How Digitalization Could Extend the Hydrocarbon Economy's Lifespan

The digitalization of the oil and gas industry could simplify the extraction of hard to reach oil sources and extend the life of hydrocarbons substantially. Is the industry ready to embrace digitalization? Yes, however, a host of obstacles stand in the way of this digital transformation. Overall, it will take collective effort over time to overhaul the industry.

Dmitry Lukovkin
Image of an oil rig set on a background of data tables and graphs
Illustration: © IoT For All

Scientists regularly scare oil-producing countries with statements about the era of oil soon passing and readily available hydrocarbons being almost exhausted. At the end of 2017, known global hydrocarbon resources amounted to 1.665 trillion barrels, according to OPEC reports. Experts claim that the current global consumption rate is 90.5 million barrels per day and that this should continue for another 50 years. Moreover, there is growing competition from renewable energy sources.

The digitalization of the oil and gas industry allows us to respond immediately to both of these challenges: to simplify the extraction of hard-to-reach oil and simultaneously to extend the “lifespan of hydrocarbons” for more than one decade. However, oil and gas and production companies are generally conservative. Many companies are already implementing projects in the field of predictive maintenance, while the use of artificial intelligence (AI) to optimize production is only beginning to be tested.

Key Prerequisites

Why Digitalize?

The term “smart oil deposit” means a set of software and hardware systems used to manage an oil reservoir and boost hydrocarbon production over time. The system is based on having a caring attitude toward the deposit and maximum extension of a reserve’s operating life, primarily by increasing extraction volumes and the efficiency of the whole process through technology.

Digitalizing oil reservoir management is helping companies reduce energy production costs. Deployment of smart technologies in the oil and gas industry is also being driven by low prices, competition from other types of energy resources and government policies. For example, in Norway, the law requires companies to reduce carbon dioxide emissions by 50 percent in thirty years.

What Steps to Take?

There are several mandatory stages in the development of smart oil deposits. The first involves the creation of well models at the development stage and the recording of various measurements during production. In the second stage, these are turned into a network, the Internet of Things (IoT), while various types of leaks are simulated and emergency response training is provided.

As a result, “smart” technologies provide remote access to all oilfield equipment and enable diagnosis of its condition. Another feature of the “smart oil deposit” is an intelligent power supply, which involves flexible power distribution systems, detailed metering and the ability to control power consumption. Thus, integrated modeling, integrated planning and minimizing the human factor all become distinctive features of the “smart oil deposit.”

What Benefits to Wait For?

Leading consultancies reckon that the overall impact of smart oil deposit implementation is a seven to 10 percent reduction in operating costs. Those gains are the result of optimizing work and reducing underproduction. According to Gartner, the application of the “smart oil deposit” concept could help oil companies cut costs by five percent and enhance production volume by two percent; CERA believes that the incremental oil and gas rate in a smart deposit is one to six percent, while oil-well downtime is reduced by one to four percent with a 25 percent saving on labor. Experts suggest that it will be possible to increase global oil production by 30 to 50 percent due to the transition to smart next-generation technologies.

Case Studies: ExonnMobil, Shell and Gazprom Neft

A Well That’s Fifty Percent More Productive

One of the drivers for digitalizing the oil industry is the development of hard-to-reach fields, primarily offshore ones. ExxonMobil has launched comprehensive, real-time drilling support based on logging data and drilling rig sensors. This is based on three activities: data collection from hundreds of sensors at the bottom of the well and on the drilling rig, the transfer of the data received by a remote drilling operations support center and the updating of the digital model of the well in real time with feedback to the drilling rig.

As a result, the company has achieved a 50 percent increase in well productivity over the past five years with a $40 reduction in the time needed to build new wells, while also reducing NPT by 10 percent. In November 2018, ExxonMobil also introduced a new SMART by GEP® platform, consisting of a single, unified cloud solution. The system has many features allowing users to perform key actions in one place, including managing supplier profiles or monitoring the status of key contractor activities.

Three Thousand Barrels More Per Day

Shell is actively introducing unmanned technologies in hydrocarbon production on its platforms in the North Sea, as well as automatic adjustment of production volumes depending on external factors. Data is collected using receivers, sensors, drones and satellites before being transmitted through an optical fiber to a single control center. Monitoring and analysis of all indicators occur automatically. As a result, there are no people in the hydrocarbon production area, thereby drastically reducing risks and operating expenses.

According to the company’s own estimates, it has been able to increase production by three thousand barrels per day. Shell explains that it is one of the first companies in the world to introduce smart oil deposit technology. As a result, each field is monitored by thousands of sensors built into the equipment. For example, valves and pumps send data on temperature, pressure and other oilfield parameters to onshore control centers. Teams of engineers monitor production in real time. All decisions are made on an on-going. Previously, this took at least a week.

Half the Time to Implement a New Project

In 2019, Gazprom Neft, one of the largest Russian oil companies, together with Zyfra Group, started to implement “smart” solutions in some of its oil fields. The company expects to halve Gazprom Neft’s major project implementation times, thereby optimizing the timing of first oil production from those fields.

With plans to implement about 500 initiatives in the sphere of digitalization and digital transformation, Gazprom Neft has set up a cluster of technology centers acting as operators of developments in the field of applied information technology (IT) solutions. To stimulate the creation of new IT solutions, the company is also developing its own digital production management platform. In particular, the project creates digital twins of all production plants for integration within a single management system.

Thus, the introduction of digital solutions in the oil and gas industry has a proven positive impact. At the same time, however, the new technology has not been applied on a massive scale. The progress is noticeable only in individual product segments as there are a number of objective prerequisites for its implementation.

Obstacles to Digitalization

The first obstacle is organizational readiness: Is there any real interest in digitalization? The oil and gas industry is a capital-intensive, technologically well-established process. Not everyone sees prospects in the intensification of production through digitalization. Getting buy-in from non-technical stakeholders, in particular, can present obstacles.

The second obstacle is technological readiness: Does the current IT landscape and, above all, data, allow the application of digital capabilities? For example, in order to make predictive analytics looking three years ahead, AI must be trained on 10 years of historical data. If such work has not been carried out or the quality of the data is inadequate, one must first start with the data collection.

The third obstacle is the value provided by the digital initiative to the company. In some technological areas, the effectiveness of introducing digital solutions is very low, offering gains of approximately one to two percent. Thus, companies see no point in the additional efforts and significant funds required to achieve this improvement.

The fourth obstacle is how difficult it is to implement these smart oil deposit solutions. A company may have prepared itself, collected the data and determined the benefits, but for various reasons, it can be difficult—or even impossible—to implement the project successfully. In the case of introducing the Internet of Things into the oil industry, there is also an additional risk associated with cybersecurity issues.

Velvet Digital Revolution

The introduction of modern technologies in oil production, in particular, AI and IoT, reduces the cost of resource extraction and helps to boost competitiveness against other energy sources. In the long run, it will help extend the lifespan of hydrocarbon resources by at least 50 percent. Moreover, the technologies developed in the industry will also find applications elsewhere. For example, oil and gas IoT solutions could benefit the mining sector. However, as in the industrial sphere, this revolution will not happen overnight. It requires time and collective effort before the new technological era for the oil and gas industry becomes reality.

Dmitry Lukovkin
Dmitry Lukovkin
High-tech entrepreneur focused on Artificial Intelligence and its applications in industry and finance. More than 15 years of Tech experience: project management, team leadership, business development, tech startups.
High-tech entrepreneur focused on Artificial Intelligence and its applications in industry and finance. More than 15 years of Tech experience: project management, team leadership, business development, tech startups.