Faced with significant challenges, the oil and gas sector must embrace digitization and accelerate the pace of change to survive the coming decade.
The oil and gas industry is currently grappling with three major crises: the continued decline in oil prices, the coronavirus and the energy transition.
The past seven years have proven to be one of the toughest operating times in the history of the industry. Margins have been squeezed since the 2014 price drop, and this was made even worse by the recent pandemic.
In 2020 alone, more than 100 oil and gas companies declared bankruptcy, while the stock prices of the five international oil majors are still below their pre-pandemic level.
While the industry is in shock, it is struggling to cope with the impending energy transition. And with falling renewable energy costs and increasing pressure to move away from fossil fuels, competition is facing the sector.
To meet these challenges, oil and gas companies must adapt.
Digital technology is one of the main tools that can help the industry change and improve. Wood Mackenzie estimated that digitization could save the energy industry more than $ 70 billion a year in operating costs if existing technology is harnessed efficiently.
Technologies like AI, digital twinning and robotics can help make operations smarter and more efficient. While advances in remote working are much more than a temporary fix for Covid-19, they can reduce the number of staff in physical environments in the long run, saving millions of dollars on transportation and insurance.
However, oil and gas have not adopted digital technology quickly. The industry has always been a slow beast, planning projects and profits over the years and decades, and deviating little from its basic operating model.
It has also been more immune to competition and new entrants to the market than many other industries, and as a result, changes and disruptions have not been forced in the same way as industries such as finance.
Over the past 20 years, the financial services industry has been revolutionized by a wave of “fintech” startups. These nimble, tech-driven small businesses have created new products and
solutions, reducing costs while improving the user experience. This has forced incumbent companies to innovate and improve.
While for oil and gas, even in the days of $ 100 oil, investing in efficiency and innovation was just not critical as long as operations were profitable. This meant organizations were slow to modernize and invest in large-scale digital transformation, which left a damaging legacy.
According to the Deloitte Digital Maturity Index, the digital maturity of the oil and gas sector is low, with a score of 1.3 on the scale, which puts it at the bottom of the index, lagging behind. most other major verticals.
Although the industry has been investing in data and digitization programs for years, it has remained focused on existing processes and has failed to generate new innovations, new revenue streams, or significant operational changes.
Industry has long captured large amounts of data, but too much of that data is siled and has not been used productively. In 2015, a McKinsey report found that less than 1% of the data collected was made available to decision-makers, and recent reports suggest that little has been done to address this crucial problem.
The pandemic has forced all organizations to adapt and many industries are struggling to cope with a difficult business landscape. But with the additional socio-economic factors at play, many oil and gas companies face a real existential threat.
Organizations must modernize, adapt and more effectively exploit digital technologies if they are to survive. But digitization is a process, not a complementary solution that can be applied in isolation. Technology must be supported by broader organizational change in order to produce the required results.
Empower technology leaders
A recent survey of oil and gas executives from the IBM Institute for Business Value (IBV) found that 82% believe innovation will be critical to their business success over the next three years.
However, many companies have cut their technology budgets. McKinsey warned in 2019 that the oil crash caused companies to strip CIOs of a third to half of their capital spending. This severely limits their ability to do the kind of projects the industry simply needs to keep itself going, let alone innovate effectively.
Organizations need to have adequate resources for their CIOs to effect meaningful change at scale. Too many companies are using IT to maintain the status quo or investing in innovation through small pilot projects that never reach the scope and scale required to have an impact.
It takes awareness and a shift in mindset across the business to see digital technology as a driver for improvement, competitive advantage and new revenue streams, while understanding that continuing to underinvest will ultimately result in account for higher long-term costs.
With CIOs and CTOs faced with balancing day-to-day needs and shrinking budgets, they lack the resources to invest in the types of projects and global changes needed to help their business adapt and to meet the challenges ahead.
“ All companies must become technology companies ”
There is a growing consensus among business leaders that in the digital age “all businesses must become technology companies”. For oil and gas, this transformation is vital and can be critical to ensuring long-term viability.
Before the pandemic, green and sustainable policies were already high on the agenda. The pandemic has given new impetus, with governments and policymakers vowing to “build back better” and use this period of rebuilding to prioritize socio-environmental outcomes.
The industry is already responding to the changing landscape and the past 18 months have seen a wave of commitments from energy majors, with Shell, BP and Total all committing to achieving zero ambitions. net carbon by 2050.
As many energy companies have started to diversify their businesses and increase their investments in renewables, there is also growing pressure to ensure that the company’s remaining oil and gas components become as clean and efficient as they are. possible.
The clock is already ticking. Organizations must fundamentally change if they are to be able to adapt to these new demands and commitments. And this transformation is simply not possible without taking advantage of new tools and technologies and embracing digitalization at scale.
The energy industry has been waiting for oil prices to return to their previous levels for the better part of the decade. In this difficult environment, there has never been a perfect time to make the required investment. But organizations that leave too much time and kick innovation and investment onto the road risk finding themselves too late.
It’s time to adapt or fail.
Join the debate
Overcoming barriers to digital innovation in oil and gas will be the central theme of the upcoming 2021 Virtual Digital Energy Summit on April 22.
Join leading experts in the energy sector to discuss how companies can take advantage of emerging technologies to improve, adapt and navigate the energy transition.
Register your free seat online at