Big data and analytics are key to the digital transformation of Oil and Gas: McKinsey
The smart application of digital technologies like big data and analytics offers a rich seam of productivity improvement for the oil and gas industry worldwide, according to a paper by McKinsey & Company.
Called “Digitizing Oil and Gas Production” and written by Stefano Martinotti, Jim Nolten, and Jens Arne Steinsbø, the paper argues that the sector faces many upstream challenges and that digitising production with automation to address high-cost, dangerous or error-prone tasks will provide a boost for the industry.
The authors note that while there are many potential benefits in the upstream value chain, from exploration to production, via development, “some of the biggest opportunities are in production operations, such as reducing unplanned downtime.
“Given the oil and gas industry’s substantial increases in upstream capital investment, optimising production efficiency is essential.”
They note that automation creates several opportunities to this point, including maximising asset and well integrity, increasing field recovery, and improving oil throughput.
According to McKinsey, there are three major challenges that oil and gas companies have to deal with:
- More complex operations Increasing volume and complexity in hostile, remote locations (for example, arctic, offshore, and deepwater) require reliable remote and automated or semi-automated operations, and logistics optimised for efficiency. They say mature assets with declining production need very efficient maintenance schedules to maintain profitable production.
- Zero tolerance for health, safety, and environmental incidents This is described as a non-negotiable imperative. “Recent industry experience has shown that in the current highly regulated environment, such incidents can threaten not only profitability but also the very existence of an operator. Automated production control, monitoring the condition of the equipment, and predictive shutdown systems are now basic requirements to prevent or mitigate catastrophic events in geographically dispersed remote operations.”
- The talent and experience gap “The industry is in the most dramatic demographic shift in its history, commonly referred to as ‘the big crew change’. Thousands of petro technical professionals will be retiring soon, resulting in a knowledge and experience crisis for the industry. Retention and recruitment are unlikely to fill the gap completely. This development drives efforts to codify many routine analysis and decision-support processes and, where possible, to automate them.”
The authors are realistic about the scale of the challenge, noting the ubiquity of digitally enabled systems and products in the typical oilfield often runs into tens of thousands of units. “Converting the complex flood of data into better business and operating decisions requires new, carefully designed capabilities for data manipulation, analysis and presentation, as well as tools to support decision making.”
But the payoff is worth the pain, they argue, saying there is an opportunity to derive an efficiency dividend of up to ten per cent — translating into a bottom line benefit of $US220 million to $US260 million on a single existing large scale project, according to McKinsey’s benchmarking research.
And the benefits could be even greater in greenfield sites, where digitised instrumentation is designed in from the start of the project.
The authors also reveal what they describe as three success factors for automation production:
- Building multi-disciplinary teams — include staff representatives of every aspect of the IT and perhaps even team members from equipment vendors;
- Differentiating greenfield and brownfield automation;
- Thinking big, piloting small, scaling fast — “Companies with successful programs think in terms of total life-cycle costs and economics. They build a digitisation team and make automation part of a corporate digitisation program.”
“There is a clear competitive imperative for increasing automation in oil and gas production. Companies that successfully implement big data and analytics, sensors, and other technologies will be well positioned to meet their industry’s challenges,” they conclude.