Can Tech Really Transform The Oil Industry?

If there is ever a poll for the most annoying, most abused word or phrase in the technology field, “innovation” will be up there in the top 10 along with “IoT” and, quite possibly, “digital technology” itself. But there’s a reason these words are being used so often, and it’s not just their clickbait potential. As the oil industry will be eager to tell you, innovation in digital tech just works. It works so well, in fact, that it has already begun to transform a notoriously conservative industry such as oil and gas.

Oilprice wrote about digital tech’s “Amazon effect” on the oil industry last year when the first signs of this effect were beginning to be felt. Technology services providers flocked to the oil field to offer its owners and operators solutions that would bring their costs down and profits up by boosting “operational efficiency”—another candidate for the top 10 most annoying tech phrases.

Overused labels aside, it is working. U.S. oil production is at an all-time high and that’s thanks to some degree to the adoption of all these various digital technology solutions. What are they? Here’s a quick roundup from Emerson’s chief executive, David Farr.

Modern sensors in the oil field or the pipeline can measure many more variables than before, including corrosion, vibration and leaks. But they don’t stop at the measuring. Today’s sensors have the capability to communicate the data over the Internet of Things and store it in the cloud. Then this big data can be crunched up into small, digestible—that is usable—bits of information. What oil companies do with this information is find ways to further lower costs and boost returns.

Digital products for the oil and gas industry are growing in number, for everything from exploration to refining, and they likely will continue to grow. The word “disruption” may make you wince from hearing it too often but it seems to be a fact of life that digital tech is disrupting the oil and gas industry. Just how much it will disrupt it, however, is a topic on which there is no consensus.

The prevailing opinion, which Emerson’s Farr shares with the International Energy Agency, is that U.S. oil is changing the world markets, and in no small way. Just yesterday the IEA said in its latest five-year oil forecast that additional supply from the U.S. will cover some 80 percent of global crude oil demand growth over the next five years. The rest will be covered by higher production in Canada, Brazil, and Norway.

Yet not everyone shares the enthusiasm. EOG Resources’ former CEO, Mark Papa, for instance, is a lot more skeptical than the average analyst. He notes that many of the most productive parts of the shale patch have already been tapped, and depletion in the shale patch is quick. Also, producers must cope with shortage of, for example, frac sand, because they are using so much more of it to improve recovery rates.

Analysts from Wood Mackenzie are also guarded when it comes to the marriage of oil and technology. Technology, they said in a recent report, could certainly improve exploration results and production rates, but it does have its drawbacks. There are limits to what technology can help accomplish in the oil field simply because it must deal with geology—and at some point, at least eventually, geology wins. Wood Mac forecasts that shale oil production in the United States will peak in the mid-2020s; no amount of technology can help prevent that.

Yes, digital tech is having a transformative effect on oil and gas, and not just in the United States. It will continue to play an increasingly important role in the industry in decades to come. It will even likely make the possible transition from oil and gas into renewables smoother at some point in the distant future.

By Irina Slav for Oilprice.com