The Internet of Things

Aug. 21, 2015
With the current low oil-price environment fast becoming the oil and gas industry's "new reality," even the most efficient of companies will have to do more than just make financial adjustments.

Steven poruban
Managing Editor-News

With the current low oil-price environment fast becoming the oil and gas industry's "new reality," even the most efficient of companies will have to do more than just make financial adjustments. What will be required is a change in the industry's approach to technology: "From using operational technologies to locate and exploit complex resources, to using information from technologies to make hydrocarbon extraction and every successive stage before sale more efficient and even revenue-generating," according to a recent report released by Deloitte Center for Energy Solutions (DCES) entitled, "Connected Barrels: Transforming Oil & Gas Strategies with the Internet of Things."

The Internet of Things (IoT), explains Andrew Slaughter, an energy and resources executive director for DCES, is basically the machine-to-machine connectivity used by companies in any industry to integrate sensing, communications, and analytical capabilities. The report notes, "The IoT's promise lies not in helping [oil and gas] companies directly manage their existing assets, supply chains, or customer relationships-rather, IoT technology creates an entirely new asset: information about these elements of their businesses."

DCES's report finds that "widespread adoption" by many oil and gas firms of a viable IoT strategy "seems likely" in the near future given that many core enabling technologies have improved. "What has happened is that the cost of sensors, communication, connectivity, computational power-everything has just come down so quickly and so far in such a short time that there's a lot more data which can be used now than there ever was, so the opportunity is there to use it smartly, deploy it wisely, and to find new ways of creating value through this connectivity, analytical capability, and sheer volume of data," Slaughter told OGJ.

Creating new value

The report says there are three business objectives relevant to IoT deployments in the oil and gas industry: improving reliability, optimizing operations, and creating new value. "Each [oil and gas] segment can find the greatest benefit from its initial IoT efforts in one of these categories," it said.

Slaughter explains that it's difficult to say where everything will end up in the end. With the development of the original internet-the one that connected individuals and ideas-people discovered sources of value as they went along. "Who'd have guessed that kitten videos would be so valuable," Slaughter jokes, adding, "I think we're at the stage of now of grafting [IoT rtechnology] onto traditional activities, optimizing it, and making it better. We're about to make a leap forward into really discovering new value in the sector."

Currently, however, the oil and gas industry's level of maturity in adopting IoT technologies against other industries was found to be low down the scale. According to MIT Sloan Management Review and Deloitte's 2015 study of digital business, the oil and gas industry's digital maturity is among the lowest, at 4.68 on a scale of 1 to 10, with 1 being the least mature and 10 being the most mature. The study said, "Less digitally mature organizations tend to focus on individual technologies and have strategies that are decidedly operation in focus."

Slaughter explains, "The oil and gas industry is extremely innovative and effective in developing and deploying oil and gas-specific technology: things around smart drill bits, reservoir visualization, [and] smart seismic," giving those technologies most of its attention. "Sometimes the [oil and gas] industry pays less attention to technological developments which are incubating in other places," he notes. "And so I think this is one of those cases where it's waking up to the fact that this equipment, these capabilities are becoming available, [since] they're being proved elsewhere, and I think they're happy to be a fast-follower in this."

Forging ahead

This most recent report was not created in a vacuum, Slaughter says, noting that Deloitte has published a series of reports over the last few months and will continue to do so with same IoT theme. "We thought that oil and gas was a really fascinating case study to be included in that because the prizes are so big, and the opportunities for deployment are so big," he said.

"You've got tens of thousands of new wells being drilled every year, hundreds of thousands of existing producing wells, which could be optimized," he said. "Everything brought together can actually result in increases in recovery, increases in reserves, can actually cumulatively have quite a big impact. It's very relevant."