Sugato Ray
Mar 27, 2018

Operations Digitalization & The Hydrocarbon Industry

Introduction

The Oil & Gas industry is an extremely mature one with a rather complex value chain and a myriad of players playing various roles at every juncture. Every project, operation and activity require significant involvement from numerous players or entities to derive as much value as possible from every drop of oil that is available. The industry itself has implemented a lot of processes and best practices to ensure operational efficiency and continuity. Having said that, the modus operandi of the industry was always based on one simple premise – the price equilibrium (of crude oil) at about USD 77.5/barrel. However, over the last 10 years, there have been quite a bit of fluctuations in crude oil prices, and over the last few years, while it hovered around a rough average of about USD 50/barrel, a steady declining trend is very apparent.

The price pressure is coming from both supply and demand side. On supply side of hydrocarbon, shale oil/Gas and enhanced recovery, and on the demand side, renewables, increasing ban on single use plastic items, electrification of motor vehicles, etc. has put a continuous downward pressure both on raw materials and end-products of hydrocarbon value chain.​As predicted by various studies by BP, Fitch, and other experts, in the next two decades,​

  • Plastic ban will eat away 2 Million BPD hydrocarbon demand
  • Motor vehicle electrification will eat away about 10 Million BPD hydrocarbon demand

​The growth of renewables continues to surprise all experts. BP has revised its prediction upwards for last 5 years and today it stands at 8 Terawatts by 2040. (Source: https://www.theguardian.com/business/2018/feb/20/plastic-bans-worldwide-will-dent-oil-demand-growth-says-bp ) Despite the pressures from both side, hydrocarbon industry will continue to be one of the largest industry till any foreseeable future, contributing to a major share of global GDP and employing millions of people across the world.​The other major challenge faced by the industry is the ageing workforce. There are numerous reports that have gone as far as saying that about 50% of the industry’s workforce will retire within the next few of years. Years and years of experiential and domain knowledge, all of which leave the industry along with its golden generation.​Price pressures and the loss of its most valuable asset, i.e. workforce, has put tremendous stress on the industry. So, is this where it will all collapse? Or is it an opportunity for change?​

The Real Challenge – Affinity to Status Quo

One of the main problems of the hydrocarbon industry, and as such, in any traditional industry, is the affinity to Status Quo.​For example, a study of 143 US refineries published by Solomon Associates in 2008 pointed out that only 3, had world class EII (Energy Intensity Index) of about 73, the average being 99. Just 1% improvement is worth USD 3.0M to 4.5M a year for a 300KBPD petroleum refinery @ USD 65/barrel crude cost (depending on complexity of the process). A 2011 presentation of Solomon Associates at Singapore (Singapore Energy Week) mentioned that out of 341 refineries they study globally, 6 are world class. The difference of profitability between the world class 6 and the average is about U$ 2.04 / Barrel. At today’s crude oil average cost of U$ 65/bbl., the difference is about U$ 1.42/bbl. For a 300KBPS refinery, the difference at bottom is about U$ 140 Million at today’s price level.

While energy optimization is one of the biggest opportunities, there are many areas of improvements, such as maintenance, catalyst & utility optimization, Health, Safety & Environment issues, removal of supply chain inefficiencies such as Quality-Give-Away, Demurrage Charges, Dead-stock, etc. The status and improvement opportunities are similar across the entire hydrocarbon value chain, from E&P to all the way to downstream petrochemical plants. ​ The performance gap between the best and the average has existed for long time. However, with favourable market conditions, the industry could afford to tolerate “average” performance, or the “status quo”.​Today, computational technologies offer a very easy way of bridging the performance gap, or even challenging and improving beyond the best practice benchmarks. It can make the hydrocarbon industry much more profitable, cleaner, greener, safer and tackle all “Lost Profit-Opportunities” (LPO).​Thus, the combination of the market pressure and the possibilities offered by Digitalization, can turn out to be a major change agent for the industry.



The Opportunity – Operations Digitalization

“Big Data” or “IoT” – these are a couple of new concepts that have been introduced to manufacturing industries over the last few years. However, the Oil & Gas industry has been a data-intensive one for a very, very long time. There is a lot of data that is present in the industry, and it is a gold mine. The only reason it hasn’t been fully exploited yet is because this data lies within technological and functional silos and sub-silos such as DCS (OT), MES, ERP, etc. No one really has the big picture. As a result, only 1% of critical information reaches decision makers, far less reach within the opportunity window. By the time the critical information reaches the right stakeholders, the only thing it is good for is post-mortem or post-facto analysis.​The solution to this is – Digitalization, or specifically, Operations Digitalization. Operations Digitalization allows for the creation of a cyber replica of an enterprise or organisations, enabling for end-to-end real-time operational visibility, tactical insights, strategic foresight, and economic assessment of all deviations and excursions. Imagine, if you had the visibility of the economic significance of all the issues you have at hand, and the foresight into potential ones, and could simulate scenarios to understand the consequences of your actions – you would be able to take much better decisions and drastically improve your bottom line. This is exactly what Operations Digitalization enables.​Operations Digitalization makes data work for a business in a much better way than it is currently done. It can make the hydrocarbon industry much more profitable, sustainable, cleaner, and safer. The reason is that the approach Operations Digitalization takes is very different from traditional business process re-engineering wizardry, and IT approaches such as “Enterprise Application Integration (EAI)”, “Data Warehousing” or “Business Intelligence”. It truly unleashes the data for enterprise wide empowerment, lost profit-opportunity (LPO) minimization and new value creation.


Conclusion

Operations Digitalization is THE answer to the needs of the Oil, Gas and Petrochemical industries. In fact, it is the answer to the needs of any manufacturing industry, be it process or discrete manufacturing.  It will play a major role as a differentiator in determining the winners and survivors of the Digital Darwinism process which has just started. Operations Digitalization is the key element of the 4th Industrial Revolution. The faster an industry adopts this technology, the better it will do.

Sugato Ray
Advisor, dDriven

Stay Current on Industry 4.0 & Manufacturing Digitalization News

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Connect with dDriven

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.