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How technology and digital transformation are changing the upstream Oil & Gas industry



From 1999 to 2008 oil prices went from under $25 a barrel to more than $160 a barrel. The reasons for this precipitous escalation were myriad. But at its core, it was a matter of supply-and-demand. Rapidly industrialising countries such as China and India experienced rapid economic growth with its concomitant thirst for oil. 
How technology and digital transformation are changing the upstream Oil & Gas industry
Simultaneously, this was also the period of extensive production cuts amongst the nations of OPEC (the Organisation of Petroleum Exporting Countries) led by Saudi Arabia. The result? Prices were driven to a record high. In 2008, the global economy fell into a massive depression, collapsing oil demand and with-it oil prices (reaching a low of $53 a barrel).

What followed for the Oil & Gas industry was a period of stability and relative certainty. From 2009 to 2014 oil prices stabilised around $100 to $125 a barrel. The stability wasn’t to last though. In the midst of 2014, the oil price completely collapsed in one of the worst market fluctuations to afflict the industry for over 20 years.

Why had the price collapsed to such an extent?

It was a combination of factors. Firstly, those countries that had been the most eager consumers of oil such as China and India were now less in need of abundant oil given their slowing industrialisation and sluggish economic performance in light of the global recession. Secondly, those countries which had balked at paying the exorbitant barrel prices of only a few years previously, had stepped up their own domestic production. By 2014 this strategy was bearing fruit with the USA and Canada achieving enormous production volumes from their shale formations and oil sands respectively. With overall global demand declining, the negative impact on oil prices was somewhat inevitable.

How much blame (if any) should be assigned to OPEC for this state of affairs?

In light of decreasing overall demand for oil, OPEC decided to hold on to their market share by maintaining production in-spite of the prevailing demand dynamics. They were able to sustain this strategy, in large because their costs of production are cheaper than anywhere else on earth. With the swing producer of Saudi Arabia refusing to ‘turn off the taps’, much of the blame for the global oil price crash can be laid at the feet of the House of Saud and Aramco.

The downturn caused much pain for the Oil & Gas industry in the short-term, but in the long-term I believe it had many benefits, the primary of which being the embrace of digital transformation and technology by the leading operators.

With lower barrel prices becoming ‘the new normal’, operators were incentivised to reduce their operating costs and improve margins. To do this, they turned to what has become an entirely new sub-sector within the industry, a sub-sector which I intend to explore in the remainder of this article.
New technologies will help upstream operators to better stand future oil price fluctuations.

The need for new technologies and digital transformation within the upstream Oil & Gas industry

As the brief history above illustrates, the Oil & Gas industry has the dubious distinction of being one of the most volatile on the planet. A dizzying array of social, economic, cultural and political factors all have an influence on the price of oil – and thus upstream operators. To shield themselves against these factors, as well as the increasingly complex nature of new finds, Oil & Gas operators should, and are, embracing new technologies and digital transformation.

Which technologies should the Oil & Gas industry embrace?

It’s true that the story of the Oil & Gas industry has been one of increasing technology sophistication. Throughout its history the industry experienced advancements in geological data capture and modelling, data analysis and more. However, the all these past developments - and those in the years ahead – can, for the sake of simplicity – be divided into two main categories; Mechanical Technology, and Digital Technology.

Thanks to advancements in both technological categories, I’d argue there is a revolution underway within the upstream Oil & Gas industry.
Advancements in both mechanical and digital technologies are helping upstream operators to become more efficient and effective in resource recovery

Mechanical Technology

Digital technology may be the darling of industry analysts and commentators, yet mechanical technologies advances are having just as great an impact upon the upstream industry. 

One of the most exciting advances is Cavitas Energy’s Thermal Heavy Oil Recovery (THOR) system. Funded by the Oil & Gas Technology Centre in Scotland, the THOR system centres around the heating of injection water in heavy oil applications, which is expected to have a very positive impact on heavy oil recovery.

Why this effort to improve heavy oil recovery rates?

Heavy oil is described as such due to its density being higher than that of light crude oil. In the UK Continental Shelf (UKCS) it is estimated that there are sizeable deposits of heavy oil. With access to a more cost-effective, and environmentally recovery option such as THOR, operators will have a greater incentive to pursue this resource. The Oil & Gas Technology has stated that if the THOR system can achieve an increase in recovery of 11%, ‘the average recovery factor for heavy oil fields in the UKCS would increase to 18.5%. When applied to 10% of the 400 million barrels in ‘small pools’ this represents an increase of 44 million barrels of £2.2bn in additional revenue.’

Another mechanical technology breakthrough of note involves drilling operations. One of the most cost heavy aspects of production involves the rig. Any rig time that can be saved equates to significant cost savings for the operator. Saving time however, must be done with consideration to numerous safety factors. One of the most complex, and dangerous, of rig operations is cementing of the well. This cement job needs to remain intact throughout drilling operations and beyond. If a cement job is not carried out correctly, it could result in an environmental disaster. 

A piece of mechanical technology which aims to speed up well cementing, but in a safe and compliant manner, is DeltaTek’s SeaCure system.

Traditional cement jobs involve drill pipe in a string which is suspended beneath a cart. The cement is then pumped into the inner string, feeding directly into the large bore conductor casing. It’s at this point that the cement is often subject to high levels of contamination, which can affect the cement’s integrity, prior to entering the casing annular.

The SeaCure’s bottom hole assembly connects the bottom of the traditional inner string to the casing shoot meaning cement is displaced through the inner string and directly out the bottom and up through the annular. This results in much less contamination, quicker cement placement and minimises cement displacement volume.

This technology, during its first subsea trial utilising Chevron’s Wet Wick Well, managed to save Chevron 8 hours’ worth of rig time. This is especially impressive given that prior to the trial the technology had not been tested in a subsea environment. The technology saves operators round trips needed for cleaning out show tracks and could save them an estimated $500,000 per well.
Many new technologies have been pioneered in the UKCS, but could have a sizeable impact in other global locations

Digital Technology

There are numerous digital technologies that will enhance recovery and reduce operational costs, and it’s estimated that technological advances in the exploration and production sector could save around $75bn a year by 2023.

The use of computer technology to interpret and analyse seismic data has already yielded significant results for the industry. But there’s even more that could be achieved. At present, 1 in 3 exploration wells find commercially viable reservoirs thanks to computer analysis. However, with further computer development this ratio is expected to improve to 1 in 2, providing significant savings and production gains for exploration and production companies.

Automation and sensor driven activity is also having a significant impact upon E&P operations. For example, let’s take a look at Equinor which is the one the biggest operators to integrate automation technology into their rigs. By integrating this technology into the North Sea rigs Equinor has not only made their rigs safer but has increased drilling efficiency by 15-20%.

As for the use of sensors, Chevron’s Tengiz field in Kazakhstan is one of the largest examples of sensor deployment. Expected to begin production in 2020, the Tengiz field will utilise over 1 million sensors to help increase data-driven decisions, which in turn will have a positive impact upon the total amount of recoverable oil from the project. 

The impact of new technologies and digital transformation so far

The UKCS is a leading pioneer in the development and deployment of new mechanical and digital technologies. The results are achieved across the continental shelf have so far been impressive, and if replicated worldwide could lead to both a huge increase in production and huge decrease in costs. 

Below are some of the results associated with deploying new technologies across the UKCS:

  • Digital transformation technology has led to a 10% increase in production efficiency.

  • New subsurface technologies have unlocked a potential 20bbls.

  • New technologies have helped achieve a 35% cost reduction in decommissioning activities.

  • New technologies have helped achieve a 50% reduction in construction costs.

  • Asset integrity technology has achieved a 50% reduction in lost-time.

  • If the Oil & Gas wishes to continue to develop and guard itself against future oil price fluctuations, it must eagerly embrace new technologies and digital transformation.
    Is your business ready for the upstream tech revolution?

    Want to get your business ready for the upstream tech revolution?

    Then speak to Ingenier today. Connecting the best technical service companies to oil and gas upstream operators, Ingenier is a provider of technical services, delivered in partnership with some of the best names in engineering. Ingenier can offer integrated technical services which are agile, scalable and which deliver significant cost savings to your oil and gas business.

    Email or call +44 (0) 7884 666533 to arrange a complimentary consultation regarding your technical service requirements.

    Tags: Oil & Gas
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    How technology and digital transformation are changing the upstream Oil & Gas industry - Time to read 9 min
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