Digital Transformation in the Energy Industry
The following is an edited transcript of the Chairman’s address by Knut Sebastian Tungland to the SIRIUS General Assembly held in Oslo in November 2016.
What is the current setting in the oil and gas domain?
We see a growing demand for energy in a changing energy market. This is most notably in power generation and buildings, but also cars are shifting to other power sources. We need to move to a low-carbon future and be less dependent on oil and gas. This means that oil and gas companies are growing business in renewables and using oil and gas in a cleaner way. Some, like Dong, plan to leave oil and gas, others, like Total, are investing in solar. Statoil is trying to leverage its expertise in offshore development to build the world´s largest offshore floating windfarm. Oil and gas will become a smaller part of the energy mix in the next 40 years and so, in order to grow, oil and gas companies need to diversify.
However, current oil and gas discoveries are not enough to satisfy future demand. We still need to find oil and gas that can be produced safely and cheaply. We do not want production where is leads to hazardous operations or environmental risk. In addition, the price of energy is low, challenging both traditional oil and gas and alternative energy sources. However, development of renewables benefits from improvements in technology: the more you do it, the lower the price. In oil and gas, cost increases for the new discoveries, so we are working to increase the amount of oil we can get from existing fields and develop concepts for cheaper field developments.
Renewables are also changing how the ecosystem of producers and consumers works. This means that what used to be mainly a flow from large energy producers to energy consumers is changing into a grid, where different producers and consumers also provide energy.
The role of Statoil and Digital Technologies
Like the rest of the industry, we have experienced a period of complex change. Statoil’s response is outlined in our vision: to shape the future of energy through being competitive at all times, transforming the oil and gas industry and providing energy for a low carbon future.
We believe that digital technologies play an important role in realizing our vision. We already have a long history of using these technologies but our efforts have mainly been aimed at resolving issues within specific areas: improving existing operations and work processes but not making quantum leaps.
Now that digital technology development moves much faster and access to data processing and storage capacity is almost unlimited, we see two new opportunities for capitalizing on digitalisation and improving the impact of our efforts. Firstly, digital technologies can defend and expand our current business, for instance to enable increased safety or better operations and secondly, these technologies can change our business models, creating new opportunities and new revenue streams.
Digital Maturity of the Oil and Gas Industry
The oil and gas industry is not necessarily viewed as frontrunner within digitalisation, but my impression is that the pace of change is increasing: most players have fairly clear digital ambitions and are looking to step up their efforts. Who can we learn from and what are the key lessons for us?
Looking at companies like Uber or AirBnB, we see that value seems to be shifting from physical assets towards data and algorithms and that a market can be quickly disrupted. How will this will affect an asset-heavy industry like oil and gas? Who are the potential disruptors?
Pricing models in, for instance manufacturing and agriculture, are affected by digitalisation. There is a shift towards paying for performance or uptime or charging a premium based on improved outcomes. What is the potential impact on pricing mechanisms in our industry?
Others have perhaps come further in applying digital technologies to improve safety and productivity. For example, frontrunners in mining have integrated and automated operations to achieve reductions in cost, improved efficiency and up to 70% fewer employees exposed to riskexposed work environments.
These are just a few examples that show that digital technologies impact across industries and underline that we should learn where we can, including from the many exciting companies in SIRIUS. Some of the companies in SIRIUS today seem to have technologies and offerings that can help support us in these ambitions.
The oil and gas value chain will change. We have had a stable ecosystem for decades with vendors, service companies and oil companies. Digitalisation can and will disrupt the balance in this ecosystem – changing the role of the players – and it can also bring new business options and opportunities.
Digital technologies will also affect the workforce and the capabilities we require. We assume that parts of jobs will disappear, technology will replace some roles but opportunities will emerge through needs for new skills.
SIRIUS’ role and challenges
This is also the context for SIRIUS. How can we as group contribute to this change journey for the industry? The activities and scientific content are well defined and the build-up of the centre is under way. However, I believe that in building a successful centre we face challenges that we need to take seriously. The first of these is the dynamics of the centre. Important partners are located in Stavanger and Bergen. This means that we do not have the physical and easy access to each other that such a centre needs. I think we need to lower the barriers, and see how we can improve interaction in the centre. We need to get to know each other better. Video conferencing and collaboration tools can help. The second challenge is related. How can we facilitate a flowing, open discussion of technology and solutions in SIRIUS, especially given that the resources each partner has committed are limited? Work needs to be done to assure partners that the centre will help them to solve the improvement challenges that they have. Finally, we have the ongoing struggle of matching business demand to technology supply. We want to present problems where this centre has viable and relevant capability to solve them. However, to do this you need to understand what the capabilities are. This means we need to continue and expand the kind of structured dialogue that has been set up this year. This also requires academics to try to set themselves into the mind-set of the problem owners.
What could the future look like for a company like Statoil?
We do not have all the answers, but the following things could happen. We will:
- Improve existing core business through automation of both back-office processes and ”front-office” operations in risky areas, such as automated drilling: This will improve safety for our staff.
- Improve efficiency and reduce cost through condition based maintenance and optimized use of facilities.
- Use artificial intelligence with subsurface knowledge to find and produce more hydrocarbons.