International certification body DNV-LG recently published an annual forecast for our industry. Entitled, “SHORT-TERM AGILITY, LONG-TERM RESILIENCE - The outlook for the oil and gas industry in 2017,” the report is based on a survey of the world's top oil and gas companies.
DNV-LG's statistical findings are aligned with my own vision and predictions for the industry. One of the most salient trends mentioned in the report has to do with digitalization. I believe technology is to be the saving grace of an industry that has recently gone through some difficult times. Whether it is new, cleaner technologies to extract oil, like the incipient microwave method for oil shale, or groundbreaking digital tools for operations management, it is the advance in technology that is driving the industry, especially in the US.
The five trends identified in the DNV-GL report
- Industry confidence – stable for now
- Deeper cost-efficiency efforts are expected
- Long-term improvements are being made
- The oil and gas industry is reorganizing for a new era
- Digitalization on the rise
To say that digitalization is “on the rise” might seem vague, but the survey offers a persuasive in-depth analysis. 39% of respondents expressed that they expected their companies would be spending more on digitalization this year. When asked what was driving that trend, 39% also responded that it was a direct result of lower market prices for oil and gas.
This is one of the reasons I think of these changes in terms of a “saving grace.” Perhaps, without low prices, some of this much needed digitalization might occur more slowly, and some of the revolutionary new technologies wouldn't even be in development.
For 30% of respondents, funding represents the main barrier for successful digitalization. Many industry players also cited stagnant organizational cultures and bureaucracy among the top barriers. Interestingly enough, funding is the main barrier for senior managers, while other reasons are more commonly mentioned by people in lower positions.
In my view, this dichotomy is at the heart of the biggest threats for our industry right now. I would venture to say that the truth lies somewhere in-between. There is a perception that funding is a problem, but it is also easier to respond, “we are not moving faster because we lack funding,” than to acknowledge that there may also be significant organizational barriers.
In order to thrive in today's market, organizations must have aligned perceptions at all levels, not only common goals. In our traditionally vertical industry, it is the companies that have adopted modern horizontal organizational structures that are advancing the fastest and staying on top of global trends.
What are organizations’ primary barriers to greater digitalization?
30% Lack of funding
30% Old-fashioned organization/culture
26% Lack of awareness among senior management Lack of required skills
23% Legacy systems
20% Bureaucratic/procedural obstacles Cybersecurity concerns
As Maria Moræus Hanssen, CEO of French electricity and natural gas giant ENGIE, put it, “Data nerds don’t show up at work in a suit and tie. They don’t sit around tables discussing in long meetings like we do. We saw the need to set up a different type of work environment to reflect this, inviting people with crucial competences to come and interact with us more informally. We needed to change our culture.”
ENGIE is a perfect example of a company that is trying to embrace digitalization on many levels. An internal business incubator scheme created in 2014 allows ENGIE employees to grow their startups externally, benefitting from a rich incubator ecosystem. Currently, the company has over 13 teams working within eight partner business incubators.
According to the survey, it is large companies like ENGIE that are embracing digitalization at a faster speed. The percentage of respondents who believe digitalization is a must to boost profitability is higher in the case of large and mid-size companies, at 60% and 56%, respectively, and lower for smaller companies, at a mere 45%. In alignment with this figures, 57% of large company respondents expect their organizations will increase digitalization spending in 2017, while only 42% of mid-size company and 30% of small company respondents share those views.
When it comes to digitalization, big data is the key, and industry players are increasingly aware of it. Many top companies are investing heavily on harnessing the power of big data. For Paul Doucette from GE Oil & Gas, “The struggle is to make data meaningful and actionable fast enough to make a difference.”
Based on a DNV-GL estimate, our industry “could become at least 20% more efficient by making full use of digitalization.” Whether it is by 20% or not, a careful analysis of the survey's findings leave no room for doubt; the industry itself knows it is now ‘digitalize or perish.’ The new era of oil and gas will be digital, and it will be more exciting than anything we have seen before.