Digital Transformation in the Oil and Gas Industry

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Table of Contents

Introduction
Advantages of Digitization in the Oil and Gas Industry
Digitization and Automation
Existing Digital Technologies in the Oil and Gas Industry
Predictive Analytics as a Component of Digitization
Key Advantages and Challenges
Reference List

Introduction

The digitization trend is widespread and in demand in various areas. Coreynen, Matthyssens, and Van Bockhaven (2017, p. 44) define this concept and note that it implies “the increasing use of digital technologies for connecting people, systems, companies, products and services”. About the oil and gas industry, this course is relevant today, when many states sell these natural resources actively and, in many respects, form the domestic economy and budget due to them, improving the principles of extraction and production is an essential task. Shukla and Karki (2016) note that introducing innovations in this field is a demanded activity. Therefore, a focus on digitization and connectivity are the crucial aspects of the oil and gas industry.

Advantages of Digitization in the Oil and Gas Industry

The digitization of industrial facilities in the oil and gas industry is inextricably linked to the issues of ensuring product safety. Innovative IT solutions aimed at speeding up the automation process and optimizing many production processes in enterprises have found wide applications in the market. For instance, according to Longde et al. (2015), the impact of digital technologies is becoming wider, which allows improving not only production processes but also other significant aspects, for example, increasing the organizational efficiency and quality of employees’ operation. At the same time, innovations in production and processing, the digitization of workflow, and other activities are strategically important steps for any company on the path to its digital future.

Koplos, Tuccillo, and Ranalli (2014) evaluate the success of the Baker Hughes company and give the statistical results of introducing digital technologies in 2012. According to the results of the assessment, during that period, the corporation drilled “36,824 oil and gas wells”, which was a significant step towards leadership in the industry (Koplos, Tuccillo & Ranalli 2014, p. 45). Therefore, the provision of manufacturing with high-tech equipment contributes to productivity and the expansion of market influence.

It is essential to bear in mind that for the oil and gas industry, security is a key issue that digital technology can solve in many ways. As Siebel (2017) points out, using predictive analytics eliminating the technological failures of production assets or costly equipment downtime, as well as minimizing the human factor, contributes to the normal operation of all systems. The functions of modern digital devices that support the work of the oil and gas industry serve as the tolls reducing people’s participation in the monitoring process, thereby automating the monitoring of activities and allowing employees to focus on the ways of increasing production results (Siebel 2017; Longde et al. (2015). These advantages prove the relevance of implementing high-tech equipment in this area.

Another essential advantage of digitization is technological solutions that are used throughout the world to improve production efficiency and the current operational activities of employees. This is important since, for instance, at those enterprises where flammable chemicals are part of the environment, sparks caused by the operation of mobile phones or other portable devices may provoke emergencies. According to Longde et al. (2015), even the temperature of their surface can be dangerous for both employees and enterprises as a whole. The authors argue that, as companies are increasingly merging with digital technologies, their most important system functions shortly may directly depend on the availability of computer solutions (Longde et al. 2015).

The reliability and durability of such equipment are the key factors for successful work. Therefore, equipping employees with mobile devices that are suitable for work in high-risk enterprises will allow them to collect, use, and access information in places where it was previously impossible, and will also help companies save and optimize operational data and generate business ideas.

Digitization and Automation

Concerning the oil and gas industry, such terms have become common as oil production digitization, smart wells, processing automation, and other aspects of activities. The key role is traditionally given to minimizing a human role and making the processes of formation and transmission of information and data computerized. However, the considered examples of using information technologies in the oil and gas industry meet these goals.

In order not to confuse the two concepts, it is essential to consider their features. Carvajal, Maucec, and Cullick (2017) offer to draw attention to the digitization concept and compare this principle of work with automation as one of the varieties of advanced production. As the authors point out, both directions are related to increasing the role of information technologies; nevertheless, a qualitative difference is formed in the depth of their application (Carvajal, Maucec & Cullick 2017).

Automation, as a more traditional method, includes information technology into the production, thereby reducing the cost of the manufacturer. At the same time, a specific business model remains unchanged – making a profit by selling products. Digitization is the result of the enhanced implementation of information technology until the moment of a qualitative change in the business (Carvajal, Maucec, & Cullick 2017). As a result of increasing the level of the application of modern technical mechanisms, the transformation of the business model of an enterprise occurs, which causes modernization. Ventures change their operating modes from the sales of products to the provision of services with the use of technologies that include manufactured products.

About the oil and gas industry in the conditions of a new paradigm and, in particular, the Baker Hughes company, natural energy resources are not the final product. With the classical methods of work, suppliers’ responsibility ends at the moment of transferring the resource and receiving payment. In this case, automation facilitates the internal processes of a manufacturer, reduces its cost, which, in turn, may affect consumers by reducing prices. The notion of digitization goes further because, as Kapitonov et al. (2017) state, the use of information technologies creates values for buyers, which means that the commercialization of modern equipment is performed.

In this case, a manufacturer is to expand the area of responsibility and penetrate the needs of customers, thereby selling not raw materials but, alternatively, the final result of utilizing and processing them. The use of information technologies offers opportunities for such interpenetration. At the same time, smart devices installed in wells, security systems, and other areas do not affect buyers of the fuel and are tools of manufacturers’ internal costs (Kapitonov et al. 2017). This mechanism explains the relevance of digitization from the customers’ perspective.

In its classical definition, the oil and gas industry, in particular, the extraction, processing, transportation, warehousing, and sale of mineral resources, hardly suits the concept of digital innovations. Vorob’ev et al. (2017) argue that the transition to a new regime means forming a fundamentally new service sector, as well as non-standard value-added chains and pricing. Nevertheless, the issues of the automation of the economics of the raw materials are relevant and significant in the context of modern modernization practice. According to Kapitonov et al. (2017), implementing automation processes in the oil and gas industry proceeds gradually but steadily.

For instance, the rapid exchange of data except the human factor allows creating a transparent market for supply and demand and (Carvajal, Maucec & Cullick 2017). Some suppliers are in competitive advantage, in particular, those who can maximize flexibility to meet the needs of energy buyers, while optimizing production risks associated with uneven consumption (Carvajal, Maucec & Cullick 2017; Kapitonov et al. 2017). Therefore, the concept of digitization as the final stage of the modernization of the oil and gas industry has many conventions and certain nuances affecting contemporary innovations.

Existing Digital Technologies in the Oil and Gas Industry

Combining the main production structures in the oil and gas industry with the help of telecommunications into a single system allows monitoring all the technological processes of exploration and production of valuable energy resources. Digital innovative technologies developed to date include a wide range of devices and mechanisms that contribute to more productive mining. Since the Baker Hughes Corporation occupies one of the leading positions in this sector, the introduction of appropriate technologies helps the company to develop steadily and maintain market competition by involving the necessary tools and instruments.

According to Harthy et al. (2018), in the field of exploration during development, passive good monitoring is applied, which is a successful technique for analyzing the volume of potential resources. Also, the authors note that for ecological protection, environmental monitoring in real-time is utilized (Harthy et al. 2018). This operation allows preventing harmful effects on the environment through the preliminary assessment of the impact of drilling and production regimes, thereby taking the necessary safety measures. All these digital technologies serve as valuable tools in promoting the development of the oil and gas industry.

Organizing the management of oil production from remote centers by using electronics means not only improving production or expanding the use of digital technology but also changing the direction of work. Hajizadeh (2019) notes that the integration of data collection and management systems concerning the state of wells and other components allows exploration and mining organizations to make effective decisions. This opens up the possibilities of analyzing the current situation, developing an optimal management strategy, and reducing inevitable costs.

Kamsu-Foguem (2016) also confirms the relevance of these mechanisms but note that despite the advancement of technologies, manual inspection is mandatory to avoid unforeseen situations and eliminate errors. This recommendation applies, in particular, to the field of extraction. In general, technologies for optimizing production and forecasting help prevent accidents. According to Hajizadeh (2019), such a direction as machine learning is in demand in modern realities. The author provides statistics on the progress of this field and argues that, by 2018, the number of studies in this area has increased significantly (Hajizadeh 2019). Therefore, both manufacturers and researchers are interested in studying innovations in the oil and gas industry.

Predictive Analytics as a Component of Digitization

Oil and gas companies carry out maintenance work regularly due to different reasons, for instance, the improvement of activity stages or a combination of technologies. However, the reliability of equipment may remain low, and the overabundance of maintenance personnel may entail undesirable costs. To solve these problems, Davis et al. (2017) offer to pay attention to the predictive analytics system.

Installing sensors and automating the monitoring process can reduce the number of repairs, minimize tools downtime, and determine the optimal number of employees required to perform the specified work. In addition, as the authors point out, with the help of modern technologies, it is possible to study a field at all stages of its development remotely (Davis et al. 2017). Therefore, such a predictive activity is relevant to the industry under consideration.

Specialized mobile applications allow controlling equipment modes remotely and obtaining deep analytics, including the analysis of products, regularity, and quantity that corporate and retail customers buy. According to Schäkel, Janssen, and Brecher (2019), when relying on these data, one can increase the efficiency of gasoline supplies to retail networks of gas stations or the fleets of industrial companies.

Oil and gas companies, in particular, Baker Hughes, actively introduce mobile applications for retail consumers (Koplos, Tuccillo & Ranalli 2014). Such tools can also be issued for corporate customers to check the availability of manufacturers’ products and redundancy. Stakeholders may consolidate the accumulated data on demand and distribution with data on production and processing. The efficiency of all the processes will increase under the conditions of complex rather than scattered digitalization and competent personnel management.

Many processes at oil and gas fields depend on qualified specialists, and their permanent presence there is not necessary. Nevertheless, in case of emergencies, companies are forced to constantly keep on the platforms a large number of employees. To bring them there if necessary is an unreasonable decision since their delivery, as a rule, to hard-to-reach deposits, is financially costly. The augmented reality technologies that Yu et al. (2015) describe allowing employees at oil and gas fields to interact with an expert remotely, consult on the ways of troubleshooting, and perform other significant tasks.

The authors note that wireless technologies have rather compact designs, which, at the same time, is an advantage in the conditions of limited space (Yu et al. 2015). Therefore, this method of remote access is an important phase of predictive control practice.

Key Advantages and Challenges

When summing up the findings of the presented academic sources, the results of the review may be grouped based on the criteria of merits and difficulties. Digitization in the oil and gas industry is a complex and multi-stage process that is characterized by many nuances. Despite the large number of benefits that both suppliers and buyers receive due to innovation in extraction and production modes, difficulties occur inevitably. Table 1 presents the types of main advantages and challenges that arise in the process of digitization in the oil and gas industry.

Table 1. Advantages and Challenges of Adopting Digitization.

Advantages	Authors	Challenges	Authors
Discovering practices that drive excellence in oil and gas industry companies’ operations	Koplos, Tuccillo, and Ranalli (2014); Hajizadeh (2019)	Poor organization of all improvement processes	Coreynen, Matthyssens, and Van Bockhaven (2017)
Digital transformation increases operations performance	Longde et al. (2015); Davis et al. (2017)	Customer dissatisfaction with a protracted transition to the new modes of operation	Shukla and Karki (2016)
A comprehensive analysis of the operation of all components of the oil and gas industry extraction and production	Carvajal, Maucec, and Cullick (2017); Harthy et al. (2018)	Obsolete methods of control and regulations	Schäkel, Janssen, and Brecher (2019)
Better asset allocation and increased profitability	Kapitonov et al. (2017); Kamsu-Foguem (2016)	The shortage of employees’ skills when working with new equipment	Shukla and Karki (2016); Vorob’ev et al. (2017)
Minimizing manual interventions and eliminating the human factor	Siebel (2017)
Providing competitive advantage to suppliers	Carvajal, Maucec, and Cullick (2017); Kapitonov et al. (2017)
Using modern computerized mechanisms is convenient	Yu et al. (2015)

Reference List

Carvajal, G, Maucec, M & Cullick, S 2017, Intelligent digital oil and gas fields: concepts, collaboration, and right-time decisions, Gulf Professional Publishing, Cambridge, MA.

Coreynen, W, Matthyssens, P & Van Bockhaven, W 2017, ‘Boosting servitization through digitization: pathways and dynamic resource configurations for manufacturers’, Industrial Marketing Management, vol. 60, pp. 42-53.

Davis, S, Brodersen, S, Böhmer, G & Siemens, AG 2017, ‘Digitalization sparks a quiet revolution’, World Pumps, vol. 2017, no. 5, pp. 28-31.

Hajizadeh, Y 2019, ‘Machine learning in oil and gas; a SWOT analysis approach’, Journal of Petroleum Science and Engineering, vol. 176, pp. 661-663.

Harthy, AMA, Oo, YH, Al-Saqri, SM & Karim, AM 2018, ‘The effect of technology and digitalization on the quality management system among Omani oil and gas drilling company’, International Journal of Applied Engineering Research, vol. 13, no. 5, pp. 2331-2337.

Kamsu-Foguem, B 2016, ‘Information structuring and risk-based inspection for the marine oil pipelines’, Applied Ocean Research, vol. 56, pp. 132-142.

Kapitonov, IA, Korolev, VG, Shadrin, AA & Shulus, AA 2017, ‘The role of small and medium-sized innovative enterprises in the solution of the import substitution task in oil and gas-sector segment of the Russian fuel and energy complex’, International Journal of Energy Economics and Policy, vol. 7, no. 3, pp. 137-145.

Koplos, J, Tuccillo, ME & Ranalli, B 2014, ‘Hydraulic fracturing overview: how, where, and its role in oil and gas’, American Water Works Association, vol. 106, no. 11, pp. 38-46.

Longde, S, Chaoliang, F, Feng, L, Rukai, Z, Zhang, Y, Xuanjun, Y, Jia, A, Gao, X & Ling, S 2015, ‘Innovations and challenges of sedimentology in oil and gas exploration and development’, Petroleum Exploration and Development, vol. 42, no. 2, pp. 143-151.

Schäkel, M, Janssen, H & Brecher, C 2019, ‘Increased reliability for the manufacturing of composite pressure vessels’, Lightweight Design Worldwide, vol. 12, no. 3, pp. 10-17.

Shukla, A & Karki, H 2016, ‘Application of robotics in onshore oil and gas industry – a review part i’, Robotics and Autonomous Systems, vol. 75, pp. 490-507.

Siebel, TM 2017, ‘Why digital transformation is now on the CEO’s shoulders’, McKinsey Quarterly, vol. 4, no. 3, pp. 1-7.

Vorob’ev, A, Shchesnyak, E, Dzhugendra, SR, Shchesnyak, K & Vorob’ev, K 2017, ‘Transition to advance technologies of subsoil use’, Metallurgical & Mining Industry, no. 2, pp. 72-80.

Yu, Y, Huang, S, Wang, J & Ou, J 2015, ‘Design of wireless logging instrument system for monitoring oil drilling platform’, IEEE Sensors Journal, vol. 15, no. 6, pp. 3453-3458.

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