03 Jun Debating the Merits of Digital at the Global Petroleum Show
I’m on a panel discussion at the Calgary Global Petroleum Show about the role of digital innovation in oil and gas. Here’s a snapshot of the kinds of questions I think the panel will address.
At last year’s conference, I observed with some alarm that the trade show seemed to be oblivious to the impact that digital innovation was having on the oil and gas industry. The digital pavilion was tucked away in a distant corner of the venue, sparsely populated and lightly attended. The suppliers I spoke with lamented the location which undoubtably contributed to the lacklustre foot traffic to the booths. The vast bulk of the displays on the main tradeshow floor profiled largely hardware goods, such as downhole tools, rotating equipment and safety gear. Few, if any, drew attention to the data side of their offerings, likely because there wasn’t any.
This year, digital innovation should figure more prominently. A whole year has gone by. Other major conferences, including CERAWeek and ADIPEC, devoted serious profile to the impacts of digital tools. The fact that there’s even a panel discussion about digital solutions as part of the strategic and technical conference is affirming the transition to digital ways of working. I’m very hopeful as the trade show unfolds that many more suppliers to the industry are ready to highlight their advancements, their new digital solutions and their fresh competitive differences driven less by the shape of the steel and more by the value of the data.
In the interim, I’ve published a book about digital oil and gas, posted 40 new articles, and broadcasted 30 podcasts, all on this one topic. Clearly digital is here to stay. But what are the current questions that the panel will address? Here’s what I think are some of the top of mind questions for industry leaders.
Digital Transformation Questions
1. The Big Small Paradox
“Isn’t digital just for big companies? How can small firms with limited resources take advantage of digital innovation?”
It’s true that the media tends to dwell on the impact that digital has on large companies. But let’s acknowledge that publicly traded oil and gas companies are under the pump to manage to their stock price. They wish to be seen in the capital markets to be taking advantage of digital, to be positively compared to the new capital market titans (all of whom are digital creations — Alphabet, Amazon, Apple, Facebook, Microsoft, Tencent). Media releases emphasize their digital chops.
In no way does this diminish digital’s potential to create value for small companies. It’s simply not media worthy that a $50m oil company is using cloud computing. In fact, many digital start ups are aiming at the same industry problems that small oil and gas firms face. The fit between a small start up and a small oil and gas firm is better than the fit between big oil and small start ups. Small firms can cluster together to form a larger entity if the costs and risks appear too daunting.
2. The Infrastructure Shortfall
“How can we possibly deploy digital technologies when we don’t even have basic power or telecoms services to the field?”
Public infrastructure limitations are real, and won’t be fully solved by the public players. It’s simply not economic for our local telecoms and power utilities to run wires out to a single well or battery. They face their own growth challenges. That also explains the race to mesh the planet with low orbiting telecoms satellites by the likes of Elon Musk and Jeff Bezos. But to a digital start up, the lack of power and telecoms are simply different kinds of user problems to be solved. For example, Ambyint, a new digital beam pump controller, works specifically in fields that lack power and telecoms because the design of this solution solves for these kinds of limits.
Using digital concepts developed for consumer markets, where battery life is key, and off-line access must be preserved for those times when there is no telecoms network, Ambyint solved a set of problems that have plagued the industry for years. In my view, telecoms, power, security, maintenance, cold weather, and many other limitations that have been traditionally presented as insurmountable obstacles are now falling away.
3. The Relevance Question
“How come digital just looks like so many science projects that generate no real benefits and aren’t solving real business problems?”
Digital projects behave differently than traditional oil and gas projects. Unlike the waterfall method of engineering, where detailed designs and specs are carefully crafted before any construction begins, digital projects start with an unfinished or partial design and adapt as they go. Digital teams include the full set of skills to drive the solution including developers, user interface design, engineering support, power and telecoms experts, who work collaboratively in short iterative development cycles. This methodology, called agile, certainly looks like a misguided and frivolous way to develop precisely because there’s no hard outputs.
But that’s how digital works. The premise is that digital solutions iterate to their final design, rather than completing a layer of design at each step of development.
4. The Urgency Question
“How do I convince my management team that they need to do something? They’re making lots of money now, so what’s the urgency?”
Just about every business that has suffered at the hands of some digital innovator had a bright management team and a quality board of directors. Success breeds a certain kind of hubris, that the experience of the past is sufficient to protect against disruption in the future. This logic fails because digital companies have figured out how to work two laws to their advantage: Moore’s Law and Metcalfe’s Law.
Moore’s law forecasts that some kinds of innovation experience an exponential rise in capability per unit time, and an exponential fall in costs. We can see this playing out in the solar panel sector, where marginal solar, after just a few years, is now cheaper than any other kind of power generation.
Metcalfe’s law states that as a network of nodes grows, the power of the network improves exponentially and the cost to add an additional node is zero. This plays out in telecoms, where the cost of adding just one more phone is zero, but the value to the phone owner is immeasurable.
The risk of doing nothing in the face of digital companies that have figured out how to exploit these laws is far greater than the risk of doing something, making mistakes and learning as you go.
5. The Talent Crisis
“How are we going to build a big enough talent pool fast enough?”
Unlike natural resources, which are tied to some place, digital resources have no boundaries. As the world’s telecoms systems grow in capacity (and they are already harmonized around the internet protocols), and as digital tools propagate easily across national borders, any company can access almost any needed resources for short term work. The gig economy is here.
The question fails to recognize that digital is unlocking abundance where there was once scarcity, and this includes human talent.
To me, the real crisis is a different one, more related to the social question of re-skilling workers for a different future. Many jobs are poised to be overhauled. For example, visual sensors coupled with an AI engine can replace workers whose jobs are based on watching equipment or gates or facilities. Robots will take over steering roles for all kinds of equipment. Blockchain will simply eliminate that 10% of the head office work that involve tracking, checking, confirming, and disputing.
The real problem is inadequate attention to the social unrest that digital can create, and an underinvestment in the capacity to retrain older workers with new skills.
6. The Disruption Gap
“ Where is the evidence that digital creates these new oil and gas business models that we hear about?”
How about VAKT, the new petroleum trading platform created by a handful of European oil companies to overhaul the archaic way that petroleum cargos are bought and sold. Blockchain allows cargos to be tracked in near real time, eliminating the 90 day delay that it takes to resolve disputed cargos. Estimates are that fully 9% of global crude traded by tidal is hung up in dispute. Imagine an oil company that needs no financing for working capital.
Or Enersoft, who are using a $300 13 megapixel camera from a cell phone to take closeup photos of drilling cuttings, which are then pieced together by an AI engine to yield a geologic model that is 1 million times the resolution of conventional systems at a fraction of the cost? This technology will allow its users to model the earth at the grain of sand level. Imagine an oil company that can extract resources with surgical precision.
Then there’s Kelvin, an artificial intelligence engine that BP is now using to manage entire production fields. AI is superior to humans at rapidly finding the optimal path in a thicket of data, in this case, how best to run dozens of wells in the face of infrastructure constraints, cost differentials, capacities and actual resource characteristics. Imagine an oil company that can infinitely expand its capacity to take on new fields without needing more human talent.
7. The Misplaced Priority
“Shouldn’t the priority be on getting market access, improving carbon foot print, and cutting costs, and not fiddling with code?”
As the IEA correctly points out in its 2017 report on the impact of digital innovations on the energy sector, digital is one of the few levers at management’s grasp that addresses many of these issues. For example, digital tools are helping pipeline companies build and install new infrastructure faster and with higher quality, which raises their performance to the magical six 9’s (ie, 99.9999% reliable), or less than 1 hour of outage per year.
Digital helps lower carbon emissions by optimizing business models to reduce the amount of driving around that the industry has to do. Instead of running a regular circuit, an operator manages equipment on an exception basis. Using AI to optimize energy inputs reduces power consumption (something Google discovered when they applied AI to their data centre power needs — the AI engine quickly reduced power needs by 30%).
These are just some of the questions that I think the panel will want to address, and I trust that the attending audience will ask even harder ones. It should be a lively discussion.
Check out my new book, ‘Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, available on Amazon and other on-line bookshops.
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