A Seismic Change in Oil and Gas Industry

Oil and Gas Industry has embraced the change as a part of the process. That is the reason why the industry has turned its head towards technology to rethink their decisions on various tasks. Indeed, the technology has helped this industry to find, evaluate and drill fossil fuels. It has served the industry to be fully functional and provide top level performance.

However, things have been changing lately. The top notch Energy Agency, IEA has already expressed its fear of supply crisis. This fear has also been echoed by top executives of big energy enterprises such as Aramco, Total and Eni, as one of the major challenges for Oil and Gas Industry. Interestingly, as this worry is in the air, many studies are indicating that there will be an overall (40%) growth in the energy utilization, in the next 20 years. Of which oil and gas will acquire 80% of usage.

That being said, the industry faces various challenges while going through this transformation phase.

Supply

In November 2017, an intergovernmental organization, Organization of the Petroleum Exporting Countries (OPEC) had signed a production restraint agreement with non- OPEC countries to control oil supply in the world. This contract has yielded substantial results. The 2018 data shows that the global oil production has been reduced to 175 million B/D. On the other hand, bigger oil pockets called as ‘elephants’ are almost extinct. Oil industries are finding it hard to find new areas for drilling.

Another challenge in supply is less investment. The recent 4 year data shows a global decline of investment in the industry, from US$153 billion to US$ 58 billion. It is disproportionate to the rising demand of oil and gas in the market. As per the report released by IEA World Energy Outlook 2017, there was a surplus global demand for oil and gas which is 2.5 million B/D. If the reduction in investment and supply remains as it is, the trend is going to upset industry on a greater scale.

Supply disruption

Since its first oil production, Oil and Gas industry has seen supply disruption for various reasons. The latest example in supply disruption is Venezuela and Libya. In Venezuela, economic as well as political uncertainties led to a 40% decrease, from 2.5 million B/D to 1.5 million B/D. Experts believe that if the situation remains stagnant, nearly 2 million B/D of production could come to a halt. While, Libya’s internal turmoil has decreased its capacity to produce oil at the maximum, from 1.5 million B/D to 990000 B/D.

Maintenance

There are three types of maintenance in Oil and Gas Industry- preventive maintenance, condition based maintenance and corrective maintenance. It is evident that a sensitive industry like oil and gas heavily depend on maintenance to succeed in its operations. An unplanned maintenance not only results into scarcity of resources but also increases its cost.

Cost Reduction

Oil and gas companies are trying to produce crude oil and refined products at a minimum cost. This will allow them to stay in the business and beat their rivals. To achieve this objective, these enterprises need to focus on the improvement of production and environmental utilities. Upgrading these two functions will assist them to make production effective, decrease in the costs of extraction as well as refining cost.

Workforce

During the financial crisis, many enterprises reduced their workforce to lessen their operational cost. But this move resulted into a catastrophe. After reduction of workforce, oil and gas companies lost well trained employees. They became vulnerable and lost their capability to appeal new employees. This may become a crucial challenge for oil and gas companies in the nearest future as a big chunk of employees are in the retire age group.    

Environmental Concerns

As the biggest pollutant source in the energy sector, oil and gas industry faces strict environmental regulation from various agencies to reduce its hazardous effect on this planet. These restrictions leave enterprises to think twice on production, extraction and distribution approaches to secure their licenses.

Technology

In its 2018 Energy Outlook Publication, British Petroleum (BP) has mentioned in its report that the oil demand will face a significant loss by 2030. This will be because of increasing interference by the technology in the energy sector. The penetration of technology materialized in the year of 2014 when the industry saw a dip in the prices by nearly 75%. Thus, reduced income enforced this sector to update itself with the technology.

The progression in oil and gas business has reached such a level that an engineer can supervise a well drilling from a remote location. This capability allows them to instruct on location team, in case, drilling goes wrong. In this case, automation can help engineers to drill precisely. Additionally, technology such as automation can be valuable in terms of safety of the crew members. Rather undertaking dangerous repairs by themselves, they can utilize drone technology and carry out maintenance from a remote location.

When it comes to cost cutting, technology can be beneficial. A study conducted by McKinsey and Company also says that the efficient utilization of technology in oil and gas sector will decrease its expenditure by 20%. Moreover, deployment of advanced analytics can be helpful to predict tool break down proactively and would reduce maintenance costs by 13%.

The Future

The rise of technology, innovation and social norms are asking the oil and gas industry to change their business model or they will not find a place in today’s world. This upsurge shows a dynamic shift in the behavior of various governments towards this sector. Major regimes have decided to put a deadline to remove gasoline as well as diesel cars.

This initiative has paved the way for the emergence of electric cars in the world. For example, Volkswagen has cheered this new transition. It has scheduled a battery factory and planned to launch 30 electric cars by 2025. This shift is not restricted for automobile but for all the other industries. According to Goldman Sachs, renewable energy will replace oil and gas energy by 50%.

Yet, there is a silver lining for gas industry. A report from International Energy Agency in 2018 claims that there is a high demand for natural gas from countries such as China. Its annual gas report also estimates that the demand will increase steadily by 1.6%. Experts say that the Chinese gas demand will increase up to 60% from the period of 2017-2023. The agency also foresees a high increase in utilization of gas energy in various regions of Asia.

As any other industry, oil and gas industry is going through a transition phase. The technology has introduced various solutions for challenges faced by the energy sector. It has empowered the industry to surf on the waves of change. The energy sector is active as well as important for the world. Although, renewable energy is making its own space while oil and gas trying to keep its status quo status in the energy industry. It would be interesting to see how it adapts as well as grow in the future.

-Abhishek Khilare

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