IoT in Oil & Gas brings the same challenges and opportunities as in other industrial sectors. However, organizations seeking to drive better business outcomes in this segment with new digital strategies and tools face an additional set of problems, matched with the potential for even greater benefits. Certainly many aspects of IoT already exist across the industry. Oil and gas companies have been leveraging large data sets to make decisions for decades. Yet a Bain survey discovered only a handful of enterprises are investing sufficiently in new technology strategy, implementation, and organizational alignment to stay competitive in a crowded field. This differential is expected to expand rapidly, creating a new set of dominant players defined by their ability to synthesize these investments into daily operations and business workflows.
The digital oil field
This doesn’t mean upstream and midstream operators should reduce their diligence in evaluating new technology investments for fear of missing out. As with “digital transformation” the term “digital oil field” can mean many things. Common to both is the risk of adopting new technology without a clear plan for improving business results. This can be as damaging to operators as not taking advantage of new tools at all.
Upstream players know well the challenges of too much data coming from too many sources. With an “always on” stream of data from thousands of sensors and hundreds of proprietary tools from an equal number of oilfield service firms involved in drilling and other E&P activities, it’s no wonder that a McKinsey study found less than 1% of collected data being used to make decisions. Raising this percentage shouldn’t be the goal, however. Identifying the right data to analyze and act on is far more important than the number itself.
First, the desired business outcomes must be determined. Then come the next set of hurdles. With few standardized formats, companies face a massive data integration and normalization challenge. Solutions that enable the collection, transformation, and linking of data from disparate and legacy sources across the operation into a single source of truth for analytics tools will be game changers. In fact, analysts have estimated that digital oilfield technologies will bring a 25% increase to the net present value of deployed assets if data can be efficiently collected and made useful for informing decisions and driving operations.
For midstream operators, modernization of pipeline and tank monitoring presents a huge opportunity to reduce costs and prevent leaks, especially for trunk lines. Similarly for settling tanks and distribution pump stations, current monitoring systems are frequently disjointed, aging, and labor intensive.
The value of analytics and AI for predicting and preventing issues is directly tied to the fidelity of data used to build models, and to which new algorithms are applied. Yet reliable streams of high fidelity, properly formatted data are few and far between for most operators today.
Fortunately, it’s possible to take a practical approach to digital transformation and bring about a gradual evolution rather than risking the dangers of sudden revolution. Understandably, executives are hesitant to fund “rip and replace” proposals. However, by starting with a set of key metrics and well-defined, incremental approaches, organizations can extend the life of traditional legacy systems while simultaneously paving a path for future solutions. Furthermore, choosing specific business units to prove a new technology’s value before any major investment can accelerate digital adoption without increasing risk to overall operations.
Creating a data refinery
While adopting new technology creates cost savings and higher revenue opportunities for upstream, midstream, and downstream processes, such gains will continue to be limited by data management challenges. Information from many different mechanical sources need to be standardized after collection. To complicate matters further, ambient phenomenon such as temperature and humidity, along with wave height in offshore scenarios, must also be integrated with the overall set for improving equipment lifespan predictions and other production-impacting events.
Energy industry analysts clarify a further challenge to data-led decision making, noting that all data is not created – or more importantly, received – equal. Data from the field is often full of errors and noise, and that’s not even the biggest problem. Beyond the challenges of collecting, transforming, and storing data, “the ability to trust its validity and provenance is becoming more difficult.” Given the high stakes in financial, environmental, and human measures – the provenance and level of trust for each piece of data must be unassailable.
IoT in oil & gas initiatives can meet this requirement using four critical design factors as essential pillars of core digital solution architecture. To begin, connected services must enforce a foundation of trust for all communications and data sharing. Then there is the unexpectedly complex nature of identity, whereby physical machines, individual components, and sensors are translated into distinct logical entities with different properties and lifespans that must be tracked digitally both as individual units and as parts of multi-layered and impermanent sub-systems. Next is the concept of time. Incoming data from devices and applications will include different notions concerning timestamps, including not including them at all. Still, systems must be capable of assembling this chaos into a unified and coherent timeline if value is to be delivered. Finally, the ability to accurately maintain and audit chain of custody for all data flowing through the system is paramount for both regulatory compliance and troubleshooting activities. Given the intense data management challenges facing oil & gas operators, this is an area where investing in outside expertise can make the most sense for accelerating time to value and optimizing internal resource allocation.
The race is on
Surprisingly, only 50% of midstream operators currently consider data management a high priority. While time will reveal the true cost of their inaction, the other half is becoming increasingly aggressive in their efforts to gain a competitive advantage through IoT and AI. With midstream firms at the forefront of digital adoption now reporting up to 70% reduction in downtime, and unplanned costs over 35% lower than the industry average, it’s hard to deny the benefits of change. Yet not all early adopters are achieving equal results. In fact, some are finding that applying new technology to old strategies isn’t enough to move the needle. As emphasized further in a Pipeline report on the midstream industry, it is becoming more and more critical for executives to be “rethinking outdated business models and strategically applying technology to change them—rather than focusing on simply cutting costs.”
IoT and the oil & gas labor shortage
Some challenges are decidedly analog. The lack of qualified skilled labor and aging out of existing workers is not unique to oil & gas producers. However, adopting digital technologies for increasing data fidelity and improving analytical capabilities can significantly mitigate sector impact. One often overlooked aspect of such initiatives is that companies fostering a reputation for digital innovation become more attractive to the next generation of workers, creating benefits above and beyond the efficiency gains enabled by the new technology itself. Moreover, improved remote monitoring and predictive capabilities reduce the number of workers needed for many maintenance activities. Lastly and unsurprisingly, data-driven safety improvements serve to better retain current employees.
Mile by mile, field by field
Today, there are over 2.7 million miles of oil & gas pipeline in the United States, with an average age of 20 years. Globally, about 40% of crude oil and natural gas production occurs in fields over 25 years old. Remarkably, 175 of these have been producing for over a century. Just like the industry itself, digital transformation in oil & gas is a marathon rather than a sprint. Durable change will come from incremental improvements toward a multi-level, multi-year goal, with milestones and measurements along the way.
For those who are just now getting started, and for those seeking to accelerate progress to stay ahead, the difference between iterative and incremental adoption is critical. While other industries can try and fail and try again based on what they learned, failure is simply not an option for oil & gas concerns. IoT in oil & gas requires a step by step digital success plan from the beginning to ensure business and safety goals are never placed at risk. With two thirds of the population of the United States living within 600 feet of an active line, serious consideration is required for deployment of any new technology. Furthermore, there’s a significant difference between reducing labor requirements and removing humans from the loop altogether. For example, replacing workers crisscrossing the country looking for trunk line leaks with remotely monitored sensors and real-time and predictive analytics reduces costs and increases safety and reliability. Now these teams can be strategically and more efficiently allocated for addressing high priority issues and preventing problems before they occur.
Planning for digital success
When properly implemented, IoT in oil & gas makes every employee and asset in the field more productive. The organizations who will lead tomorrow are choosing the right strategy, technology, and partners right now. They choose not to continue with business as usual in a changing world. Nor are they rushing out new processes or practicing “buzzword-driven” development. Rather, they are taking a practical approach for maximizing long-term profitability. By optimizing their roles in the value chain to explore, produce, transport, store, and ultimately deliver quality products to consumers, they are fulfilling the promise, and realizing the potential, of IoT in oil & gas.
To learn more about creating a digital success plan for your organization, solutions to industrial data management challenges, and other critical project considerations, contact us today, or visit us on September 16th-17th, 2019 at the IoT in Oil & Gas Conference in Houston, TX.