Digitalisation is expected to have large-scale, long-term effects throughout the oil and gas industry, with emerging technical solutions offering ways to connect supply chains, improve productivity, and enable huge cost savings. With pressure from environmental agendas and a post-pandemic need to future-proof industries and ensure economic security, digitalisation could be the solution to help buyers and suppliers alike balance productivity with financial and environmental gain.
Internet of things (IoT) technologies, as well as digital twins, data analytics, and blockchain, are being highlighted as solutions that could streamline downstream oil and gas supply chains – cutting costs as well as emissions in the process. Meanwhile, autonomous machines and new exploration tools are answering questions of how to access previously elusive deposits in upstream operations.
Here, we look at the current state of oil and gas supply chains and how digital tools are looking to change them.
An investment ripe for the taking
Developing strong supply chains has been highlighted by the UK’s Oil and Gas Authority as a crucial means of strengthening the industry’s economic stability and boosting its overall value, with digital tools increasingly being seen as means to achieve this by improving predictability and cutting down on operational expenditure in every step from origin to market.
While the sector has traditionally relied on fundamental logistics activities such as trucking and warehousing, as operations have grown, so supply chains have become more complex. This brings with it a host of new challenges as operators work to improve time and cost savings through every facet from trading to shipping to inventory visibility.
Not only have these supply chains grown in complexity, but they have also gone through a period of significant upheaval in the wake of the pandemic as transport links, material handling, and production sites saw delays and setbacks that GlobalData analysts say will take “some time to fix”. As demand rebounds from the lull of the past year, the sector also needs to see a ramp up in exploration, production, and refinement activity.
In all of this, digitalisation could be the answer to addressing the broad scope of challenges encountered across the supply chain, helping the sector to become a well oiled machine. In fact, such is the push for digitalisation that some analysts have warned that failure to incorporate digital tools could leave the sector a global laggard.
As thematic analyst Charlotte Newton writes: “On a rocky sea of fluctuating oil prices, expanding sources of supply, and increasing regulatory requirements, digitising operations and infrastructure can act as a life raft to energy companies in this age of uncertainty.”
While the industry has been riding the wave of uncertainty, it does seem that oil and gas companies are paying attention to the shifting landscape, with predictions showing that it is an investment sector waiting to take off.
An EY survey from June last year found that nearly nine in 10 respondents (89%) expect their investment in digital tools to increase over the next two years, with a quarter (25%) foreseeing a significant jump. Just 11% see investment staying flat and, significantly, none see it declining.
Similarly, GlobalData forecasts predict global IoT revenue in the energy sector is expected to reach $59bn by 2025, up from $34bn in 2019.
The increased attention into digitalisation also stems from a need to widen the net when looking for new deposits. GlobalData analysts reported in their recent review of industry contracts that the number of global oil and gas contracts decreased by 28% between 2019 and 2020. While this was partially due to pandemic-related disruptions, a shortage of easily accessible deposits was also highlighted as the cause, and new tools to explore previously inaccessible areas in companies’ upstream operations is a growing necessity.
Exploration and discovery
The upstream segment of the oil and gas supply chain concerns exploration activities such as locating potential sites of discovery and conducting geological surveys, as well as production activities such as onshore and offshore drilling. While tech innovations have already helped to make these processes more efficient, using digital solutions such as remote sensor imaging can allow operators to more accurately analyse areas suitable for development.
Harnessing digital solutions in this phase of supply chains is expected to provide significant returns – oil and gas research agency Achilles estimates that digitalisation could save up to $73bn for upstream oil and gas companies in Europe every year. With tools to analyse geological and seismic data, companies can see significant time and cost reductions, allowing for the remote analysis of areas prior to exploration.
In particular, oil and gas majors are using AI to improve site discoveries, with analysts estimating that the oil and gas AI market will double in size between 2020 (when it was worth $2.1bn) and 2024. Recent examples of AI deployment include Saudi Aramco’s investment into Earth Science Analytics, which provides predictive software tools to analyse and identify properties of potential exploration sites, while in 2019 France’s TotalEnergies announced plans to open a digital factory using AI to facilitate field discovery.
As a result of these digital interventions, recoverable assets could see a significant increase.
Digital twins are also becoming an increasingly popular means of conducting analysis and testing of sites from onshore locations, not only helping to improve predictability of the projects themselves but also cutting down transport-related emissions and costs as workers do not have to travel offshore to carry out these same tests – again making the upstream section of the supply chain both cost- and emissions-efficient.
Midstream operations in the oil and gas supply chain include the storage, processing, and transportation of products, acting as the medium between consumer and extractor. During the pandemic, the midstream sector saw something of a bottleneck between strong upstream supply and weak downstream demand. Now, as demand begins to pick up once more, these operators are feeling the strain of ramping back up to keep consumers and producers happy.
Digitalisation can be instrumental in improving safety and traceability in midstream activities, allowing for an increase in capacity without compromising efficiency. For instance, data can be remotely taken from a pipeline or transport terminal in real-time to monitor the status of supply, as well as identify any leaks or spills in the journey and avoid potential accidents.
With every component of the infrastructure used to transport goods (such as valves, pipes etc) now capable of being made "smart", the midstream sector holds great potential to provide insight into the function and productivity of systems.
As Chuck Miller, senior executive at manufacturing major Emerson, said back in 2018: “It is extremely important for the [midstream sector] to foster digital transformation – rethinking outdated business models and strategically applying technology to change them – rather than focusing on simply cutting costs.”
For instance, connecting infrastructure links through blockchain and data sharing would bring increased transparency and traceability to the sector, while increased sensing capabilities would help to predict and stabilise production variability – preparing operators for under capacity and preventing unncessary losses. AI tools could also help detect leaks and optimise supply, as well as simulate products and infrastructure to assess any potential issues.
In avoiding such accidents and losses, companies could see not only an improvement in efficiency but also in their eco-footprint.
Oil major Shell estimates that digital technologies across all industries have the potential to enable a 20% reduction of global CO2 emissions by 2030, reducing emissions throughout the supply chain from areas such as unnecessary production and transport, as well as by catching accidents such as oil spills and gas leaks to mitigate (and sometimes entirely avoid) damages.
Currently, a lack of knowledge of where and when accidents such as these occur prevents many companies from achieving their decarbonisation targets. According to the International Energy Agency, the oil and gas industry contributed around 70 million metric tonnes of methane to the atmosphere in 2020, and while nations have pledged to curb this figure, there are not adequate tools to identify where the leaks occur.
Once again, AI provides an answer to these issues, with tools such as sensors and predictive analytics helping companies to identify sites of damage, sometimes before any leak has even occurred.
Blockchain solutions can also offer a means of enabling greater transparency, not only offering improved security for suppliers and buyers alike but also providing companies with demonstrable environmental credentials. It is a technology that has gained significant traction in recent years, surpassing its initial status as a niche cryptocurrency tech to bring wide ranging benefits in a host of industries.
In bringing traceability to oil and gas goods, blockchain can reduce operational costs and eliminate delays, offering time and cost savings as well as environmental benefits.
With such significant benefits a clear aspect of digitalisation, the oil and gas industry is on the brink of a supply chain overhaul, and it seems that companies are teetering on an influx of investment that will bring digital solutions to the fore of business models. While it will not offer a silver bullet solution to environmental concerns, implementing these technologies would help companies to become less polluting and more efficient as they adapt to a shifting industry landscape.