Transformation in the oil & gas industry
July 2019 | TALKINGPOINT | SECTOR ANALYSIS
Financier Worldwide Magazine
July 2019 Issue
FW moderates a discussion on transformation in the oil & gas industry between Ogan Kose, Miguel Gonzalez-Torreira and Rory Skrebowski at ATIOS (Accenture Trading, Investments and Commercial Optimisation Strategy).
FW: Could you provide an insight into how digital transformation is altering the oil & gas sector? To what extent is the industry undergoing seismic change?
Skrebowski: Digital is impacting all areas of the oil and gas sector and, along with changes in energy uses and the broader energy transition, it is one of the factors driving a dramatic increase in the pace of change. These wide-ranging effects are occurring in three areas: upstream including exploration and production; midstream covering refining and transportation as well as trading; and downstream including retail. In the refining and trading space, the most exciting thing we are seeing is the use of these technologies to start to bring together refining and trading into an integrated value-chain-optimisation operation. This uses analytics and algorithms to direct operational behaviour in order to produce the highest value products, not just at the refinery gate, but to also solve the placement of product volumes into downstream markets or terminals once produced.
Kose: In the upstream space we are seeing companies using digital technology to address their challenges of an ageing workforce, the desire for more remote operation of facilities and the increasingly hostile environments where operations are carried out. By using digital presence technology to support field engineers, companies are enhancing the productivity of their site workers and reducing the downtime and expense of flying experts onto platforms or rigs.
Gonzalez-Torreira: In the downstream market and retail, the expectations of customers are growing, along with a greater desire for self-service models in wholesale. This includes the use of technology to offer new pricing offerings with greater speed and accuracy. A good example of this is linking trading with the term business and building fixed-price offer tools, which enable not only fixed-price quotes to be generated quickly, but also internal intercompany hedges to be written automatically once the client has decided to go ahead with the deal. This lowers the threshold volumes required to make fixed-price deals worthwhile and enables a much faster response to customer needs, while managing the market risk side through automation of the hedge. In retail, we see customers increasingly using digital technology to perform price comparisons and so an enhanced focus on market positioning and non-fuels offers is important. We have been using digital technology to look at the total site returns and helping companies to work out if lower fuels revenues can entice greater convenience store activity and drive site profitability. Data mining fuel and retail purchases, sometimes linking automatic number plate recognition technology and in-store activity tracking, can be used to generate rich data sets with high predictive accuracy, subject to local constraints on the use of this data.
FW: In what ways are oil & gas companies altering their operations through technology and digitalisation? How are new innovations driving efficiency?
Skrebowski: There are three things altering operations: data availability, automation including robotic process automation (RPA), and value chain optimisation tools. In terms of data availability, companies increasingly have huge volumes of data being generated by their operations. The challenge often is getting this data into a format and system that actually allows insights to be generated. We have seen companies with huge data-gathering infrastructure still fail to be able to rapidly get operational data to the people who need it to make decisions. This squanders the opportunity to run a business more efficiently. Automation is one answer to this challenge. Using RPA and decision support tools to interpret the data and to automate a response to it, can assist the humans involved in the process to focus on managing novel situations, rather than just solving the same closed-solution problem day after day. As well as squandering data, we also see companies squander the human talent which could be freed up by these technologies. Full value chain optimisation (VCO) is really the moon-shot project for integrated oil and gas players. With technology able to offer market insights, predictive analytics looking at stock management at refinery and terminals, and systems optimising flow through pipeline and trucking, we expect players to be able to make much more optimised decisions about what to produce, where to place it and how to price it. The building blocks are in place for companies to help chain together all of the disparate elements to make a true optimisation platform for the midstream and downstream.
FW: How is digital transformation redefining the relationship between oil & gas companies and their suppliers, customers, investors, regulators and other stakeholders?
Kose: Companies are looking at ways to build data collection into their entire supplier and customer network. Reaching beyond the boundaries of an organisation is opening up new avenues for market insight and also for new partnering models of business. There has often been a fluidity of people working in oil and gas companies and then moving to suppliers, or vice versa, but new ways of working and collaborating, pioneered by the technology and software industries, make that line even blurrier. To really respond to the pace of change, companies need to be more comfortable deploying these new models and partnerships.
FW: What impact are current transformation trends having on the sector’s workforce? What do oil & gas companies need to do to manage this issue?
Gonzalez-Torreira: One of the biggest challenges is finding new talent with the skills in digital and analytical techniques to fill the growing demand for these skills. At the moment these skills are in incredibly high demand across many industry sectors and high premiums are being placed on these skills. What oil companies have as an advantage is that their workforce often has a high proportion of people with science, technology, engineering and mathematics (STEM) backgrounds, and unlike other industries, retraining and upskilling are realistic prospects for developing these skills in-house. The added benefit is these people have a deep understanding of the industry and have often been tasked with solving smaller parts of the challenges they are dealing with. In order to do this, a supportive environment is needed to encourage retraining, as well as a commitment from leadership to invest in new projects.
FW: How can digital transformation help to address the rising cyber threats targeting vital infrastructure and valuable assets owned by oil & gas companies?
Kose: Cyber threats are part of business as usual, rather than exceptional events now. This is where the mindset shift is happening. Just as you must make infrastructure robust to the elements, to health, safety and environment (HSE) risks and to sabotage, so the same has to be designed from the very beginning for IT systems and cyber threats. With state-sponsored hacking and attacks adding to the constant barrage of criminal and amateur hacking going on, the most valuable data and integrity systems need hardening. Just as people often lament the days when house doors could be left unlocked, we may nostalgically look back on the days when data security was not the first thing you check with any new project. The challenge now is that everyone in your organisation could be the person who leaves the metaphorical door open, and so making it regular practice and drilling this into people – just as the industry has successfully done with personal safety – is the best way to protect the organisation.
FW: In your experience, what practical strategies should companies deploy when implementing digital transformation across their operations? What key considerations do they need to make during the process?
Skrebowski: What is often the biggest hurdle is that digital projects are treated like IT projects, where the end goal is a delivered project, tested and being used live by people. The mindset shift which is needed is to think of digital projects much more like oil prospecting and exploration. Here the goal is to test a hypothesis – a hypothesis which might or might not then lead to greater investment in that work. This change in mindset and willingness to risk capital to find out new things is the biggest barrier at the moment to success in this area.
FW: What advice would you offer to oil & gas companies on overcoming resistance to change and embracing the benefits of digital transformation throughout their organisation?
Gonzalez-Torreira: I think companies need to look at how other industries are being disrupted and be aware that private venture capital is always looking for new areas to invest in. We have already seen how these companies have invested in mobile fuel delivery, how capital is being deployed in commodity markets, which is thinning out the margins of non-asset owning trading houses, and how quickly national oil companies (NOCs) are moving into the spaces traditionally occupied by international oil companies (IOCs). A willingness to enthusiastically look at your business and innovate both within and disruptively without is important to maintain a competitive edge. The refrain ‘this is the way we have always done things’ is the mark of a business which is resistant to change and has too much internal inertia to be genuinely innovative.
Ogan Kose is the global managing director of ATIOS (Accenture Trading, Investments and Commercial Optimisation Strategy). He runs a global network of teams helping companies in the oil, gas, power and commodities space to adapt and change to their biggest strategic challenges. He can be contacted by email: email@example.com.
Miguel Gonzalez-Torreira is a managing director at ATIOS, responsible for ASEAN, China, Australasia and the Middle East. He has recently been helping companies with market deregulation, digitalisation and investment into growth markets. He can be contacted by email: firstname.lastname@example.org.
Rory Skrebowski is a managing director at ATIOS, responsible for Europe and North America. He has been involved in helping companies with their investment decisions around new market entries, M&A and navigating the energy transition. He can be contacted by email: email@example.com.
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