Investing in technology can aid recovering oil & gas sector
A new report from accounting and consulting firm PwC recommends that oil firms boost efficiency through the integration of technology, digital or otherwise. With uncertainties over future oil prices, firms can put capital into realizing greater margins from automation, data analytics, and other technologies.
Oil prices are rebounding after a number of years of low prices since the middle of the decade. However, price projections for the future remain murky due to shifting conflict and cooperation between US shale producers – who have brought on a flood of American oil production in recent years – and OPEC. Both parties don’t want to push oil prices too high and risk losing consumers to electric cars and renewable energy. Meanwhile geopolitical issues in the Middle East threaten to push oil prices ever higher with ‘risk premiums.’ As such, how much higher oil will go from its US$60-odd price is uncertain between elevated US production, OPEC supply stifling, and Iranian geopolitics.
In an uncertain global environment, oil producers have switched priorities from riskier big investments to realizing better margins through operational efficiency. According to a report from PwC, oil and gas firms are looking to boost their margins, competitiveness, and flexibility though the better use of technology like automation and data analytics.
Higher prices are giving companies some more capital to make investments into digital technology to realize greater efficiencies – like sensor-based predictive maintenance of equipment and autonomous trucking. According to the report, automation and analytics can help the firms properly analyze large data volumes – allowing them to make quicker and better informed decisions, and making it easier to monitor assets and manage production. Increasing automation could also mean that oil and gas firms employ more data scientists than geologists within the next decade.
The benefits of digital transformation are expected to be long-term in nature, delivering efficiency all across the value chain. And the benefits could be huge: the International Energy Agency estimates that digitization could cut production costs by as much as 20%. PwC’s strategy consulting arm Strategy& projects that digitalization in the upstream sector (searching, drilling, and extraction) could save anywhere from US$100 billion to US$1 trillion by 2025.
Oil and gas firms are already making some pioneering efforts on the tech advancement front. In situ-heating has been successfully tested to extract oil sands with electric current rather than steam or solvents. The tech reduces costs by eliminating water use, while being less intensive than steam-assisted gravity drainage.
Oil firms are also leveraging blockchain technology to better process records, documents, and shipments. Blockchain is also being used in the industry for rapider processing of contracts for royalty payments – something that is also being done in the entertainment industry.
Earlier this year, the first commercial fleet of autonomous haul trucks was announced at a mining project. The fleet will predictably lower costs, enhance safety, and increase efficiency.
Competing for capital
With prices slowly recovering, international oil firms have targeted cheaper assets with attractive geology and low political risk, according to PwC. This has spurred the booming US shale market, which was itself launched by leaps in extraction technology and cost efficiency.
Some of the enthusiasm has leaked over to Canada which is also seeing large-scale development of shale. Non-oil sands and gas capital spending (which includes shale) rebounded in Canada in 2017, and is expected to rise to $33 billion in 2018.
Meanwhile, oil sands projects remain more expensive despite their own technological advancements. As such, international firms have been looking to invest in projects with lower break-even points like the Norwegian North Sea, where the break-even price has fallen to US$20 per barrel. Normally Canada receives about 10% of North American chemical and petrochemical investment, but the Resource Diversification Council reports that the share has dropped to less than 2% in the last five years.
PwC recommends that Canadian oil sands firms double down on technology in order create better margins and become more attractive for investment. Tech advancements that reduce the rather heavy environmental impact of oil sands production would also be worthwhile. Meanwhile, Albertan oil sands can still boast the lack of political risk that might be faced by firms in Latin America or the Middle East.
“In Canada’s energy industry, innovation and improved recoveries go hand in hand,” comments Reynold Tetzlaff, National Energy Leader and Calgary Managing Partner, PwC Canada. “Innovation helps to reduce operating costs and environmental impact. As a result, technology enhancements strengthen Canada’s position in the global energy market.”
