IoT and the future of the energy industry

The Industrial Internet of Things harnesses the power of big data, particularly in asset-intensive industries such as oil and gas.

by Mike Scott
5 min read
by Mike Scott
5 min read

A quiet revolution

As more and more machinery becomes loaded up with sensors and connected to the internet, there are predictions that the IoT could slash costs. Analysts at Nomura, for example, say this could make oil and gas companies more profitable at $70pb than they were previously at $100pb. A quiet revolution is under way in asset-intensive industries, thanks to the advance of the Industrial Internet of Things (IIoT). And as one of the most asset-intensive sectors in the economy, the oil and gas sector is set to be one of the biggest beneficiaries. The internet of things is widely perceived as a consumer phenomenon that will allow smart appliances to turn themselves off and on, order your milk when you run out and make sure your house is warm when you get home from work. But efforts to make technologies such as smart appliances and connected homes a reality are still at a very early stage—in part because the very people they aim to help, consumers, have yet to fully embrace the idea of digital domesticity. By contrast, companies have started to realize the huge potential the IIoT holds and it is making great strides across a number of sectors. And while many aspects of the digital economy undermine the oil and gas industry by reducing demand for energy – Google in 2016 announced that it has cut the cost of cooling its data centers by 40 percent through the use of artificial intelligence. However, a digital infrastructure will be crucial for the roll-out of electric vehicles and car –sharing–the IIoT also has the potential to significantly improve efficiencies, cut costs and boost profits for energy groups.

A new burst of innovation

The internet of things is a digital ecosystem created by the combination of ever-increasing amounts of machinery packed with sensors; the spread of internet capacity that means these machines are now visible online; and the advent of sufficient computing power to enable the analysis of billions of pieces of information in a way that allows companies or consumers to change their behavior to ensure they act more efficiently. The potential savings are so great that analysts at Japanese bank Nomura say that oil and gas companies could in future be more profitable with oil prices at $70 per barrel than they were at $100 per barrel. McKinsey adds that “the effective use of digital technologies in the oil and gas sector could reduce capital expenditures by up to 20 percent; it could cut operating costs in upstream by 3-5 percent and by about half that in downstream”. A new burst of innovation would be welcome for the sector in the wake of the prolonged fall in prices from more than $100 per barrel in 2014 to less than $50 per barrel in 2016. If cost reductions from the IIoT live up to the predictions, many fields that are unviable in today’s low price environment will suddenly come back into play. But it is not inevitable that the industry will seize all the opportunities on offer. Even though oil and gas companies have long been among the most innovative businesses around, according to a global study by consultants Deloitte and the MIT Sloan Management Review, the sector is one of the least “digitally mature” and as a result it is missing out on many opportunities to optimize its operations. “Less digitally mature organizations tend to focus on individual technologies and have strategies that are decidedly operational in focus”, says the study.

Towards a new, lower-cost, higher efficiency industry

The promise of the Internet of Things “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 business”, argues Deloitte. This information enables companies to become more efficient and reliable, and to create new value in areas ranging from dealing with unplanned well outages to boosting the amount of reserves that can be recovered from wells. The IIoT will give companies unprecedented visibility over their operations, enabling them to monitor asset performance and investigate accidents remotely and safely. They will be able to identify safety and performance issues that need to be fixed before they happen and maximize production in existing and new wells by using supercomputers to pinpoint exactly where the oil or gas is that they want to recover. There are opportunities in the IIoT throughout the oil and gas value chain. Upstream exploration and production companies will be able to make their operations safer and more productive and to extract resources from more challenging environments. Companies involved in transportation, pipelines and storage will be able to create a safer, more robust network with fewer leaks by creating more data-rich infrastructure. Refiners and retailers will benefit from having greater visibility over their supply chain and being better able to target consumers. However, it will not be enough for companies to simply add more sensors to their equipment. They need to have a clear idea of what they are trying to achieve and why, if they are to get the most out of the technology. But if they target IIoT applications at specific problems, oil and gas companies could usher in a new, lower-cost, higher efficiency industry capable of meeting the challenges of the 21st century.

The author: Mike Scott

Journalist. Environment, Sustainability, Climate Change, Investing, Energy, Supply Chain, Transport, Circular Economy, Stranded Assets, ESG, Smart Cities, Wealth Management, Family Offices, Asset Management, EU.