Here are five trends in the world of digital oil and gas worth watching this year and throughout the decade.
It’s been a long-standing and time honoured practice to make predictions about the future. But as Yogi Berra, a famous and oft-quoted New York Yankees catcher and manager, observed, “Making predictions is really hard, especially about the future”. Instead, here are five key digital trends that look pretty much unstoppable to me, and feature as the bright white lines on any of my roadmaps to a digital future in oil and gas.
The business world, certainly in Europe, North America, and Asia, now treats decarbonisation very seriously, and I believe will accelerate efforts and investments in this arena for the next several years.
Capital markets increasingly ask about carbon abatement activities and the potential of stranded carbon-based resources. Investment and sovereign wealth funds will further their divestment of oil and gas assets to reduce exposure. The importance of the oil and gas industry on capital markets will continue to shrink, sinking in relevance as other sectors, like technology, rise to dominate the leading indices.
Fortunately, early decarbonisation results are sufficiently promising that large oil and gas companies will confidently declare their intent to become carbon neutral this decade. Much of the solution lies in new industrial technology that does things like capture carbon emissions, withdraw carbon from the atmosphere, or tighten leaky equipment. A very significant portion of savings comes from reimagining oil and gas commercial and industrial processes with a digital lens.
I anticipate that investment pitches for new projects or technology purchases will increasingly include decarbonisation outcomes along side improvements in safety. Investment panels will favour those proposals that display sensitivity to decarbonisation goals. Digital projects will be seen as clean tech because of the impact that digital has on carbon, by reducing driving around, by making assets more autonomous, and by eliminating rework.
Business models at risk are those that treat externalities like carbon emissions as unsolvable or a necessary evil.
The shift to electric transportation is now underway and will pick up steam in the decade ahead. Next generation car customers look like they are spending 7-8 hours per day staring at small screens rather than windscreens.
The top 6 automakers (GM, Ford, Honda, Toyota, Volkswagen and Hyundai), have all announced major programs to electrify their offerings. Toyota aims for 50% of all vehicle sales by 2025 to be of the electric variety. GM will sell 20 electric vehicle models globally by 2023. Tesla is already selling 350,000 Model 3s per year, and is about to open new manufacturing facilities in China and Europe. Honda has announced its intent to sell only electric and hybrid vehicles in Europe by 2023.
I see electric cars as a new kind of digital platform. Tesla, for example, releases new software and features for its vehicles in the same way that Apple upgrades its operating system in the wee hours. In time, all automobiles will behave this way, provided the manufacturers rethink their vehicle architectures to be more like phones and less like industrial equipment. Doing so enables vehicle sharing, self driving vehicles, evergreen interfaces, third party innovation, and vehicle-landscape integration with smart cities. The Ford F-150, for example, has over 150 million lines of code in it, but the user interface is pretty blah compared to a $500 phone.
The fight for the fuel tank is now underway. Ford and GM have both announced the construction of enormous networks of charge stations, taking them into direct competition with fuel retailing. As their vehicles become smarter, they will own the customer relationship in a way that fuel companies cannot, all enabled by digital technology. Power utilities with their existing customer systems and grid systems are also keen for the digital car. Real estate operators who have the parking spots will also want a piece of the action.
Business models now at risk include traditional fuel retailing, vehicle servicing and repair, auto insurance, driver training, and vehicle financing.
The unpredictability of US foreign policy, the US withdrawal from global trading forums, the stranglehold that the US political system has on global banking, the impacts of US-imposed sanctions and tariffs, and the rising might of other economies, creates conditions that favour de-dollarisation of global trade.
There will be no let-up in the drive to create a viable, widely accepted cryptocurrency for financial transactions, with the side effect of de-dollarisation of global trade.
Not only are the incumbents in the financial system experimenting with new currency concepts, but nations are now coming out in the open with their intent to embrace cryptocurrencies. Russian oil and gas suppliers are already agreeing (demanding) contracts that are solely in rubles, which allows those contracts to settle outside the US banking system. Once the market has derisked oil and gas trading in alternative currencies, the ability to shift to a crypto currency that has zero ties to global banks operating in the US becomes much easier. And very appealing to oily nations wishing to evade US sanctions pressures (Venezuela, Iran, Iraq, Russia…)
It’s no surprise to me that the US political system has quickly rebelled against Facebook’s attempt to get in front of this significant shift. Facebook is easy enough to demonize, but the threats to the established global financial order and power systems are much more profound.
Try to imagine how China will be the first market power to shift to a new currency mechanism without having to first fully integrate its financial system with the world. It will be like how wireless telecoms leapfrogged the wired world.
Business models at risk are trading, financial back offices, and risk management.
Fully functioning digital versions of highly complex real world systems continue to make in-roads.
We can see this trend most plainly in the weather forecasting business. A digital twin of the weather system requires vast networks of data gathering sensors, enormous amounts of data, lots of parallel computing cycles to crunch the scenarios, and all operating in real time. Today, ahead of my walk to the chemist, my weather app forecasted rain at 1:30 precisely, and sure enough, the rain started within a few minutes of the predicted time. My mapping apps now show road congestion (based on cell phones that do not appear to be moving), and may well be able to predict traffic.
Many physical world systems await their digital twinning. Few oil companies, if any, are able to link their upstream, midstream and downstream assets in any but the most rudimentary ways. Oil production, for example, does not respond to anything but the most violent price signals, and even then, the response is sluggish. Many oil wells run at economics below their full costs, and only after incurring painful losses will bosses cut back.
The building blocks for building true digital versions of supply chains as complex as oil and gas are in place—cloud computing, data handling, machine learning. Digital versions of discreet assets are now commonplace, and the incentive to create greater more expansive versions will prove overwhelming.
Jobs and work
The era of long term, stable and consistent oil and gas jobs gives way to permanent adjustment and upheaval. In part this is driven by the uncertainty in the future demand for fossil fuels, to be sure. But this trend is clearly visible in how companies like Amazon deploy changes into their business (50m updates a year), and how Tesla updates its vehicles overnight. Slow and stately is giving way to fast and agile.
The jobs of the future will have much less of the routine work that features in so many oil and gas roles. The routine work still exists, but will be carried out by digital tools and agents. Jobs will be defined first for the level of automation that they need, and the human roles will then be folded in (the reverse of today). Tesla’s robotic car plants show how this works in manufacturing. Oil and gas work is particularly enabled by artificial intelligence, machine learning and robot systems as job aids since the work is technical and analytical, reliant on math, and less driven by independent human judgement.
Someone entering the oil and gas work world today is unprepared for the innovations coming to the industry. Students exiting oil and gas education programming in 2020 are most likely learning a curriculum defined two decades ago. Digital impacts on the real jobs in the field have yet to be fully considered in education forums (I hear this consistently from students who buy my book and greet me at conferences).
Vast numbers of oil and gas professionals will need to upgrade their skills to maintain their relevance or be victims of this wave of change.
There are plenty more trends out there to keep an eye on — additive manufacturing and its impact on asset management, for example — but these five should get your Board conversation started.
Check out my new book, ‘Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, available on Amazon and other on-line bookshops.
Take Digital Oil and Gas, the one-day on-line digital oil and gas awareness course.