Digital transformation isn’t new, but it’s quickly becoming essential for the oil and gas industry. Digital transformation can help oil and gas players make meaningful improvements in safety, efficiency, cost savings, production optimization, compliance, and customer service.
In the grand scheme, digital transformation allows companies to break away from traditional, manual processes and become more automated, efficient, and reliable. This can be accomplished through improved data management, predictive analytics and automation, process optimization, and digitalization of operations.
The oil and gas industry is undergoing digital adoption on a mass scale, thanks to the arrival of digital technologies and solutions that are making it possible to increase safety, reduce time-to-market, improve operational efficiencies, facilitate better decision-making, and reduce costs.
Strategies For Success Across The Oil and Gas Industry
When it comes to digital transformation, oil and gas companies can take advantage of many technologies that have been successfully rolled out across other industries.
It’s a big moment for digital transformation in the energy industry. From data science to augmented reality and everything in between, the evidence shows how energy suppliers at any scale can increase efficiencies and enjoy improved productivity from innovative technology.
Statista reported in 2022 that the energy industry was among the top sectors whose digital transformation during the Covid-19 pandemic accelerated journeys.
This article will discuss the importance of digital transformation for any industry before explaining the particular opportunities and challenges for oil and gas companies.
Why Digital Transformation Matters
Digital transformation strategies bring new technology to every business process. Most businesses can support and benefit from the work of digital transformation. After all, appropriate software can help companies reduce costs, increase efficiency, and gain a competitive advantage. In a primary industry like the oil and gas sector, there are also improvements to make with employee safety.
A company implementing digital solutions may use cloud services, mobile apps, social media, and data analytics to streamline its processes and give them a competitive edge. But companies get the most from digital transformation when they are agile, collaborative, and employee-oriented, finding ways to use emerging technology alongside established digital tools.
In other words, an excellent digital transformation strategy prepares a company for the opportunities and challenges of the future. Most companies need to mitigate the unforeseen problems that lie ahead. But any business involved in the extraction, processing, and sale of oil and gas, knows too well the pain of market volatility.
Digitalization In The Oil and Gas Industry
Applying digital tools to the oil and gas industry has specific challenges and opportunities.
Oil and gas companies need specific capabilities and expertise in digital technology and the energy business. Digital leaders in oil and gas companies must have a deep understanding of digital technologies, be able to integrate them into their existing systems, and ensure that they perform safely and effectively.
Three significant areas to consider for the oil and gas industry are price volatility, reducing carbon emissions, and change management challenges.
In the energy industry, the volatility of oil prices is a uniquely different problem. The mission to improve efficiency in the oil and gas industry is critical, as cost savings help weather periods of instability. Although some cost-cutting methods will impact the delivery of key services, digital solutions can reduce costs while enhancing business productivity and customer experience.
For every business today, reducing carbon emissions is non-negotiable. And Digital technologies can help to reduce the carbon footprint of the oil and gas industries. By optimizing Yield, energy, and throughput (YET), digital transformation helps industrial companies to maximize their output for every bit of energy they consume.
A report by McKinsey in 2022 suggests that carbon emissions could be reduced by up to 20%. Although the oil and gas industry is known as a major driver of climate change, digital transformation can make it as efficient as possible.
Challenges to digital transformation for oil and gas companies
Many technologies that could transform the oil and gas sector have been tried and tested in other sectors. However, digital transformation is challenging in this industry.
- Company leaders may see digital transformation as a series of separate tasks. However, new technologies should change how the business works and operates to reap the benefits of digital transformation.
- Even if management is convinced about the benefits of digital transformation, that enthusiasm might only transfer to employees. Companies that invest heavily in training, consultation, and communication with staff are far more likely to succeed in their transformation.
- To meet the specific needs of the oil and gas sector, it may take time to see how they will create value for the company. Risk-averse management teams will only invest in technologies if they can see the payoff in the long term.
With all these goals, challenges, and opportunities, a wide-ranging holistic approach is necessary to secure digital transformation.
Which Technologies Are Changing The Oil and Gas Sector?
As digital transformation revolutionizes how we do business, it also has a major impact on the Oil and Gas industry. By embracing digital technologies, oil and gas companies increase operational efficiency and gain a competitive advantage. Technologies like Industrial 5G, Edge Computing, Artificial Intelligence (AI), Internet of Things (IoT), Cloud Computing, Robotics and Automation, and Blockchain are already playing a huge role in the digital transformation of the industry.
- Industrial 5G. Industrial 5G provides a high-speed, low-latency network with greater capacity for digital automation and a wide range of digital services and applications. This enables faster and more reliable digital communication between machines, equipment, and other devices.
- Edge Computing helps reduce the need to process digital data in the cloud by bringing computation and storage to the network edge. By utilizing edge computing, oil and gas companies can process digital data faster and more efficiently.
- Artificial Intelligence (AI). AI-powered digital technologies are helping oil and gas companies to improve safety, reduce downtime, and increase efficiency. AI can be used for predictive maintenance, digital twinning, automated process control, and many other applications.
- Internet of Things (IoT). The Internet of Things (IoT) is revolutionizing the Oil and Gas industry by creating digital ecosystems where digital devices such as sensors, transmitters, and actuators can interact.
- Cloud Computing. Cloud Computing enables oil and gas companies to store digital data and run applications on a remote server instead of installing, managing and maintaining servers on-site. This reduces hardware costs and simplifies digital operations.
- Robotics and Automation. Robotics are naturally part of the improvement of any heavy industrial process. For example, robotic arms can perform hazardous tasks on offshore oil platforms. Automated systems can be used for the digital control of complex processes.
- Blockchain technology offers secure digital data storage, asset protection, and transaction processing. This can help oil and gas companies increase transparency, reduce costs, and improve digital security.
How Industry 4.0 Is Driving Developments In The O&G Sectors
The fourth industrial revolution is a term that describes the rapid digital transformation that has disrupted almost every industry. Logistics, manufacturing, construction, public transport, and manufacturing have all experienced dramatic changes from technologies like the internet of things, cyber-physical systems, and big data analytics.
A recent McKinsey report explained the durable changes that oil, gas, and other industries were already experiencing from industry 4.0 technology. These benefits often include:
- Improved agility for engaging new technological solutions
- Data management creates more stable supply chains
- Process automation leads to greater productivity
- Improved compliance with ongoing ecological regulations
In such a challenging industry, there’s no doubt that the latest digital technology can impact the success of energy businesses.
Although many global oil companies have found ways to use digital methods, only some businesses have achieved the same results.
A 2021 McKinsey report showed that early adopters of Industry 4.0 technology in oil, gas, and energy companies were already reaping the benefits – while others were lagging.
Companies already started in their adoption journeys are now positioned to lead the industry.
Key Challenges Within The Oil and Gas Sector For 2022 and Beyond
We have already discussed some of the general challenges facing this industry regarding digital transformation. Leading research from Gartner has drawn attention to some of the issues that face companies trying to hone their vision in 2022.
It’s a counter-intuitive fact of change management that technology is only one part of digital transformation. But embedded organizational structures pose some of the main problems for the future of digital adoption.
A 2022 Gartner report suggested that siloed thinking was one of the key barriers. The global oil industry naturally involves compartmentalization between different sectors of a company. Working collaboratively to overcome these barriers and improve a company-wide adoption strategy is essential.
Furthermore, some specific technological challenges continue to slow down adoption.
A 2021 Gartner report suggested that up to 64% of companies need help finding talent to confidently create their new digital ecosystem. When companies invest in licenses, subscriptions, and monitoring, they won’t make sense of the situation without the right know-how.
Five Ways Oil and Gas Industry Leaders Can Accelerate Digital Transformation
If one thing’s clear, oil and gas leaders can no longer delay their technology strategies. Every company must make its unique plans for change. But there are several key areas that any energy organization needs to address to get started.
Bolster Technology Infrastructure
Investing in next-generation infrastructure is key to digital transformation success. With capabilities like Industrial 5G, Edge Computing, and Artificial Intelligence (AI), business units across an organization can find ways to improve their processes.
Communication infrastructure is a precious investment in the oil and gas industry. Extraction and exploration systems operate over a wide area, remote from conventional infrastructure. Industrial internet services connect different business segments seamlessly, removing unplanned miscommunications between business units.
Incentivize teams in all Business Units
Deciding on the right digital vision is not just a matter for a company’s IT teams, C-suite executives, or consultancies. Each team knows where to make cost savings through digital adoptions. When the plans for a digital strategy start with the employees on the ground, all staff will be incentivized in the hope of increased efficiency, streamlined processes, and a better employee experience.
In the energy industry, employees will only be motivated by digital maturity, organizational change, or global business needs. They will become involved in the process by showing them the new life that a digital strategy can bring to their work.
Take A People-First Approach.
When staff hears that their employer wants to cut costs through organizational change, many will be concerned about keeping their jobs. Digital decision-makers will improve the situation by prioritizing existing staff in their organization. By building their capacity, empowering them to think critically, and offering opportunities for thorough training, oil and gas players demonstrate that employee effectiveness is part of the plan for achieving maximum value.
Measure and Assess Impact.
It’s crucial for oil and gas business leaders to gather precise information about the digital adoption process. A company only reaches digital maturity when staff can use their new tools with complete proficiency and customers feel the benefits.
A digital adoption platform is one fundamental way of finding out real-time data about the use of technology in any company. With one convenient application, leaders can gather clear insights about the value that their investments are creating.
Prioritize Value Creation
Although this article has focussed on digital solutions, value creation must be central to implementing new technology. A cost-savings strategy should focus on creating value across the value chain. Businesses that focus on upstream oil processes can use new tools to optimize the price of every barrel of oil.
Further down the chain, technology can help to reduce supply chain disruptions and prevent the associated costs from building up.
Creating Future Value In O&G
To create more value in Oil and Gas, it’s vital to ensure that technology solves the most fundamental problems in a given company. It’s only possible to apply digital solutions when they are needed. As mentioned above, employees on the ground are some of the most valuable sources of information about efficiencies.
More specific value-creating changes that oil and gas companies can implement include:
- Use artificial intelligence to improve the pace of exploration initiatives
- Employ data scientists to closely monitor the conditions of machinery, and advise on repairs
- Digitize the supply chain to realize savings whenever the oil is moved from place to place
- Use big data to calculate the optimum oil prices for customers
The savings of small changes will amass as they progress along the value chain, supporting plans for business growth and sustainability in the long term.
Digital Transformation: Oil and Gas In The Future
In this article, we’ve seen how digital transformation can be uniquely significant for the development of oil and gas companies. Despite major oil and gas players’ challenges, they can access a range of proven technologies to enhance the solutions they offer the marketplace.
Of course, whatever business leaders do, there’s no doubt that time is running out for the oil industry. The catastrophic consequences of fossil fuel consumption are nearer than ever. And oil and gas industry leaders are responsible for supporting a truly sustainable energy transition.
Aside from their moral obligations, oil companies won’t survive unless they adapt to radically new working conditions.
Fortunately, a digital transformation project is one way that businesses can remain competitive. Technology helps to produce value across the energy sector, even in highly unpredictable circumstances.