In an earlier insight, marine energy consultancy Wood Mackenzie identified up to US$150bn in annual operating cost savings that could be achieved in the energy and natural resources sectors through digitalisation. In its latest research, Woodmac takes a closer look at the likely digitalization impact on the upstream sector, noting that the oil and gas industry has always been at the cutting edge of technological innovation.
According to Woodmac, Big Data and advances in analytics, including machine learning and artificial intelligence (AI), provide new ways of interpreting this data, producing previously unknowable insights. While large volumes of data in the past could be a problem, Big Data is now an asset.
In theory this is a great pairing: a highly innovative industry and the latest digital technologies. But there is a disconnect; the E&P sector is conservative when it comes to adopting new technologies. Innovations in the conventional business take many years to penetrate thsector. Yet technology and digitalisation are characterised by rapid adoption and fail-fast attitudes, with those able to adapt quickly capitalising. As digitalisation permeates the upstream sector, successfully managing the cultural impact across organisations will dictate the success of digitalisation.
Energy firms are at different points in the digitalisation journey. Unconventional players in the US, driven by the overall cost competitiveness of that market, are probably the furthest along the path to realising the benefits of digital transformation. Conventional upstream has likely made the least progress, despite the size of the potential gains, the consultancy notes.
Upstream executives are right to be sceptical of promises to transform cost structures; they have been burned before by these kinds of promises. Still, L48 operators have adopted Big Data initiatives and advanced analytics and been rewarded. The cost curve for tight oil has been materially lowered, and digitalisation has played a critical role. The companies that really embrace this trend – utilising their data as an asset and scaling the application of digital technologies – will be the ones to benefit the most.