The energy markets had a rough ride in 2020: Supplies flooded the market while prices and demand plummeted during worldwide pandemic lockdowns. Fracking and wells closed, refineries were mothballed or closed.
Margins are tighter, and supply/demand is expected to remain roughly balanced for the foreseeable future so prices will remain low for the medium term – and probably long term.
What will happen to oil and gas companies?
I believe that smaller oil and gas companies are not going to make it – and medium-sized companies will buy and sell assets to keep going. The big ones are going to have to finally embrace digital transformation if they want to survive and thrive, and only then by making an agile transition to carbon-neutral/free energy.
The transition will be rocky; oil companies are notorious technology laggards. They will have to sell high-cost assets to save money and invest in the future – as well as make their current operations more efficient. But how?
It’s not magic. This is what they must do:
- Optimize processes for existing field operations and equipment. While it sounds simple, it is far easier said than done. Oil companies are famous for siloed operations. If they are going to be successful in this area, they will need technology capabilities that provide transparency and scalability across the value chain. And this involves not only the documentation of their processes, but more importantly, the monitoring of the processes in order to identify technical and process flow inefficiencies.
- Move to cloud. For quite some time, one of the principal debates on cloud strategies was whether the benefit was there in relation to cost efficiencies and technical capabilities. This debate is settled. The answer is yes and yes. The more critical question for oil companies is how they migrate to the cloud and manage their data across both cloud and on-premises applications that are not migrated. API management will become the critical enabling technology to navigate this requirement.
- Rationalize applications portfolios. As referenced in trend number one, nowhere has the siloed business practice hurt oil companies more than in their OT/IT application portfolios. Not only does the left hand not know what the right hand is doing, this fractured approach is creating significant cybersecurity risks. To compound the situation, significant capability redundancies exist in the application portfolios at a time where every dollar saved has never been more critical.
- Accelerated Adoption of IoT. One of the most closely guarded secrets among oil companies is that a significant percentage of their assets are not centrally monitored. As a result, most of their field assets are maintained via preventative visits. This is incredibly inefficient. Leading oil and gas companies are aggressively exploring IoT technologies to monitor and transition their assets to condition based monitoring and maintenance. (Major oil companies have confirmed that 60-80% of their assets are not currently sensored.)
Meanwhile, digital natives like Nextera are way ahead in the clean energy game, having been buying and building solar and wind-based production for years to feed the electricity grid. Oil and gas companies will have a long and painful transition to become low-carbon energy providers. But some oil companies, such as BP, are already well on their way.
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