The global oil industry should place greater effort on changing its existing mind set and practices, and embracing the more flexible and open culture dominating Silicon Valley companies if it wants to retain its position at the cutting edge of 21st century innovation and technology, said experts from the aerospace, healthcare and oil sectors, at a roundtable discussion hosted by Lloyd’s Register (LR) Energy in Abu Dhabi.
Creating a more Silicon Valley-type environment in which innovation can thrive would support the development and advancement of ground-breaking technologies in such crucial areas as sub-sea processing, remote monitoring, automation and autonomous intervention. It would also facilitate new types of collaborations with other industries to generate ‘out-of-the-box’ ideas and to identify crossover technologies that offer potential solutions to more than one industry.
To be sure, technology and innovation have always been at the heart of the global oil industry and there can be little doubt that it will continue in this way. According to experts participating in the LR Energy roundtable, however, the sector is at a critical juncture.
On the one hand, it faces the challenge of having to cope with a generational shift and looming shortage of engineers. This goes back to the 1980s oil glut that saw prices slump nearly 80% between 1980 and 1986, in turn causing a fall in company profits, leading the petroleum industry in the US alone to slash its workforce by 60%, and tarnishing the sector’s image as an employer of choice for decades to come.
On the other hand, the industry is under increasing pressure to innovate as it seeks to increase efficiencies and develop new hydrocarbon reservoirs in harsh environments like the Arctic, ultra-deep waters and difficult deposits such as shale oil.
According to a survey carried out by LR Energy this year among senior industry executives and academics in 17 countries, three-quarters of respondents said that pressure to innovate has indeed intensified over the last two years, and only 25% of survey participants considered themselves to be early adopters of new technology.
Although the oil industry is eager to adopt change, it remains conservative due to the often large investments required, long project time frames, its operations in tight – and often severely punishing – regulatory environments, and – for listed international oil companies (IOCs) – the need to meet shareholder expectations.
While the industry’s position is understandable, the resulting risk aversion in the sector, especially with regard to the deployment of new technologies, is a major brake on innovation. Indeed, most companies prefer to wait for new technology to be proven time and again before adopting it themselves, often foregoing what may otherwise have turned out to be an early adopter advantage.
This is particularly true at a time when the large, listed IOCs – unlike major Silicon Valley players – appear to some to receive less support from their shareholders for risky technology investments, and thus face greater constraints in their decision-making. Today, markets reward major oil companies for focus, as a result of which they are splitting their operations and selling off assets – in turn limiting their appetite for higher-risk investments into future technologies.
The approach to innovation and technology development has been rather different among Silicon Valley companies, setting them apart from more conservative industries such as oil and gas.
“Product development cycles for many companies typically span just weeks, not months. But what really drives Silicon Valley companies is an emphasis on getting things done quickly rather than agonising over every potential flaw,” consulting firm Accenture said in a report published earlier this year on what makes Silicon Valley companies tick. “This story of extraordinary innovation and entrepreneurship has not been lost on other industries and the rest of the world.”
Silicon Valley companies’ attitude has been reflected in the rapid advancements in information and communication technology and big data capabilities over the past decade, which have led to the creation of technology giants such as Apple, Facebook and Google. Today, out of the world’s top five most valuable companies, three are located in Silicon Valley, according to the latest FT Global 500 rankings. Others, such as electric-car maker Tesla Motors, have chosen to operate out of Silicon Valley to focus on, for example, revolutionising the automotive industry.
Many of the information and communication technologies originally invented in Silicon Valley have found their way into sectors such as healthcare, where new ‘smart’ and mobile solutions are being integrated into hospitals and clinics, providing patients with unprecedented levels of access to medical records and health information, supporting illness management through remote and mobile healthcare, and minimising risk through real-time data sharing.
In the aerospace industry, the collection of large amounts of data from aircraft in real-time allows for analysing and establishing trends that help reduce plane downtimes and optimise maintenance.
In the oil sector, meanwhile, the application of new information and communication technologies has enabled the end-to-end connection of oil fields and allowed companies to harvest and analyse ever-larger amounts of data generated by people and assets along the industry’s value chain in real-time. Digital Oil Field (DOF) technology is being used to optimise reservoirs and production, as well as drilling and well completion among other processes. Across the board, advanced technologies and analytics tools speed up and allow for more accurate analysis and decision making, while also improving efficiencies and safety.
All these developments are part of a larger trend, which has seen digital technologies become essential to competitiveness in even the most traditional industrial segments. As companies are investing in digital capabilities, mobile solutions and analytics, transformative – often disruptive – technologies are emerging and fundamentally changing the way companies and individuals operate.
With digital technologies ubiquitous in today’s oil industry and interconnectivity growing, there is also an increased recognition that sectors such as energy, medical, aerospace and automotive actually have a great deal in common.
In the medical space, for example, cardiovascular disciplines share the same fundamental objective of flow assurance as the oil and gas industries. Among the successful outcomes of collaboration between the two industries has been the visualisation of well flow through a gravel pack, resulting from a 3D model generated by an MRI machine of Houston’s Methodist DeBakey Heart and Vascular Center.
Meanwhile, Nasa is operating in frontier regions, as is the oil and gas industry, which means both have a common interest in optimising the performance of robots in hostile environments.
In Brazil, aerospace group Embraer and energy giant Petrobras have teamed up to utilise their joint expertise in areas such as reliability and safety of critical systems. Additive manufacturing too is crossing over into oil and gas, with companies such as GE Oil and Gas and Halliburton using the technology to print fuel nozzles and parts for drilling among others.
From automation to robotics, innovative technologies will without a doubt drive further change in the industry in coming years. According to LR Energy’s Technology Radar report, 51% of all survey respondents expressed the view that automation will have the greatest impact on the sector by 2020, while 48% see subsea robotics, autonomous underwater vehicles, and other ultra-deep-water equipment as high-impact technologies that will go mainstream in the long term, after 2025.
With pressure to innovate increasing if the oil industry is to meet and overcome future targets and challenges, it will have to foster both fundamental and ‘blue-sky’ research to identify and develop cutting-edge technologies, and to pursue new types of collaborations with other industries to generate ‘out-of-the-box’ ideas and identify crossover technologies that offer potential solutions and improvements.
This in turn will require breaking up existing, rigid corporate structures; supporting more risk-taking and entrepreneurial spirit; and providing venture capital-type funding and mentorship for start-ups.
At the same time, the industry will have to improve its often poor public image, which has long been viewed as an obstacle to attracting more of the brightest talent to the industry. This is of particular importance given that attracting talent from all types of backgrounds to the industry, including from geology, mathematics, IT and analytics, will remain critical in the years to come. These are the people who will drive innovation in future technologies.
Experts at the roundtable remained largely positive that the industry isn’t necessarily constrained by a lack of talent. What’s required, they argued, is to harness existing talent and provide it with space to innovate by establishing the right environment and type of platforms to collaborate between each other and with other industries, which in turn would also drive greater crossover technologies. Without greater commitment to developing more of a Silicon Valley mentality, however, this may prove difficult.
In short, the oil industry needs to create an eco-system that integrates 21st century Silicon Valley-type dynamics into a sector that operates very much along the 20th century mindset, structures and processes. Failure to do so could hamper the industry’s progress in the coming years and decades, limit its technological capabilities, and pave the way for non-traditional competitors to grab market share.
Those competitors may increasingly come from Silicon Valley or other non-traditional oil hubs. With big data sitting at the core of most industries going forward and Silicon Valley companies equipped with the infrastructure, capacity and expertise to handle ever-larger data volumes, they are well positioned to make a foray into sectors such as energy, and potentially play a disruptive role.
In a first sign of what the future may hold, earlier this year Google spent $3.2 billion on Nest Labs, the maker of digital thermostats and smoke detectors, giving it for the first time a foothold in the automation sector, where it will use its big data and analytics capabilities to compete with long-established players operating in the natural gas and refining industries.
There are, however, first signs that the industry’s eco-system is beginning to change – at least in the US. Spurred by the breakthrough in drilling technology that has led to the shale boom, a new generation of young entrepreneurs is entering the sector, bringing with them different mindsets and practices, launching start-up companies, and raising funds through deals that more resemble Silicon Valley than Texas.
Dallas-based unconventional oil-focused exploration and production company PetroCore, for example, earlier this year raised $100 million – having been set up only months earlier by 27-year old entrepreneur Mark Hiduke along with three partners. Dozens of other start-ups have emerged in the sector as they seek to push the boundaries of unconventional hydrocarbons. This may just be the beginning of the kind of mentality change that many believe the 21st century oil industry needs.
Published: 21st Jul 2015 in Health and Safety Middle East