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An Expert Interview About Information Technology in the Oil Industry

Concluded in last June 1st, the Energy Perspectives 2016 – Long Term Macro and Market Outlook, from Statoil, begins with the following statement: “Global energy markets are in transition”. In fact, the 2008 crisis is not over yet and new technologies are promising to revolutionize the energy business, which also means lots of opportunities. This is the drive for Duperron Marangon, CEO and founder of PhDsoft: “We will grow in the current oil crisis because companies are searching for ways to reduce costs without raising risks, and that’s what we do”.

Expert in technology management and asset integrity maintenance, Marangon has been in the oil industry for the last three decades and see too many uncertainties regarding the future: “Everybody likes to talk about clean energies. I’m not different. The instant image associated to that is of a better planet. But nobody knows if this is going to be economically sustainable. Statoil Outlook, for instance, asks if cost reductions in extraction could affect the competitiveness of different fuels. There is no answer, as they analyze on the following excerpt”.

The Productivity Puzzle

Total Factor Productivity (TFP), primarily driven by labour productivity, has for several Western countries fallen since the IT boom of 1994-2004. This is unfortunate as its stimulus to economic activity has been slow and productivity gains are a necessity for a robust wage development. It seems legitimate to ask why this weakening has come about. Some of the recent new information products, such as social media, are innovative and improve people’s living standards, but do not seem to increase efficiency in the same way that the advent of PCs or the growth of the Internet did. Since the end of the financial crisis, companies have had easy access to labour and hence expanded the labour force instead of investing in technology to boost output. Furthermore, job creation has to a large extent been within low-skilled jobs in the service industry, where productivity improvement is typically low. It is also possible that companies have become more reluctant to invest in labour productivity due to stricter and more complex government regulations introduced in recent years. These regulatory efforts boost growth over the longer term, but slow the current momentum within industry and trade. Finally one might question if productivity gains are fully measured and captured in the “new economy” of e-commerce and so-called “sharing”, and in the service industry in general.

The world might have to get used to somewhat lower future productivity growth compared to recent decades, with a consequent slightly negative impact on the economic outlook. However, there will be supportive factors for productivity that could push it upwards. Reaping the full effects of the IT boom might come with a delay, as was the case with many earlier inventions, which were so comprehensive that it took years for their full impact to emerge. This – combined with the more recent drop in the cost of 3D printers and sensors, big data management, ongoing automation, and more – has the potential to transform the economy and increase productivity. Today, the world is increasingly connected and progress can spread rapidly. As labour markets in the Western world continue to tighten, putting pressure on wages, companies will have a stronger incentive to invest in training and technology, which will add support to productivity growth. Governments’ policy support, reform, and increased ability to invest in infrastructure will also be decisive for productivity in the decades to come.

“In other words, companies will not be able to keep going without raising investments in technology anymore. This is the only way to improve productivity, reducing re-work, preventing accidents and unplanned shutdowns, and so reducing overall costs. PhDC4D, our main software, has lots of cases, since it promotes more than digitalization of the whole maintenance process, but standardization. It makes everything more simple, effectively reducing costs without raising risks. As a matter of fact, it raises safety. As Statoil notices, all industries are expected to face digital disruptions in the 2020s, and will need to transition to new digital models to optimize their business”, explains Marangon pointing to another excerpt from the research.

Digitalization can improve efficiency and reduce costs, as illustrated by the progress made in the airline industry since the end of the 1990s. Sensors on planes have helped airlines realize fuel efficiency targets, maintenance and route optimization, while digitalization of sales and reservations has reduced errors and led to the “pricing and overbooking business” – where companies use big data to optimize plane occupancy. New ideas are developed as airlines understand their own data better, leading to a continuous learning journey of adapting and testing the operating model.

Brazil Oil & Gas Technology Radar

More focused in new technology and innovation, Lloyd’s Register surveyed Brazil-based oil and gas leaders, from 240 companies, between September 5 and October 3 2016, to produce Brazil Oil & Gas Technology Radar. It asked what the biggest barriers to innovation are today in Brazil, what challenges exist to the deployment of new technologies, and explored the impact of specific policies on the sector, such as the mandatory 1% levy on oil and gas production that is being redirected to local R&D. The survey also asked participants to rank a number of potentially game-changing technologies in terms of their short and longer-term impact on the sector.

Of the 26 technologies listed, respondents believed all would have some impact in the future. Distinctions were made between those that would have a high or medium impact in the short term (before 2020), medium (2020-2025) or long term (2025 or later) time horizon. Until 2020 were all incremental improvements on existing technologies: subsea robotics and other deepwater equipment advances, sensor technology such as wireless monitoring, and high-pressure high-temperature drilling.

“We’ve been investing in developments for the Internet of Things (IoT) for the last years, and our technology is ready to help the oil industry to get through the current challenges”, says the CEO of PhDsoft.

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