Digitalization in Energy: Disrupt or Be Disrupted

June 18, 2017
Though the benefits seem clear, the oil and gas industry is fighting a culture averse to risk. But what is the risk of not pursuing digital transformation? Experts at the Offshore Technology Conference weighed in.

The oil and gas industry is not seen as an industry quick to embrace new technologies. Several factors influence this conservative attitude, including safety challenges, complex systems, and a vast amount of investment. But if there’s any doubt about the changing landscape, a panel of experts at this year’s Offshore Technology Conference (OTC) in Houston gathered to put that to rest.

“The Digital Disruption Is Here” was the name of the panel discussion, and executives from throughout the oil and gas supply chain chimed in to back that up. “We have an opportunity not only to work on efficiency, but to transform the work itself,” commented Eric Abecassis, chief information officer at Schlumberger. “That is the challenge we have in front of us.”

Digital transformation is not just about a greater use of robotics and other automation technologies. It’s about Big Data and analytics, the Internet of Things (IoT), and artificial intelligence (AI) and machine learning.

Schlumberger, which has been developing software for many years to automate its tasks, is delving more and more into the AI space. Where the industrial revolution was geared toward amplifying human muscle, new capabilities are enabling the amplification of the human brain, Abecassis said. “Machines can discover things that the humans don’t always have the process for,” he explained. “We are thinking by analogy. But the computer is thinking outside the box, coming up with the most efficient solution.”

The oil and gas industry has long gathered tons of data from the field. But making sense of all that data is another thing entirely. In 2012, Schlumberger began a data lake approach to gain new insights into its business. “We got a new understanding of our business and new capabilities of how to organize our work,” Abecassis said. “Now we take a cloud-first strategy and mobility-first strategy.”

Abecassis shared an example around Schlumberger’s seismic data. “The volume of data that we’re dealing with has been constantly increasing, with orders of magnitude more data over the last decade,” he described. “We’ve been struggling to process all this information. We are nowhere near something like real time.”

Over the past two years, Schlumberger has tapped into cloud computing capabilities to significantly accelerate the way it processes data out of the seismic vessel. “Combined with machine learning, we will be able to produce much closer to real-time seismic processing as we’re doing the survey,” Abecassis said. “It’s really changing the way we’re conducting seismic surveys in the future.”

Schlumberger has many more projects ongoing, Abecassis added, that will enable the company to rethink many of its processes.

What audience members saw as the biggest benefit of digital transformation was clear. In a poll conducted during the panel discussion, 61 percent of the audience pointed to increased productivity. Democratized, real-time access to information was next in line with 25 percent.

Despite the pull of increased productivity, concerns are widespread, the audience spreading their responses evenly among the four options for biggest risk of digital transformation: traditional industry collapse under pressure, job destruction, complete loss of privacy, and machine taking over the world.

“Food for thought for our panelists: People seem to be worried across the spectrum,” commented Shell’s Hani Elshahawi, who moderated the discussion along with Indranil Roy, project manager for Schlumberger.

The digital disruptor

According to Pierre Nanterme, chairman and CEO of Accenture, digital is the main reason just over half of the companies on the Fortune 500 list have disappeared since 2000.

“The key disruptor isn’t the technology. It’s really about how we use the technology to transform our business models, our businesses, and ultimately our industry,” said Archie Deskus, vice president and chief information officer at Baker Hughes. “The companies that fell out weren’t able to disrupt themselves.”

Companies need to be able to react quickly and make the changes needed to stay relevant. “If we don’t cause this type of disruption ourselves, somebody else will come along and do it,” Deskus added.

Though the oil industry is going digital—with more sensors and more data—Deskus argued that the technology is delivering only incremental improvements. “An automated rig is better and safer, but not truly disruptive,” she said.

The lower price of oil is having an influence, but there’s still further to go. “We’ve had a couple tough years, and I think it’s started to shape some of the conversations that we have,” Deskus said. “But we’re not really there yet.”

With the merger of Baker Hughes and GE Oil & Gas, Deskus expects to be able to create the kind of transformation that’s needed. “We have begun the digital journey in our industry,” she said. “But the next challenge is to move beyond digitalization to disruption.”

That disruption has to have the end consumer in mind. “We have a bigger mission to enable safe, affordable energy, and improve people’s lives,” Deskus said. “We’ve been in this business for 100 years, we know what we’re doing, and we’re going to take it to the next level.”

Tom Moroney, vice president of deepwater, wells and water technologies at Shell Projects & Technology, put a lot of emphasis as well on how digitalization should affect end consumers in the energy industry. Posing the challenge of a world population of 9 billion by 2050, with energy demand up 200 percent, oil and gas companies need to think about how the delivery and access to energy will change over time.

“I don’t think we have really thought about how the energy business model will change over the next several decades,” Moroney said. “The challenge for us is to think about the business models in finding, producing, developing and delivering energy out to consumers.”

Where’s the value?

Finding the return on investment is key. “We have to find the ROI in IoT,” Moroney said. “I certainly believe that point very much. Where is it in this complex value stream? There’s lots of complexity and lots of uncertainty. Where can the digital technologies really add value?”

Though the oil and gas industry has adopted digital strategies at various points along the value chain, Moroney argued that the industry hasn’t really digitized.

Shell is looking at digital investments—advanced analysis, computational technology, robotics, etc.—that can help to improve the cost of operations, availability, productivity and process safety. But major investments are needed to truly digitalize in an end-to-end manner, Moroney said.

“Digital disruption is here. That is not the question,” he said. “But are we really thinking about the energy landscape as we look over the next several decades? Have we really thought about those things that are going to disrupt our business? We need to think about how we deliver value.”

Getting past risk aversion

It’s all good to talk about the need for digitalization, but how should companies actually start? How should they put together a strategy to achieve what digital can do?

These were questions posed by Adeeb Gharzouzi, principal of digital practice for Accenture Strategy Energy, which was Schlumberger Business Consulting until acquired by Accenture in late 2015. “We are not new to data,” he said. “But how much of the data drives how we use our assets? This is where we lag.”

The oil and gas industry does a lot of digital work, but it’s always taken a very piecemeal approach—what Gharzouzi referred to as the Shiny Object Syndrome. “We do it in a very siloed manner, without understanding how we can really make all these technologies work together. We need to work more holistically.”

It will require overcoming some natural tendencies—the idea that risk is much greater than it is in the consumer world, for example. “Amazon runs about 200 different experiments on their customers a day,” Gharzouzi commented. “They might get a pissed off customer. For us, the consequences might be much more dire.”

But that doesn’t mean an energy company can’t start prototyping and testing digital technologies. “Don’t wait until you get a solution 100 percent figured out and proven before you start deploying,” Gharzouzi urged.

Oil and gas is an insular industry, with little breadth throughout its organizations in terms of experience from other industries, according to Deskus. “Other industries and leaders, they look at risk differently,” she said. “They’re looking at the risk of not surviving or not creating something. Will we even exist?”

Rather than always looking at the risk of doing something, oil and gas needs to look at the risk of not doing something, Moroney said. “A lot of times, we in the industry, rather than managing risk, we want to eliminate risk,” he said. “This is about managing risk.”

Other industries are also more open in terms of collaborating outside what they know, Deskus said. They will bring in outside capabilities to achieve their goals.

The industry needs to get past what is a “combative ecosystem with limited collaboration,” Gharzouzi argued. “No company in digital can actually achieve the full value alone,” he said. “We will not be able to succeed without everybody coming together to push in the same direction.”

The well as customer

Though when thinking of disruptors, the conversation often turns to companies like Uber or Netflix or Amazon, that doesn’t mean there isn’t something to be learned for B2B business as well. “Why not think of our well as becoming our customer? We need to collect a boatload of data from our customer,” Gharzouzi said. “Start running analytics on this information, and we can start predicting what the well is telling us it actually needs. Artificial intelligence can start becoming a triage mechanism. Let the computer make these decisions for you. For decisions that need human intervention, pass it on to the operator to make the decision.”

But Gharzouzi recommends taking it further. “Is there a way to use this information to rethink the way I manage and do maintenance on assets?” he asks. “We need to understand in real time what are some of the consequences of actions that we take; decisions that will impact production. Then we can start to connect the entire value chain in real time.”

The first question to answer, Gharzouzi said, is how you will use the technology to bring value. A key recommendation he makes is removing constraints. “We are a very rigid, process-driven organization,” he said. “We need to allow people to be a lot more open-minded.”

He also recommends engaging the vendor ecosystem. Start including vendors on your digital team, he said. “Bring them in and make them part of your team so they can help ideate about how digital will be used.”

It’s always good to start with key performance indicators, commented Setrag Khoshafian, chief evangelist and vice president of business process management (BPM) technology at Pegasystems. “Make it something that you’re trying to achieve as a return on investment,” he said. “Like cut costs, get into new markets or achieve regulatory compliance—something that is measurable.”

The biggest challenge, though, are the silos that Gharzouzi mentioned. “Businesses are organized vertically, but value streams go horizontally,” Khoshafian said. “The way to achieve this is to be able to come up with a digital model that drives the orchestration and collaboration of people, edge devices, etc., with complete transparency.”

The IoT World Forum Reference Model puts physical devices and controllers (the “things”) at the bottom of a stack that continues on with connectivity, edge computing, data accumulation, data abstraction, application, and collaboration and processes. “The last one is my favorite,” Khoshafian said. “That is where the IoT and digitalization value is achieved.”