitization as being important to them.
Additional benefits of oil & gas companies going digital include reducing the risk of price cuts due to regulatory challenges. It also saves time by keeping data more current and up to date. Furthermore, digitization improves the accountability and transparency of that data.
The truth is, most oil & gas businesses haven’t realized the full value of their investments in digitization. Less than one fourth of the survey respondents indicated that they have realized more value than expected from their digital investments. Executives need to set clear goals for transforming their organizations if these investments are to pay for themselves. They also need to focus on developing the talent and leadership needed to make this happen.
How Oil & Gas Firms Can Go Paperless
Going paperless requires a commitment from an organization’s leadership to make it an on-going priority. Since this level of change must come from the top, leaders must establish their budget, set a clear vision and create the goals needed for individual departments to adopt digitization. This process should begin with the processes with the greatest impact on the organization, although it will eventually need to become a key part of all processes.
Successful digitization requires innovation to be a key feature of the corporate culture. However, there needs to be a focus on standardization and integration of all relevant data to provide the right framework to nurture the success of digital initiatives. This requires an investment in the right technologies as it’s essential for unifying the new processes for managing data and documents with existing procedures. Finally, leaders also need to track each department’s progress in their digital transformation and regularly evaluate the need for new implementation strategies.
Putting Digitization in the Pipeline
Oil & gas businesses face additional challenges in adopting digital technologies, which is slowing their adoption rate compared to other sectors. Reducing the current heavy reliance on paper is one of the most significant benefits of digitization in oil & gas, both in economic and environmental terms. A digital transformation will also allow these businesses to integrate new hardware and software solutions with their existing infrastructure, which is particularly extensive for the oil & gas sector.
Digital transformation was an effective strategy for staying ahead of the competition just a few years ago, but it’s rapidly becoming necessary just to stay even. Download our ebook today to learn more about how digitization can help your oil & gas business.