03 Dec Bits, Bytes, and Barrels—The Digital Transformation of Oil and Gas
The oil and gas industry has moved decisively beyond peak oil, resource scarcity and rising prices, to a new era of abundance and price pressure. With my co-author, Rachael Goydan, I have written a new book,“Bits, Bytes, and Barrels”, about leveraging digital innovation to cope with these fundamental shifts in business models.
Why A Book?
For the past 2 years, I’ve been researching, studying and puzzling over the business model shifts created by digital innovation and their relationships to the oil and gas industry. Digital (the combination of data, computing and connectivity), had been falling in cost and growing wildly. IBM estimated that between 2015 and 2016, the world generated and stored almost 90% more data than the accumulated storage of data from the previous 60 years. My first generation Apple watch had the equivalent computing horsepower of a 1990s super computer. The worldwide telecoms networks had transmitted 1 terabyte of data every second in 2016, compared to 1 terabyte per month in 1974 (an increase of 2.5 million times).
I saw the impacts on other industries:
- Assets that shifted from personal and proprietary to shared (through services like Uber, AirBnB, Cars2Go and Lime Bike)
- The social narratives, both good and bad, that shifted from trusted news sources to information sharing platforms (Facebook, Twitter, and YouTube)
- Software that shifted from something you license and install on your own computers to services to which you subscribe
- Sensors that shifted from high cost industrial (SCADA) to low cost consumer (Fitbit, Garmin)
- Data that shifted from expensive and constrained (such as encyclopaedias) to free and ubiquitous (Google Earth, Wikipedia)
- Money that shifted from hard and sovereign (US dollars) to digital and ungoverned (Bitcoin, Ether)
- Services that shifted from complex, hard to learn and specialised (such as the ERP systems) to intuitive and easy to use (WeChat, Spotify, Instagram)
- Mechanical devices that shifted from human operator to autonomous (heavy haulers, drones, trains, submersibles).
It was only a matter of time, I believed, before these kinds of digital innovations made their presence felt in the oil and gas industry, and indeed, I perceived little sparks of innovation lighting up across the industrial landscape. I was curious if some kinds of innovation held greater promise than others.
But the oil and gas industry is unique, characterised by its outsized value, geopolitical impacts, and complexity.
Crude oil is the most valuable commodity traded in the world. Most people narrowly think of the industry as the business of finding the stuff, but some countries have negligible hydrocarbon resources by dint of geography (South Korea, Japan, Taiwan, for example), while others who are blessed with abundance find themselves frequently in horrible conflicts (Iran, Iraq, Libya, Saudi Arabia).
Crude oil itself is useless until it’s been refined into valuable petroleum products like jet fuel and diesel. Petroleum is needed everywhere, from farmers fields to airports to harbours to cars. Any truly thoughtful discussion of the impacts of digital on the industry, I believe, must consider the whole of the industry, and not just its component pieces.
“Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas” is the result of this research into the key questions that I think are on the minds of those interested in the industry.
- What business problems in oil and gas could be solved using digital technologies?
- When will digital innovations come to oil and gas, and what will be the impacts?
- What are the most important digital technologies to consider, and where in the value chain will they be most valuable?
- What is the business case for digitization in oil and gas?
- Why is it essential for the industry to embrace digital now?
- How will the profile of talent in the industry change?
- What are the oil and gas industry’s specific risks and barriers to adoption of digital innovations?
- What approaches to adopting digital change would be most beneficial?
- How can a company get started with digitization?
One. What is Digital?
The book begins with defining what I mean when I say “digital”. In my travels around the industry, I have found that there isn’t a clear, easily shared definition of digital, which makes it nearly impossible to have a coherent discussion on the topic. Ideas like exponential growth are difficult concepts to grasp by humans more used to linear models.
The core driver of digital change, the microchips churned out by the billions, illustrates the famous formula from Gordon Moore of Intel—the exponential growth curve and the exponential cost decline curve. Humans struggle with understanding these curves — we are after all linear beings, framed by the predictability of sunrise and sunset, of the seasons, of the distance between two points. Ask a golfer to point at a spot on the fairway 30 linear yards from the tee, and she can do so with high reliability. Ask a business professional to pace out 30 exponential yards, and they’ll struggle (it’s 26 times around the earth).
Two. What Digital Technologies Matter?
The second chapter digs into digital solutions. I have found descriptions of the landscape of digital technologies overly complicated, made so by those selling ever more finely defined solutions with their own names and brands and seeking to carve out their own monopoly niche. But there are a number of broad categories of digital innovations that have made an impact on the fortunes of other industries, and these look well situated, because of their relevance, rapid growth rates and maturity, to migrate in some fashion to the oil and gas industry. Chapter two lays out the formula for a cohesive digital story that incorporates many digital innovations into a narrative.
- Data will be the fuel for digital
- Sensors will gerenate the data
- Artificial intelligence will interpret the data
- Robots will apply the data to do real work
- Cloud computing will be the platform on which data, sensors, AI and robots live
- Blockchain will create trust across the digital landscape conferring agency on digitial
- ERP systems will remain the foundation for business processes, tracking and reporting
- Agile and a focus on the user will be the development model
- Change management, talent, leadership will be key to adoption
The book also looks at three other promising innovations—gamification, 3D printing and digital reality—that could have an outsized future impact on the industry.
Three. Digital and the Value Chain
As Chapter Two looks at the horizontal impacts of digital on the whole of industry, Chapter Three considers the specific business drivers for each significant segment of the oil and gas value chain. I sketch out what I think the segments could look like in a robust digital future, and how long it might take for the exponential curve of change to become dominant.
The value chain is large, long, diverse and complex. It includes the exploration function, which takes place on land and on water, in mines and in shale. It includes the midstream functions of crude oil and gas handling, treatment and refining. Next are the downstream elements of wholesaling, trading and retailing.
As an asset intense industry, oil and gas includes capital execution (designing and building new assets), as well as its overhead functions of Finance, HR, and supply chain. Finally, the chapter looks at the services industry and how services companies could respond to digital.
Four. Change Agents
Chapter Four summarises the insights of many courageous individuals leading digital change in their companies. They are a wealth of valuable ideas into what works and what doesn’t, how to staff a team to tackle digital innovation, the ways to shape the transformation, how to handle the inevitable resistance to change, getting governance right, and building digital capability.
Five. The Role of the Board
Boards have a special role to play in creating the right context for digital to succeed, the focus of Chapter Five. But there is a digital deficit at the Board level—not many and not enough board members have sufficient depth of exposure and experience in digital to be sufficiently sensitive to the opportunity and the threat. Think back to Blockbuster Video, ToysRUs, Kodak, and many other companies laid low by missing the signals from the digital march forward.
Chapter Five provides guidance for boards on getting smart on digital, framing the scenarios of the future under a highly digital world, developing digital strategies, and leveraging the capabilities of ecosystems. Finally the book presents the case for digital in round economic terms.
What Reviewers Are Saying
A handful of respected oil and gas executives, economists, services providers and technologists have read the draft manuscript and here’s a few of their comments:
- “This new book is an essential road map for oil and gas executives and boards to navigate the new world of digital enhancement of their business, avoid false starts and mis-steps and unleash new sources of value”
- “Digital Transformation is a complex and all pervasive challenge for the Oil and Gas industry. Knowing how to jump on to this fast moving vehicle can be the biggest hurdle. This book tells you how to do this.”
- “This is a timely, well researched, practical and insightful book that plugs a much needed gap in the market. If you are looking for a one stop shop that brings together key digital themes and ideas in Oil & Gas in one place, then this is it – highly recommended.”
- “Important reading for Boards, the C-suite, and those looking to understand how technology can move the needle or stand-up effective internal innovation.”
The book will be available for purchase in January, but if you sign up now, I’ll give you the first chapter free. I think you’ll be delighted with the result.
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