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How is Industry 4.0 impacting the Middle East oil and gas industry?

14 June 2018

The oil and gas industry has been witnessing changes over the past few years, thereby impacting business and economies associated with the sector. Middle Eastern economies, often synonymous with oil and gas, are no exception. Companies in the sector have therefore had to reduce costs and hold back on new project development. The latter has sparked conversation about whether petroleum can continue to be the main source of energy in the modern world. The global technology trend known as “Industry 4.0” is expected to revolutionise the industry.

Industry 4.0 is predicted to lead to the creation of “smart factories” that will self-manage processes and issues, modernising conventional factories that previously used offline systems with little to no interconnectivity. Manufacturing execution systems (MES) were a common way to determine the running and functioning of factories. The concept will therefore have to evolve to avoid being left behind. Industry 4.0 is a product of a number of technology disruptions including Big Data, analytics, the Internet of Things (IoT), augmented reality, and artificial intelligence—Industry 4.0 ultimately hinges on the ability to integrate data with physical processes. Deloitte research finds that over 60 per cent of procurement leaders across the world believe that sourcing, buying, supplier management and strategy development with undergo massive changes over the next five years, led by technology. Each component of the supply chain is connected to a digital supply network and organisations are utilising analytics to improve performance. As per an Infosys report, organisations are expected to spend as much as USD 907 billion per year on Industry 4.0.

 

60 per cent of procurement leaders across the world believe that sourcing, buying, supplier management and strategy development with undergo massive changes over the next five years, led by technology

 

 

organisations are expected to spend as much as USD 907 billion per year on Industry 4.0.

 

 

Experts predict that by 2025, the oil and gas industry will have undergone drastic changes, powered by industry 4.0. It is said to bring automated drilling operations, rig-less plugging and autonomous pipeline inspections.

 

Global Oil and Gas Market

Three consecutive years of lower oil prices have created a sense of urgency to improve oil & gas process efficiency. However, most operators have not maximised the production potential of their assets. McKinsey research reveals that the typical offshore platform runs at approximately 77 per cent of its maximum production potential. Industry-wide, this shortfall represents something in the order of 10 million barrels per day, or USD 200 billion in annual revenue. Therefore, to improve on this situation, persistent use of analytics (an integral component of Industry 4.0) is a must.

 

 

typical offshore platform runs at approximately 77 per cent of its maximum production potential

 

In 2017, Asia Pacific accounted for 34 per cent of the global oil and gas market, making it the largest in the world. This was largely due to a wide consumer base and economic development in countries like India and China. The second largest was North America, making up 22 per cent of the market. Africa accounted for only 4 per cent of the market.

 

Asia Pacific accounted for 34 per cent of the global oil and gas market

 

 

The oil and gas industry has been working on technological innovations. Oil and gas companies throughout the world have made use of digitisation, IoT and robotics in order to increase production with limited investment. This helps optimise operations to decrease production costs whilst increasing production volumes. For instance, Shell placed monitoring devices on equipment to monitor operating conditions, which helped the company save USD 1 million from its Nigerian operations.

Industry 4.0-related spending in the oil and gas industry has continued for more than a decade. However, the oil price crisis has led to an accelerated adoption of state-of-the-art technologies. A recent report by BP states that Industry 4.0 has the potential to increase production volumes and reduce costs by 13% by 2050. The report also states that oil and gas reserves could increase from 2.9 trillion barrels of oil equivalent (BOE) to 4.8 trillion barrels.

 

 Industry 4.0 has the potential to increase production volumes and reduce costs by 13% by 2050

 

 

Potential increase in oil and gas reserves from 2015 - 2050

 

BP also mentioned that technology offers help on two fronts. The first is in raising short-term production. The other involves reducing capital costs and operating expenses. Both place an emphasis on efficiency.” According to a Research and Markets report in 2015, Industry 4.0 investments in the oil and gas industry are expected to reach USD 30.78 billion by 2020, growing at an annual rate of 4.31%.

 

Expected increase in Industry 4.0 investments in oil & gas industry

 

There have been several Industry 4.0 investments in the oil and gas industry recently. Statoil unveiled its USD 1 billion Kroner digitalisation initiative, BP invested USD 20 million in an AI company called Beyond Limits and GE forecasts that their digitalisation platform will be part of a USD 6 billion revenue stream by 2020.

Many oil and gas companies are now investing in analytics and big data to optimise oilfield chemistry. Sensors can automatically collect well data and eliminate the need for well site field visits to check the status of the chemical treatment process and inspect for leaks or failed pumps. By shifting to Industry 4.0, companies can remotely monitor chemical usage and get alerts of any adverse events. Experts believe that the oil and gas analytics market is estimated to grow from USD 4.29 billion in 2014 to USD 19.65 billion in 2019 at a Compound Annual Growth Rate (CAGR) of 35.5%. On geographical grounds, Middle East and Africa (MEA) is forecasted to be the biggest market for the oil and gas analytics market followed by North America (NA) and Asia Pacific (APAC).

 

oil and gas analytics market is estimated to grow from USD 4.29 billion in 2014 to USD 19.65 billion in 2019

 

 

Middle East’s Oil and Gas Market

According a report by BNC, the combined value of the 361 active oil and gas projects in the GCC crossed USD 331.5 billion in November 2017. The BNC Network Oil and Gas Construction Analytics report mentioned that the hydrocarbon sector represents 30% of the GCC economy and 60% of the total exports value. It added that the number of oil and gas projects in the GCC increased by 6% in Q3 2017 compared to the previous quarter while the total estimated value of these projects increased by 5%. A total of 15 oil and gas projects with a combined estimated value of USD 9.9 billion were completed during the third quarter of 2017, the report noted.

 

the combined value of the 361 active oil and gas projects in the GCC crossed USD 331.5 billion in November 2017.

 

hydrocarbon sector represents 30% of the GCC economy and 60% of the total exports value

 

 total estimated value of the oil and gas projects in the GCC increased by 5%
A Financial Times report mentions that Middle Eastern oil producers have net foreign assets of USD 2.2 trillion and that they resisted the industry trend by maintaining oil-related spending during the slump of 2014 – 2016. For instance, the region’s share of the world’s operating rigs rose from 12% in 2014 to 26% in 2016. Therefore, there is an increased need to plan and successfully implement Industry 4.0 applications in the Middle East

How does Industry 4.0 help the Middle East? According to a report by BP, the Middle East remains the world’s largest oil exporting region, and the second largest gas producing region. Therefore, it is crucial that opportunities to unlock value and boost productivity are identified throughout the entire supply chain. This productivity is at the core of regional economic growth. Technology enables businesses to do a lot more with less.

In order to optimise bottom lines, oil and gas organisations in the Middle East are obliged to find new ways to unlock true value, creating a need for digital procurement. With this added value, it can be said that procurement technology is an enabler of continued growth for the Middle East and for the oil and gas industry. Having said that, Middle East oil and gas companies are making active strides towards Industry 4.0 implementation. For instance, Petroleum Development Oman is producing more oil by analysing vast amounts of data gathered through sensors inside components across its 10,000 oil wells around the country. This data provides key indicators on the state of reservoirs, helping engineers to make speedier and more informed production decisions.

 

Impact of Industry 4.0 on the oil and gas Industry

Industry 4.0 is becoming increasingly relevant to the oil and gas industry as low oil prices and aging assets require increased operational productivity to ensure profitability is achieved. According to an Accenture survey of oil and gas companies, 72% of respondents believe that cost reduction is the most important challenge that technology can help address. The study also identified technology as an enabler of better decision making.

There are two main benefits of digitisation:

  • Reducing waste from activities, leading to reduced costs
  • Reducing the number of activities in a situation through improved outcome prediction.

 

 Transforming supply chain in upstream operations


Transforming supply chain in upstream operations

 

1. Maintenance and Safety

Drones provide an eagle-eye view, facilitating the early detection of oil and gas leaks in locations that are difficult to reach such as offshore drilling sites. In the midstream sector, drones with thermal imaging systems can help identify vulnerable points across the pipelines.

2. Increased Connectivity

Companies could take further data integration and information sharing measures to adjust production levels in real time. This can be done using inventory data, forecasted demand and distribution rates. The data can then be used to analyse production.

3. Exploration

Exploration and production (E&P) companies are exploring new 4D seismic imaging models that make use of production data to assess oil and gas reserve levels. The technology aims to identify resource quantity as well as lifespan of wells.

4. Production
Digitising drilling processes can be beneficial for oilfield service firms. Some of the applications being used by E&P firms and their benefits are as follows:

  • Software sensor data can help maximise well output by determining the right drilling methods along with ideal sand, water and chemical combinations.
  • Automated drillers can help companies increase production levels and simultaneously reduce costs.
  • Smart sensors can also be added to drilling equipment to further help collect data.

 

Transforming supply chain in midstream operations

Transforming supply chain in midstream operations

 

1. Storage

Improving data management can help with inventory level tracking monitoring systems that can help automate temperature control.

2. Transportation

Transportation tracks are fitted with thermal detectors and sensors to provide geolocation data instantly. This helps guard against derailment. In addition, smart sensors can be installed in pipelines to help with early leakage detection. These sensors can also monitor variables including pressure, temperature, and infrastructure deformations.

 

Transforming supply chain in downstream operations

 Transforming supply chain in downstream operations

 

 1. Refining

Smart sensors help with enhanced monitoring to ensure safety and improve functionality at every step of the process.

2. Distribution

Companies can use predictive analytic tools to forecast demand more accurately, efficiently communicate data across supply chains and automate production.