Our thirst for energy is escalating rapidly. Digital innovations matter not only to the native energy companies, but also to the world which plans to uplift around 5 billion people from poverty in the coming 2-3 decades. Imagine the rise in the demand for energy.
With technologies growing at an exponential pace, digitalization presents opportunities for Energy 4.0 companies to establish new business models and carve sustainable strategies of producing and delivering energy.
The pandemic has perhaps damaged the outlook for digital in energy. Fund shortages seem to have dethroned Digital in priority as many oil & gas companies struggle to weather the storm. Ironically survival requires addressing three things achievable only with digital:
- Cost Efficiency
- Absence Business Model Agility
- Real-time Decision Making
The Irony: Traditional Engineering Vs Digital
The unique context of each industry makes it difficult to leverage digital, and the energy sector’s Achilles heel is its extraordinary inertia. The engineering background was conceived to be an asset by energy companies while they took initiatives such as analytics, process digitization, and automation but failed astonishingly.
The Challenge of Extraordinary Inertia
Energy companies have so far failed at digital because they did not account for the unique challenge of extraordinary inertia in energy companies.
Earlier research establishes that bolder approaches to digital are far more successful, and in the energy sector it may even be more so. Breaking that inertia will require far bolder action than energy companies have been comfortable taking to date. They must commit to transformation!
Digital innovation is perhaps the only means that can contend with these profound changes. Better decision making with predictive analytics, real-time data enabled and well informed decision making along with digitization and process automation to optimize cost and speed as the core areas digital can help energy companies transform.
Significant Business Value with Digital
Oil and Gas industry generates 2 TB of data everyday, and that will keep growing. The huge pile of data, companies are sitting on is a great resource. In cases where digital has been applied in energy companies the results seem to be significant and clear. There have been productivity gains ranging from 2-10% and on the front of cost efficiency as gain of 10 to 30%. Replication of these results at scale can result in cost gains of 1-4%/KWH in power and 2-12% per barrel in upstream oil and gas production, according to McKinsey research.
Exploring the Challenges of Digital Transformation in Energy
What makes digital transformation so uniquely challenging in the energy sector? Here are main issues:
- Old Engineering Paradigm: Heavy capital investment such as power plants, offshore platforms, or LNG terminals or pipelines define the foundation and digital has to work its way with the given physical constraints of meeting a high bar of proof of worthiness of integration into these difficult operations.
- Heavy Regulations: Heavy regulations and generation old culture of compliance makes less agile to change.
- Complex Nexus of Third Parties. Oil companies depend upon a huge cascade of parties such as third parties that drill, handle sand and water and more, just to produce a barrel of oil.
- Risk Averse Culture: Executives in the energy sector have been rewarded for consistency and not innovation, thus existence of a risk averse culture.
- Setting KPIs: Challenge of setting up the right KPIs to measure digital success remains formidable, if we can not measure it, we can not change it. There are DX playbooks which offer basic rules of setting right KPIs.
- Developing Digital Capabilities and Skills: The focus the sector has been on the core branches of engineering and this to execute digital transformation, digital capabilities and skills pose a formidable challenge.
- Global operations. Unlike other industries that have a few issues, energy companies deal with a whole gamut of global issues and each factor encumbers movement and results in a massive inertia against digital adoption.
From Inertia to Agility: Digital Fortune Favors the Bold
Digital technology can help accelerate your journey to digital to enhance organizational productivity, reduce downtime and drive new revenue opportunities.
Each element of the core business activity — seismic data acquisition, seismic processing, data interpretation, reservoir characterization and modeling — has been reaping the benefit of respective software solutions, but significantly more can be achieved in even diverse areas. But formidable challenges must be overcome.
Dapling with incremental changes, pilots and proofs of concept may prove too feeble to break the heavy inertia of the energy sector. Commitment to DX requires a fundamental shift in the way the organization works.
But before a company begins its journey, here are three things to consider:
- Process Optimization: Without a careful digital reimagination or optimization of processes and workflow, the efficiency and cost gains shall never come. Many companies skip or avoid this step as it requires greater commitment and change.
- Piecemeal Approach to Digital Transformation: To any organization how much comfortable with Digital, it is always prudent to follow an incremental or Piecemeal Approach to digital transformation as it helps in refinement of the vision as well as mitigates the risk of harsh and avoidable steps
- Follow a Transformation Model: It is essential to have a road map and a guide for digital transformation with you, it props up the likelihood for success. A company can follow a model they deem fitting, here is a comprehensive eight step model:
- An Equally Invested Technology Partner: Instead of outsourcing IT projects or tasks, companies undergoing DX will benefit the most if they have a long term technology partner that can help them through the entire process and updates afterwards.
- Technologies to Leverage:
Though there are a diverse range of Technologies to pick from, here are a few that would add value to most energy companies:
- Internet of Things (IoTs), Digital Twins and AI
Sensor technology has become highly advanced and capable of automating the process creating Digital twins. Digital Twin, an advanced duplicate that models a real-life object or process without replacing, has been a top strategic priority for many years now. It allows an organization to monitor key performance indicators and can feed AI to train it and help in predictive maintenance.
Gartner survey finds over half of IoT projects aim at deploying digital twins to do things like model new oil field production. GE has deployed over a million digital twins to monitor over 70% of the global jet engines. With shift to industry 4.0, digital twins will find more currency as smarter factories become alive.
Apart from these, here are the various other factors that firms must consider while going digital:
- Business Case should lead, technology must follow.
- Customer feedback must find voice in digital strategy
- Cultural or employee resistance is the most formidable
- Low success rates of DX demands greater commitment
The Digital Future
The world has begun to shift towards renewable resources, a trend where digital can be of great service in monitoring and delivering optimal outcomes. The traditional energy companies are facing competition from every corner, from margins to competition and price fluctuations. Digital innovation is the only way out of most challenges faced by energy companies.
Addressing the unique challenges, and following best practices recommended in the article may help companies find the elusive success with digital transformation.