Oil companies have long embraced computer technology, but the pace of digital change in the industry has recently been accelerated by the slump in crude prices. Field engineers and geologists - once amongst the most valued employees in the arsenals of producers - could soon be replaced by data by scientists, futurists and robots.
Most of the digital advances in the upstream sector since the late 1970s have been focused around using computers to analyse and help unlock hard-to-get crude deposits. But the emphasis is starting to shift; cloud computing, augmented reality and blockchain codes are the new innovations which could transform the way crude is produced and also traded. Just don’t expect the revolution to take place overnight.
Investment into digital technology by oil companies has picked up since the crash in prices in 2014 forced operators to find deep savings. The use of drones, strength boosting “exo-skeletons,” and in some cases fully automated well heads, has helped operators to reduce expenditure by employing fewer workers, while continuing to boost production. According to the International Energy Agency, the use of widespread digital technologies in the sector could cut production costs by up to 20 per cent, and the take-up of new innovations has the potential to boost recoverable resources by a further 5 per cent globally.
Using smarter computer technology and data to squeeze more profit out of every last barrel will be equally important for the Arabian Gulf's national oil companies. Blessed with around 45 per cent of the world's reserves, producers in the region may have previously had less incentive to maximize their returns from every barrel compared with their international peers. Low onshore production costs in some areas of around $10 per barrel may have also slowed the uptake of big data and other smart technologies in the region. This is now starting to change, however; for example, Saudi Aramco started using drones to help reduce the cost of exploration in remote areas of the kingdom earlier this year.
But running oil facilities and expensive exploration activities with fewer workers won’t just be a brief outcome of the current industry investment slump. The search for greater efficiencies will be everlasting, as the outlook for demand continues to change with changes in transportation such as electric vehicles. Oil prices falling below $50 per barrel were estimated by industry body Oil & Gas UK to have eliminated 120,000 jobs in the North Sea. Although the basin is recovering slowly, a greater focus by many operators on automation may see the region’s peak headcount of around 450,000 workers never return.
Running oil rigs with fewer health and safety risks, or human errors, could become more enticing as remote technologies improve. Last month, Statoil opened its first onshore remote control room in Bergen to operate the company’s offshore Valemon platform, which produces around 60,000 barrels per day condensate and gas. The company said it may apply the technology to other fields.
The transition to more remotely operated oil and gas fields will also require a major shift towards cloud computing to handle the vast amount of data which could be produced. According to research from HSBC, the lack of large-scale computing infrastructure across the industry has previously been a barrier to the mass uptake of cloud storage, and with it more efficient analysis. The bank argues that oil companies can become more efficient by analyzing all of the vast quantities of data they already collect. “Making use of all this unused data is ‘the’ key opportunity for predictive maintenance, and most operators see the real upside as increased production, not simply lower downtime,” HSBC wrote in a research note published last month.
The data revolution could also eventually turn oil trading on its head. The market for buying and selling cargoes of crude has changed little since the legendary trader Marc Rich - known as the king of oil - created the spot market in the late 1960s just before the Arab oil embargo. Trades are still enshrined with paper format contracts, along with most of the processes involved in loading crude onto a tanker and delivering it to customers like they were during the last century. Transactions must be cleared and regulatory checks completed creating a time consuming often opaque paper trail.
All of these stages in the process could soon be completed through the use of blockchain. Instead of individual bills of lading and underwriting, all transactions involved in a trade could be recorded via blockchain technology, utilising a distributed ledger technology. Cutting the vast paper trail could help speed up the process of trading and free up liquidity, while helping also to supply my accurate real-time information on the balance between supply and demand.
Energy giants BP and Shell have formed a consortium with other market participants to develop a new blockchain-based trading platform, which may be running by the end of 2018. It’s another sign that big oil is taking big data seriously.
Andy Critchlow is the head of energy news, EMEA at S&P Global Platts