For construction companies working in the oil and gas sector, the move toward digital technologies is inevitable, as worldwide oil production is outpacing demand and oil prices have fallen. In fact, many factors—including soft demand, increasing U.S. production, and diminishing storage for crude oil—suggest that the days of $100-a-barrel oil may not return.
This scenario presents potentially disastrous consequences for O&G (oil and gas) firms that are not prepared to accelerate their digital transformation. Innovative oil and gas firms, however, believe today’s turbulent market landscape provides an opportunity to grab competitive advantage by harnessing new technologies.
Cisco Consulting Services, www.cisco.com, conducted a survey that uncovers the urgency for the oil and gas industry to adopt digital technologies powered by the IoE (Internet of Everything)—the networked connection of people, process, data, and things—to stay competitive.
The survey identified intelligence from data as the key area needed to improve operational efficiency, and data analytics as the main IoE driver for faster, better decisionmaking
Industry adoption of IoE could increase global GDP (gross domestic product) by up to 0.8%, or $816 billion.
To calculate this number, Oxford Economics began by incorporating into its global economic model Cisco’s $600 billion IoE value at stake estimate for the oil and gas industry throughout the next decade, including productivity gains, reduced OpEx and CapEx, and IoE adoption cost of $180 billion.
This estimate is based on both increased supply and greater demand, resulting in a “positive supply shock” for the global economy. Lower oil prices stimulate more spending on goods and services, with most of the gains being realized through the consumer sector.
Oxford also projects global consumer spending could be up to 1.5% higher than the base-case forecast by 2025. This aggregate increase includes a “second round impact” of higher economic activity, raising overall employment, and decreasing unemployment around the globe.
Cisco Consulting Services estimates this IoE-driven value will come from improvements in asset utilization, process or supply chain efficiency, employee productivity, CapEx savings, and market innovations.
For a midsize oil and gas company with $50 billion in annual revenue, IoE can generate a $538 million annual profit increase and an 11% bottomline EBIT (earnings before income and tax) improvement.
72% of these benefits are derived from cost reduction, while the remaining 28% are from increased revenues.
Cisco’s survey respondents named “operational efficiency of existing projects or reserves” and “maintenance of assets and infrastructure” as their top two areas of increased investment throughout the next 24 months. Leaders must improve operational efficiencies and asset life to stay competitive without cutting costs through layoffs and project cancellations.
While survey respondents understand connecting “things” is a necessity, true value lies in the intelligence of extracted and analyzed data from the “things.” This intelligence allows oil and gas firms to drive business and operational transformation.
Approximately 48% of respondents named “data” as the area of IoE they need to improve most to make the most effective use of connected technologies.
Effective data management and analytics can generate operational and business benefits. Offshore oil platforms generate between 1TB (terabytes) and 2TB of time-sensitive data per day.
Slow satellite communication is the most common link to transmit this data, requiring more than 12 days moving one day’s worth of oil-platform data to a central repository such as the cloud. An effective data strategy involves being able to automatically detect whether the data needs to be sent to the cloud for analysis, or whether it should be analyzed at the “edge” of the network, where the data is collected. Edge analytics allow O&G companies to gain greater realtime insight, thus providing specific business and operational advantages.
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