Digitalization and its use cases in the world of Oil & Gas
A sector on the cusp of tech-led revolution
Despite having many technologies enabled by advanced connectivity already at its disposal, the oil and gas sector has yet to realize much of connectivity’s potential, and the potential is significant. According to estimates, making use of advanced connectivity to optimize drilling and production throughput and improve maintenance and field operations could add up to $250 billion of value to the industry’s upstream operations by 2030.
Of that value, between $160 and $180 billion could be realized with existing infrastructure, while an additional $70 billion could be unlocked with low-Earth orbit (LEO) satellites and next-generation 5G technologies. McKinsey’s work with the oil and gas sector suggests offshore operators can reduce costs, including operational and capital expenditures, by 20 to 25 percent per barrel by relying on connectivity to deploy digital tools and analytics.
Technologies are evolving fast and currently have the potential to transform operations and deliver increased value. These technologies range from devices that enable and enhance connectivity to those that link the core network to small subnetworks around its edge, known as the backhaul. Access technologies connect users to their service providers or, in the case of the oil and gas industry, to the backhaul. Many of these technologies exist currently and are rapidly becoming more reliable and affordable.
Technology has potential to boost performance across the entire upstream oil and gas value chain by enabling optimization and automation.
Optimization involves using all the relevant data to inform better decisions at a certain regular frequency. Pushing the limits on optimization means getting more data and crunching it faster, which requires more sensors to collect data, more bandwidth, and more computing capacity.
Focusing on the most impactful use cases
To illustrate the diversity of the opportunity facilitated by advanced connectivity, lets look at five use case themes: drilling time, production (throughput), smart maintenance, enhanced field operations, and logistics enhancement. They all have an element of optimization and automation and drive down cost per barrel. In these areas alone, some $250 billion of additional or incremental value is at stake,4 as well as the potential reduction of greenhouse gas emissions and greater operational resilience.
Five broad types of connectivity-fueled oil and gas use cases could contribute up to $250 billion in incremental value to global GDP by 2030.
· Advanced analytics could increase drilling operations productivity by improving drilling speed, while remote or semi-automatic drilling could reduce the number of people required on a rig.
· Using data this use case creates value by increasing throughput and reducing the energy consumed and emissions produced. Connectivity advances, such as “connected worker” solutions and technologies offering virtual enhancements, could help reduce time spent on maintenance and repairs.
· Digital connectivity can radically transform end-to-end logistics and supply chain with improved demand management, transparent material tracking, and more efficient logistics operations.
· IoT (sensors) deliver real-time, high-volume data on equipment status and anomalies to improve prediction of failure and suggest remedial actions to operators.
Use case 1: Drilling optimization and automation
Drilling is a major expense in oil and gas production, representing between 20 and 30 percent of total production costs. Deploying advanced analytics
could increase drilling operations productivity across all asset types, helping reduce unproductive time, and improving drilling speed. The use of advanced analytics would increase productivity in well fracking by prescribing the quantities of water, chemicals, and sand to use, and where exactly to target efforts.
Advanced analytics can help operators cut idle time in half during the drilling of a well. Drilling speed could increase by 25 percent, driving down cost per well while also reducing emissions by nearly 10 percent.
A large oil and gas company reported that speeds were 50 percent higher when drilling in the most challenging section of a high-pressure, high temperature well in the North Sea because of advanced analytics that used historical data to suggest optimal drilling parameters. This use case primarily requires high system resilience, which today is possible at almost all offshore assets and roughly 60 percent of onshore assets. The associated incremental value of this use case is $30 billion, representing a 2 to 3 percent reduction in cost per barrel of oil equivalent (BOE).
Enhanced connectivity could also enable remote or semi-automatic drilling, drastically reducing the number of people required on a rig itself.
The above picture is an image of a fully automated oil rig set up by Nabors Industries Ltd., a leading provider of advanced technology for the global energy industry. Combining Nabors proprietary Smart Suite of automated drilling software with Canrig® robotics on the PACE®-R801 they created an unattended rig floor that removed crews from red zone areas and delivered consistent and predictable drilling performance.
An automated rig floor will mean replacing hazardous operations such as pipe handling and assembly, which currently are a primary source of incidents in drilling rigs. With increased automation, an offshore rig would require 10 to 15 full-time employees, compared with approximately 100 employees at present.
Automation also would reduce human error during the lifting of drill pipe, in the assembly of the drill string, and in moving tools in the rig floor, resulting in higher efficiency. Productive drilling time would increase to 94 percent from the current 90 percent, which in turn would reduce emissions by cutting the energy consumed in rework and repeated operations.
The incremental value of drilling automation to the industry could be $50 billion today, which represents a reduction of 3 to 7 percent of cost per BOE.
Even remote onshore and offshore assets that currently rely on VSAT could tap these use cases if LEO satellites become available, thus unlocking an
additional $30 bn of value and bringing the total value at stake to $100 bn.
Use case 2: Optimizing production
A major production facility of a large oil and gas company operating in the North Sea gained a 2 percent increase in production without increasing emissions after it used real-time advanced analytics to improve the settings of the production facility’s booster, export compressor, and component splitter.
The operator is now seeking an additional 3 percent production improvement by rolling out advanced analytics to the rest of the system, from well to export.
This use case creates value by increasing throughput and reducing the energy consumed and emissions produced in the process. Achieving these benefits requires accurate and timely data collection across the entire production system, from reservoir to export, data processing and analytics.
The existing connectivity infrastructure, available at most offshore assets and about 60 percent of onshore assets, could deliver about $20 billion of incremental value, equal to a 2 percent reduction in cost per BOE. Upgrading the connectivity infrastructure at scale, say by installing 5G capabilities, could add a further $30 billion of value, bringing the total value of this use case to $50 billion.
Use case 3: Smart maintenance
In this use case, a greater density of sensors delivers real-time, high-volume data on equipment status and anomalies, to improve prediction of failure and offer remedial actions to operators. As a result of this better monitoring, maintenance could be based on equipment status rather than simply scheduled at regular intervals or conducted after incidents.
Maintenance typically accounts for between 10 and 15 percent of total production costs, and prescriptive plans could reduce these outlays by 10 percent. Additionally, fewer shutdowns for unscheduled maintenance events could increase production volumes by 1 percent. For example, an operator of several floating production and storage facilities in Latin America was able to reduce its total operating expenses by 15 percent by using analytics to shift to condition-based maintenance. A follow-on impact of smart maintenance is a reduced need for intermittent flaring and fewer fugitive emissions.
Current technologies, including VSAT, make these enhancements possible across regions and asset types. Deployed at scale, they could create $20 billion of value, or a 2 to 3 percent reduction per BOE.
Use case 4: Enhanced field operations
Technologies like AR/VR providing digital representations of equipment and systems, could help quickly identify troubled components and parts not easily visible and reduce the cost of maintenance and operations by 10 to 15 percent. Even without VR, it is estimated that offshore operators could improve tool time by roughly 10 percent using connected worker solutions.
Deployed at scale, better connectivity could produce $20 billion of value or a 2 to 5 percent reduction in cost per BOE, depending on the asset type.
By replacing the VSAT connections with LEO connections to the backhaul, the industry could realize an additional $10 billion of value, bringing the total value at stake to $30 billion. A snapshot of how Digitizing an oil field might look like as depicted by PwC is shown below.
Automation
Deployment of fixed cameras, drones, and land and subsea robotics could significantly reduce the workforce needed to conduct surveillance and inspection of remote assets and do scaffolding work onboard platforms. This represents 10 to 25 percent of overall maintenance costs, or as much as 4 percent of total production costs. Such technologies could decrease the cost of inspection by 35 percent, improve the health and safety of such workers, and cut emissions.
Current fiber and microwave connectivity make this use case accessible to most offshore assets and about 60 percent of onshore assets. When deployed at scale where fiber or microwave connectivity is available, the incremental value at stake is $5 billion, or less than a 1 percent reduction in cost per BOE.
The health, safety, and environmental improvement, however, is transformational. If VSAT was replaced by fiber or microwave connection to the backhaul or, eventually, LEO satellites, the industry could realize an additional $2 billion of value.
Use case 5: Digitally enabled logistics
Enhanced connectivity can radically transform end-to-end logistics and the supply chain with improved demand management, transparent material tracking, and more efficient logistics operations. Materials purchasing accounts for half of operations and maintenance costs in the oil and gas industry, or as much as 15 percent of total production costs. Delivery logistics represent 10 percent to 15 percent of total production costs.
Using digital technologies in logistics management could reduce the cost of delivery vehicle service by 20 percent and the cost of materials by 2 percent. Such technologies also could decrease staffing needs as well as emissions.
One oil and gas company deployed an extendable web application that allowed cross-functional users to interact and see materials moving along the supply chain. Transparent tracking and proactive management of material and equipment reduced materials costs by about 10 percent. Deployed at scale, the new value to the industry could be $30 billion, or a 2 to 3 percent drop in the cost per BOE.
In sum, the adoption of these five use cases would deliver close to $250 billion of value to the oil and gas industry, or a 20 to 25 percent reduction in cost per BOE, with 60 to 70 percent captured by using available connectivity technologies.
Building blocks for a connected future
Digital transformation in upstream oil and gas operations has been sporadic to date. So far, the industry has experimented with various use cases, but few operators have succeeded in bringing digital and analytic technologies to a scale that meets the limits of existing connectivity. Digital tools and analytics enabled by connectivity in the remote, hazardous, and complex operating environments will require more use cases to change traditional ways of working.
Safety concerns also inhibit the spread of advanced connectivity. Oil and gas assets pose inherent dangers to people and the environment, and these potential risks slow down experimentation with even partial automation and create stronger barriers to reduce the labor required for drilling or production operations.
The key approaches to unlock value from technology, are centered around:
1. Investing in human capabilities and future technologies
Digital enablement requires new skills to deliver the promise of our use cases in the oil and gas sector. Industry mindsets and behaviors will need to shift. People with specialist skills such as Robotics experts and product designers, may need to come from outside the industry.
It also requires investment in data interoperability, augmented reality, autonomous vehicles, and robotics and instrumentation connected by wireless networks.
2. Rethinking business models
Unlocking digital and analytics value using enhanced connectivity will require changes in the structure of the value chain. Companies will need to rely on shared logistics and inspections, a radical departure from the norms today. Relationships within the value chain will need to change too. For example, oil companies pay daily wages to drilling operators, which disincentivizes efficiency and speed. The industry structure would need to change to share the value created with analytics and connectivity among operators and drillers, and with suppliers.
3. Incentivize digitalization
Regulation must enable enhanced digital capabilities in the sector. For example, tighter regulation of emissions from operations and supply chain could spur investment in connectivity to monitor and reduce emissions.
Conclusion
The capabilities and technologies required to unlock the potential of digital and analytics is complex. Most oil and gas companies are attempting to build ecosystems of partnerships to accelerate the impact of digital technologies and capabilities. Partnership between KBR and Aveva is a game changer which leverages Aveva’s advanced technology suite and KBR’s deep domain expertise to digitalize and enhance engineering and operations & maintenance outcomes for clients. Alliance between Total and IBM is another example, where they are working together to use a supercomputer to improve exploration operations. Likewise, Shell is partnering with Amazon on big-data-analytics capabilities and Kent with Aveva to embed Digital solutions across the whole value chain.
Succeeding will require a clear view on the value to be unlocked, a structured and strategic approach to choosing the right technologies, right partners and the right commercial model that are fit for purpose, and aligning the right capabilities to unlock the tremendous value that has so far remained untapped.
Acknowledgements:
Oil and gas technology: Connectivity for higher performance | McKinsey
