Oil and Gas: on the cusp of a digitally fuelled new era
The industry has a chance to move from incremental, digitally driven operational improvements to a broader embrace of digital technologies.
For most of this decade, the Oil and Gas industry has not taken advantage of the opportunities that derive from meaningfully using data and technology. A single drilling rig at an oilfield, for example, can generate terabytes of data every day, but only a small fraction of it is used for decision-making. As other capital-intensive industries (such as aviation and automotive) have pushed ahead with revolutionizing their business and operating models through holistic application of digital technologies, the opportunity for the Oil and Gas industry to leverage the transformational impact of digitalization has become more evident. The industry is now beginning to pay heed.
Investments in digital technologies in the Oil and Gas industry
Source: Accenture Digital Energy Trends¹
There is growing consensus that the Oil and Gas industry is on the cusp of a new era, as a wave of business and digital technologies looks set to reshape the sector, propelled by a series of macroeconomic, industry and technology trends:
Disruption in supply, demand and commodity prices
The industry is witnessing one of its worst downturns, driven by a supply-side disruption. Commodity prices had, at one point, fallen by more than 70% compared with June 2014 levels and, just as some early signs of recovery emerge, another disruption may be on the horizon, driven, on this occasion, by peak demand for oil.² ³This disruption will maintain pressure on hydrocarbon prices and prompt energy companies to focus more intensely on reforming their portfolio and taking a greater role in the energy transition.
Rapid advances in technology
The growing sophistication of platforms, and mobility, surveillance, connectivity and storage technologies, coupled with the ability to process and analyse data rapidly, enhances agility and supports real-time decision-making and execution.
Changing consumer needs and expectations
Across industries, consumers expect increased engagement, personalization and speed. They are also paying more attention to environmental issues, which influences their energy choices; seeking transparency from companies in different areas (e.g. emissions or hydrocarbon sources); and are growing in technical sophistication by being connected to multiple technology and digital platforms.
Despite these fundamental shifts, many of the digital initiatives to date within Oil and Gas could be seen as conservative and with limited impact on existing operating or business models. Much of the effort so far has been evolutionary: companies are making incremental performance improvements through the selective use of business and digital technologies. These include basic proactive maintenance procedures, look-backs on completed operations, and the use of rudimentary data sets for all parts of the Oil and Gas value chain.
Digital transformation has the potential to create tremendous value for both the industry and society as a whole. Such a transformation will require organizations to implement a focused digital strategy, sponsored by the CEO and executive teams, and a culture of innovation and technology adoption. It will also need investment and commitment to revisit and revamp processes, infrastructure and systems; and willingness to collaborate across the ecosystem.
We see four themes as central to the digital transformation of Oil and Gas over the next decade:
|Digital asset life cycle management|
New digital technologies combined with data-driven insights can transform operations, boosting agility and strategic decision-making, resulting in new business models.
|Circular collaborative ecosystem|
The application of integrated digital platforms enhances collaboration among ecosystem participants, helping fast-track innovation, reduce costs and provide operational transparency.
|Beyond the barrel|
Innovative customer engagement models offer flexibility and a personalized experience, opening up new revenue opportunities for Oil and Gas operators, and new services for customers.
|Energizing new energies|
The digitalization of energy systems promotes new energy sources and carriers, and supports innovative models for energy optimization and marketing. To remain relevant to today’s customers, the Oil and Gas industry needs to understand the full impact of these changes on the broader energy system.
Putting a value on digital transformation
Our value-at-stake analysis aims to assess the potential for digitalization in the Oil and Gas sector to unlock benefits for the industry, its customers and society more generally over the next decade (2016-2025).
Headline findings from our value-at-stake analysis include:
- Digital transformation in the Oil and Gas industry could unlock approximately $1.6 trillion of value for the industry, its customers and wider society.
- This total estimated value from digitalization can further increase to $2.5 trillion if existing organizational/operational constraints are relaxed, and the impact of “futuristic” technologies, such as cognitive computing, is considered (for which there is insufficient evidence to make a definitive value assessment at this time).
- Digitalization has the potential to create around $1 trillion of value for Oil and Gas firms.
- Digital transformation in the industry could create benefits worth about $640 billion for wider society. This includes approximately $170 billion of savings for customers, roughly $10 billion of productivity improvements, $30 billion from reducing water usage and $430 billion from lowering emissions.
- Environmental benefits include reducing CO2-equivalent emissions by approximately 1,300 million tonnes, saving about 800 million gallons of water, and avoiding oil spills equivalent to about 230,000 barrels of oil.
Oil and Gas: value at stake for industry and society (2016-2025, by digital theme)
Source: World Economic Forum / Accenture analysis
Case study: unlocking societal value through consumer energy choices
The shift to new energy sources could reduce CO2e emissions by 900 million tonnes. This initiative could also add around 35,000 jobs – as generation from renewables tends to be more people-intensive than from fossil fuels. Several super majors are already taking steps to mitigate the impact of this trend by investing in green or alternative energy, but we have excluded this from our analysis.
Barriers to change include regulatory frameworks that are struggling to adapt to a new era of data sharing along value chains; a lack of standardization in data coming from sensors; an inability to share information across the ecosystem; and the challenge of recruiting millennials to replace an ageing workforce. Moreover, senior industry leaders have not yet made the necessary mindset shift needed to embrace the potential value digital has to offer, particularly when it is considered at odds with a deeply entrenched safety concerns, which can be triggered by discussion of unmanned assets for example. Structural inhibitors, perhaps resulting from such a conservative approach, are another key barrier to digital transformation – for example, the lack of desire within the industry to take more of an experimental, ‘fast-fail’ approach, because of concern about the potential consequences of change.
Recommendations for successful digital transformation
While the potential for digital transformation to benefit industry and society is tremendous, it is by no means guaranteed that its full value will be unlocked. To do so will require focused collaboration and determined action on the part of all major stakeholders – including coordinated regulatory efforts to maximize the value of digitalization for society and across industries. Successful digitalization will require collaboration between industry leaders, communities and policy-makers. We have developed a series of recommendations for both industry and other stakeholders.
Our recommendations for industry include:
- Make digital a priority for senior executives. Digital transformation, like any other transformation, needs to be sponsored from the top. This includes setting a clear vision, committing funding and resources, and actively championing the change management effort associated with it.
- Drive a culture of innovation and technology adoption. While not everything will be developed in-house, companies will need to open up to new ideas and ways of working.
- Invest in human capital and development programmes that promote new, digital thinking. Ultimately, a digitally savvy workforce is both a foundational enabler of transformation and a key driver for maximizing value capture.
- Put in place a methodical approach to developing and/or industrializing new technologies. This includes decisions about whether to build or buy capabilities and a programme management approach to scale up technology and digital platforms.
- Reform the company’s data architecture. Data sits at the heart of digital transformation, so the harmonization, integration and interoperability of data platforms is critical.
- Identify opportunities to deepen collaboration and understanding of sharing economy platforms, to sidestep the potential pitfalls that changing customer preferences, shaped by the rise of the sharing economy, bring.
Our recommendations for policy-makers and governments and broader society include:
- Develop global data standards and policies related to data sharing and security, and encourage transparency in operations.
- Foster an ecosystem for innovation. Policy-makers, governments and wider society have an important role in driving future prosperity. The onus has shifted today onto governments to not only to help build the innovation ecosystem but also to innovate within their own organizations in order to unlock value and meet the ever-changing and diverse needs of their constituents.
- Create clear regulatory frameworks to promote the shift towards the low carbon economy and support a more inclusive society. These frameworks can contribute to a broader reform agenda for greener, more resilient and inclusive growth.
1 Accenture, The 2016 Oil and Gas Digital Trends Survey, 2016
2 World Energy, “World Energy Scenarios 2016 report: Global energy demand growth set to fall”, 2016
3 Katakey, Rakteem, “Energy Giant Shell Says Oil Demand Could Peak in Just Five Years”, Bloomberg, 2 November 2016