Digitisation and oil industry

Print edition : February 12, 2021
A must read for the academic and industrial practitioners in the oil and gas industry.

This book, written by Geoffrey Cann, a business adviser of international repute in the oil and gas industry, and Rachel Goydan, a senior Deloitte consultant for multiple industries, serves as a handbook for professionals in the oil and gas industry and in information technology to understand how digitalisation is impacting all facets of the industry. It also empowers them with insightful strategies for a possible revamp of the industry.

The oil and gas industry, which provides the essential energy inputs for improvement of the quality of life in modern times, is in dire straits. Already under the stress of serious challenges following the economic slowdown in 2019, the crisis got aggravated by the COVID-19 pandemic right from the dawn of this year. Changing consumer demands, emergence of new energy resources, development of unconventional oil and gas resources, rising significance of the emerging economies—China and India—and, above all, a host of internal factors combined to depress the market. The pandemic had further pushed down demand because of extended periods of lockdown across industries and travel bans among nations. Oil demand is peaking in the developed world and prices have plunged well below the level needed to turn a profit. In order to survive, companies are reducing expenditure, bringing down capital investments and thus trying to drive down operating costs. Long gestation periods of new projects, regional geopolitical uncertainties, unfriendly government policies, financial recessions, and natural disasters are also set to weaken the financial performance of industry majors.

In this context, industry majors and oil and gas experts are seeking ways and means to contain the slump through a variety of interactions to automate operations well beyond existing instrument supports, handling of hazardous and repetitive tasks, storage, visualisation and analysis of data to make smarter decisions and integrate operations with connected devices for greater efficiency. Oil and gas companies, with the support of IT/ITES majors, are investing in digital technologies like data analytics, automation and remote monitoring, artificial intelligence, 3D printing and industrial Internet of things (IoT) in order to optimise production, maintenance, management of safety and environmental protection and better asset utilisation. Digitalisation is the new buzzword to unearth new business models and give stakeholders a better overview of operations, improve maintenance and inspection regimes and strengthen asset management. All these are expected to provide the industry with the kind of financial gain to tide it over the present crisis and advance further to see the next boom.

The book depicting this transformation is laid out in five well classified chapters.

Chapter 1 is an overview of the digital world, a primer to the advanced but well-known IT knowledge relating to data sensors, data accumulation, connectivity and data analysis. In the data processing arena, electronic chips are getting faster and smaller and programming languages are becoming easy and common. The industry is highly interconnected, and new business models are emerging very often. Amid cyber worries, digitalisation, an admix of digital and operational technologies, often enables high-speed networking in several of our daily industrial transactions at very low costs and at the same time with increased sustainability and unlocking its full-scale economic value. The IT/ITES majors have already perfected their skills in bringing digital innovation to industries and are engaging with multinational clients to harness the business potential lying untapped. In this respect, it is not only likely to hasten the economic progress of the hard-hit industry but also benefit investment-starved and energy-thirsty developing nations like India.

The second chapter entirely dwells upon the building blocks of the digital enterprise in the oil and gas industry. Commercially viable and technically reliable digital tools like cloud computing, digitised ERP, AI, sensor technologies and IIoT, autonomous technologies, 3D printing, digital reality, gamification, blockchain and a combination of these technologies are defined, explained and illustrated with case studies. The technological maturity of these tools, the benefits that they impart to the industry and its user segments at the operational and management level are also discussed. The synergistic results accrued when these tools are used in combination with each other are revealed through case studies. This is useful to professionals at the decision-making level.

The third chapter titled “Long Fuse, Big Bang” discusses the impact of digitalisation across the value chain in the oil and gas industry in terms of the speed (time slot) of its implementation, identified key technologies and the derived benefit. The value chain in the oil and gas sector is indeed quite long. Starting with exploration, it extends to production, field services, processing (refining), fuel retailing, managing capital projects and construction, turnaround management and a host of support functions. In all these domains, system-specific digitalisation tools find extensive applications in order to optimise operations, impart more reliability, reduce wastage of resources, avert abnormal situations and accidents, manage auxiliary supports, projects and turnarounds without time and cost overruns.

ideas for managers

In the fourth chapter, the authors provide pragmatic ideas and essential ingredients for managers in the industry to organise digital programs. The digital journey, caution the authors, is not going to be an easy ride.

Major hurdles are lack of understanding of digital trends and their impact on the company, lack of strategic direction and organisational resistance to change. The investment, the timing, preparedness, workforce engagement and their agility, talent build-up, cyber security are all important matters needing consideration at the top management level. Other barriers include the prevalent organisational IT culture, risk tolerance, confidence in the new generation digital technologies and compatibility with existing systems and practices. Tips for ensuring data quality, integrity and relevance, sound data management, managing cyber risks, developing the requisite talent pool with a vibrant, humane and business friendly culture are also included. Elements of an organisational implementation strategy and prescriptions for an effective change management and strategies for overcoming adoption hurdles are also addressed. A case study of digitalisation of fuel retail systems reveal that the risks and challenges are not different from other industries. Getting started at the right place is important. Greenfield assets are quick adapters and workmen need to be agile and open to continuous learning for self-improvement.

The fifth and final chapter dwells upon the role of board-level management in the process of driving digitalisation across the organisation. Oil and gas industry boards these days are challenged on account of declining demand for fossil fuels, rising costs for water and emissions, competitive pressures, safety and social acceptance, talent build-up and retention, and so on. How to leverage digital innovation to address these challenges and optimise business is a priority area before them. Board members need adequate understanding about the possibilities that digitisation throws up and also the concerns that are likely to surface. Predicting a future business model in the industry is indeed difficult. Important trends need to be accommodated: demographic shifts, technology advances, climate change, shift in transportation trends and oil market shifts.

The authors advise board executives to encourage managements to develop a fitting digital strategy. Digital strategy is a set of reinforcing choices that direct the organisation’s actions towards integrating digital technologies into its business. The technical feasibility, the cost involved and economic and other gains along with inspirational and motivational goals should be discussed in detail in the board and the management given a free hand to implement the adopted strategy. Ecosystems also have an important role to play in fostering innovation and digital transformation. The oil and gas companies, banks and funding agencies, professionals, entrepreneurs, universities and consultants have definitive roles in promoting innovation and boot out the prevailing orthodoxy in the industry.

In conclusion, the authors call for an industrywide change in mindset in embracing digital innovation. This would extend the life of the fossil fuel energy system by lowering its cost to compete with renewables and reducing its carbon footprint.

The well-indexed text is enriched with a glossary of terms and abbreviations and a bibliography.

On the whole, this is a unique handbook, concise, well researched, with a lot of practical insights and studded with case studies of topical interest and relevance. A must read for the academic and industrial practitioners in the oil and gas industry.

Dr M.P. Sukumaran Nair is Director, Centre for Green Technology & Management, and former Secretary to Chief Minister, Kerala, and Chairman, Public Sector Restructuring & Audit Board Kerala State, India.