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How Tapping Connectivity in Oil and Gas Can Fuel Higher Performance

Despite having many of the technologies enabled by advanced connectivity already at its disposal, the oil and gas sector has yet to realize much of connectivity’s potential—and the potential is significant. According to McKinsey's estimates, making use of advanced connectivity to optimize drilling and production throughput and improve maintenance and field operations could add up to $250 billion of value to the industry’s upstream operations by 2030. Of that value, between $160 billion and $180 billion could be realized with existing infrastructure, while an additional $70 billion could be unlocked with low-Earth orbit satellites and next-generation 5G technologies. McKinsey’s work with the oil and gas sector suggests offshore operators can reduce costs, including operational and capital expenditures, by 20 to 25% per barrel by relying on connectivity to deploy digital tools and analytics.

Such a dramatic technological lift can’t come soon enough. The oil and gas industry is experiencing its third price collapse in 12 years. After the first two shocks, the industry rebounded, and business as usual, including a lack of focus on efficiency and costs, continued. The current collapse is different, with the sector facing a supply shock combined with an unprecedented demand drop and a global humanitarian crisis.

Additionally, the sector’s financial and structural health is worse than in previous crises. The advent of shale, excessive supply, and forgiving financial markets that overlooked limited capital discipline have all contributed to poor returns. Today, with prices touching 30-year lows and increasing societal pressure, oil and gas executives sense that change is inevitable. The COVID-19 crisis accelerates what was already shaping up to be one of the industry’s most transformative moments.

Longer term, reducing carbon emissions is another major factor driving the need for significant operational improvements. Investors are more attentive to environmental issues; the price of renewable energies is falling, and more and more countries are imposing carbon taxes on businesses. The industry’s operations account for 9% of all Scope 1 and Scope 2 greenhouse gas emissions generated by humans, while the fuels it produces create one-third of Scope 3 emissions.

Technologies are evolving fast and currently have the potential to transform operations and deliver increased value. These technologies range from devices that enable and enhance connectivity to those that link the core network (the global Internet) to small subnetworks around its edge, known as the backhaul. Access technologies connect users to their service providers or, in the case of the oil and gas industry, to the backhaul. Many of these technologies exist currently and are rapidly becoming more reliable and affordable.

While the depth and duration of the current crisis are uncertain, McKinsey's research suggests that, without fundamental change, it will be difficult to return to the attractive industry performance that has historically prevailed. The most resilient organizations will be those that boldly reposition their portfolios and overhaul their operating models, making the best use of emerging technologies.

Read the full story here.


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