The IIoT Market & its Impacts
We are at the tipping point of industrial digitalization. The Industry will undergo major changes driven and initiated by technological advances, especially massive advancement in computational and connectivity related technologies. The upcoming changes in the industry are evident from the changes our personal lives have gone through over the last few years. At home, we are already living in the era of pervasive computing. The snippet below (from IIC presentation – age of Industrial internet) shows this very clearly.
Most of the gadgets we have in our home today, have a computer bigger than the computer (Apollo Guidance Computer) that took man to moon and brought them back safely. This immense computational power at our finger tips driving massive changes in our personal life as well as in the industry. However, industry began adopting computational technologies as early as the 1970s. The industry, especially Oil & Gas is no stranger to big data or extremely large data sets. In fact, the upstream sector of the oil & gas industry remained the largest consumer of super computers for a very long time. However, the super-computer-driven data crunching was mostly limited to reservoir analysis (seismic image processing, etc.). All sections of the hydrocarbon value chain, i.e. upstream, mid-stream and downstream were front runners in embracing automation, process control (e.g. DCS, PLC, SCADA, APC, etc.), MES and Business IT systems. Gradually, other manufacturing verticals such as Metals, Cement, Paper, F&B, etc. adopted the full stack of IT & OT technologies. Today the industry is sitting on a huge stockpile of data and myriad IT+OT applications. While the IT-OT systems greatly optimized and automated individual functions and processes, they also solidified various silos around functions, plant units and hierarchies. The problems and power centers around these silos are well known in the industry. On the other hand, the immense advancement of computational technology, coupled with the stock pile of data accumulated in these IT-OT silos for the last 10-15 years, created a unique opportunity for the manufacturing industry in general, and the hydrocarbon industry in particular. The manufacturing industry as a whole is waking up to this new opportunity named variously as – “Digitalization” or Industrial IoT or Industry 4.0. It is essentially a fourth industrial revolution in true sense. To understand this, we may break down IIoT or “Digitalization” into two distinct waves.
WAVE 1: Connectivity Driven Remote Monitoring
The first phase of changes is largely driven by the remote monitoring capabilities made possible by the low cost and pervasiveness of communication technologies (3G, 4G/LTE, LPWAN, MESH). Sensors and cloud computing also play secondary roles. This class of applications, being computationally relatively less challenging, is being adopted widely, and at the same time, getting commoditized very quickly. Needless to say, it brings immense value to the business. This class of applications, which we may call IIoT wave 1, is mainly applicable to assets that are geographically distributed and requires remote monitoring to optimize MRO and logistics. Be it upstream operations of oil & Gas or the management of large fleets, the wave 1 concept of “remote monitoring” will immensely benefit businesses with geographically distributed assets (e.g. earth moving equipment, trucks, mobile fracking units, etc.). This also led to the emergence of a new business model known as Product as a service (PaaS) or Servitization, where the product is delivered to the customer as a service. By and large, the Aviation Industry is leading the pack in the domain of data-driven MRO operations and Servitization of large capital equipment, e.g. jet engines. In this wave 1 class of applications, the main change agent and the value driver is pervasive connectivity. That in turn drives the requirement of smart sensors and cloud-based computing.
WAVE 2: Leveraging The Gold Mine
The opportunity in the manufacturing industry, including oil and gas, is however NOT primarily driven by smart sensors, communication technology or cloud. A refinery, or a petrochemical plant, a metal rolling mill or a brewery, is highly instrumented. They are run by highly sophisticated automation layer(s) in conjunction with a layer of MES, and business IT (e.g. ERP, etc.) applications. In a typical refinery or petrochemical plant, we usually encounter between 50,000 to 250,00 “tags” – (a plant level nick name for Time-series data) sending signals from the sensors (through DCS/PLC/SCADA), and about 20-50 IT applications which have been used for the last 10+ years. Therefore, the biggest opportunity lies in “UNLEASHING” all these data and breaking the silos and barriers that are preventing the exploitation of this data gold mine. The smart sensors will definitely add exponential value by bringing in various areas of manufacturing and production operations under 24/7 automated supervision which were otherwise dependent on periodic human inspections. The primary advantage of smart sensors is that they do not need the paraphernalia such as junction boxes, cables, marshalling panels, I/O channel (of a PLC/DCS) for their data to reach the data center. Reduction of this paraphernalia means elimination of 90% -95% of the life-cycle costs associated with each sensor. This will have major impact on energy (e.g. steam trap monitoring, etc.), corrosion related risks, and many other aspects of manufacturing operations. As the manufacturing industry, especially Oil & Gas is already sitting on massive amount of relatively clean, structured and extremely relevant data, its digitalization journey starts from a very advantageous position. Therefore, the benefits are immense, and can be realized very quickly.
What Value is at Stake?
Digitalization will immensely benefit the manufacturing industry, technology industry and the society at large. Let’s have a quick look at a snippet from an article published by GE Digital – GE Digital, The Emerging Industrial App Economy. Based on a McKinsey report, this GE article estimates that IIoT has the potential to deliver up to $11.1T on an annual basis by 2025. 70% of this would be captured by business-to-business solutions.
Another paper published by World Economic Forum, named “Digital Transformation Initiative- Oil and Gas Industry”, January 2017, also indicates a multi-trillion dollar impact. The following is the graphical summary of the estimates for the oil and gas industry presented by the paper.
For software technology vendors, various estimates project the opportunity size to be between US$700 to US$1000 billion for manufacturing and industrial applications by 2025. Yes, the numbers do vary between studies, however, the order of magnitude remains the same and is clearly indicative of how large an opportunity this is for both vendors and industrial consumers alike, not to mention the environment and society as a whole.