By Anil Pandey and David Branson
The dual shock of the COVID-19 pandemic and a sharp decline in oil prices has created significant challenges for oil companies worldwide. As a result, some may be tempted to stop their investments in digitizing their operations. For most companies, however, the case for investing in digital is as strong as ever. Despite the ongoing energy transition, oil will remain an important part of the energy mix for the foreseeable future. The national oil companies (NOCs) of the GCC are well-placed given their low costs of production. However, they too need to transform their business to reinforce their natural cost advantage, boost efficiency and remain competitive and resilient to demand and price shocks. Digital transformation is a critical element in this respect.
Strategy& recently published a 2020 Digital Operations Study for Oil & Gas Companies. The results show that leadership teams worldwide are well aware of the potential of digital applications to improve operational and financial performance. Over the next five years, industry leaders expect a 10% increase in revenue from getting projects online faster, and an 8.5% decrease in costs from operational efficiency.
Our analysis also found that most companies—NOCs, large international players, and independents—are still in the early stages of digitization. Of more than 200 oil and gas companies in the study, only 7% identified themselves as “Digital Champions,” with digital tools in place at multiple levels of the organization and integrated into partner and customer relationships. More than 70% of respondents said they were still in the early stages of digital maturity.
Promising technologies identified in the Strategy& study include manufacturing execution systems, cloud computing, energy analytics, the Internet of Things (connected devices), and machine learning. What these technologies have in common is that they can integrate real-time data and advanced analytics to improve decision-making and power applications to dramatically improve efficiency and sustainability. These tools have already been successfully deployed in other industries.
In common with their international counterparts, NOCs in the GCC have taken their first steps towards digital transformation. They have piloted digital applications, modified their organization structures to embed digital, and have developed digital models and visualization of the flow of hydrocarbons across their portfolios. With digital transformation still at an early stage of adoption across the industry, NOCs—with greater control of operations across the value chain—have an opportunity to lead the next phase of digital transformation.
The oil and gas industry worldwide faces considerable challenges—the COVID-19 pandemic and low prices in the short term, and lower demand as energy sources transition to renewables in the long term. However, NOCs still have a tremendous advantage over the rest of the world, with a much lower cost base. They have also taken steps to begin implementing digital in some parts of their organization—meaning they are keeping pace with the industry overall thus far. The challenge now is to build on that progress through an accelerated and holistic approach to digital transformation to retain their advantage, and continue to power the world.
This article originally appeared in Oil Review ME, August 2020.