Digital Transformation in Oil and Gas: Balancing Uncertainty and Net Zero goals while seeking profitability

After a solid profitable year, what is next for the future of the oil and gas industry? What are the best ways to balance Net Zero goals, pressure to be profitable and the global uncertainty?

2022 was a year of record profits for the oil and gas industry - a year in which Russia's war on Ukraine collided with the post-pandemic economic recovery to drive oil prices to their highest levels in history. While the future remains uncertain due to geopolitical and macroeconomic fluctuations, most oil and gas companies have surplus profits to invest in strategies in 2023.

This is particularly critical since the industry has been facing with the tough challenge to find the right balance between sustainability, reliability and affordability – the energy trilemma, a term referenced by the World Energy Council - while dealing with the pressure to reduce greenhouse gas (GHG) emissions and to achieving the goals of the Paris Agreement.

Oil and gas companies have been proficient at delivering the fuels that form the foundation of today’s energy system; the question they now face is whether they can help deliver the energy in a sustainable and profitable way through digital transformation[1].

Many of the large oil and gas companies have already started major investment in carbon capture and other carbon reduction strategies, but much more is still needed. Rystad Energy and Wood Mackenzie[2] both issued recent studies pointing out that the world has experienced an enormous structural shortage of investment in the finding of new oil reserves since 2014, a shortage measured in the hundreds of billions of dollars. That lack of adequate investment will almost certainly cause supply shortages soon if global demand continues to rise, as seems almost certain.

Apart from policies, regulation, geopolitical and economic factors, there three major pathways to Net Zero for the future of the oil and gas industry:

1. Focus on improving energy efficiency in their operations, such as reducing energy consumption in refineries and petrochemical plants and reducing emissions, such as methane.
2. Diversify the business by investing in renewable energy sources such as wind, solar and hydropower.
3. Investing in GHG reporting and optimization, in addition to physical carbon capture, utilization, and storage (CCUS) technologies.

Two of the three strategies rely heavily on software to improve operations efficiency while reducing emissions and carbon footprint.

In a recent study from Gartner® [1], CIOS and technology leaders indicated which areas they would be increasing and decreasing investment. The top three areas mentioned are 1) Cyber/Information Security followed by 2) Business Intelligence/ Data Analytics and 3) Cloud Platforms, which is aligned to what GE Digital has been hearing from customers (figure 1).

Here is a good moment to pause and think of your company’s strategy and the areas you plan to invest more and the ones you plan to reduce or eliminate investment. Do they support the overall strategy and growth of your organization? Which of the technologies above are most relevant to your company and why? Do you have a set budget allocated for those investment in 2023?

The same Gartner study uncovered a variety of objectives for digitalization investment. Improve Operational Excellence comes on the top of the chart followed by Increase Employee Productivity and Ensure Business Continuity and Resilience (figure 2). Defining a clear objective is critical to track and measure ROI of your digital investment.

As no surprise, more executives are measuring digital returns: from 23% in 2020 to 41% in 2022[4].

GE Digital is partnering with Oil & Gas companies across the world to find the best solutions to successfully navigate the energy transition and achieve Net Zero. The most critical path for this success is trough digitalization of operations. Software designed to focus on asset an operations performance as well as power orchestrations, plays a vital role in helping improve performance and enable more reliable, affordable, and viable energy.

GE Digital customers are already adopting digital solutions that can substantially cut fugitive emissions of CO2 and methane (CH4) – both powerful greenhouse gases. Use of Asset Performance Management (APM) software, for example, improves maintenance routines to reduce intermittent flaring and improve leak detection and repair (LDAR) to reduce methane leaks. These changes alone have the potential to curb 62% of all emissions across upstream, midstream, and downstream operations.

France-based TotalEnergies hasn’t recorded a single unanticipated failure of critical production assets since 2013, when it implemented predictive analytics technologies. The center focuses on four key areas: power generation; gas compression; water injection and crude oil export. The monitoring operation across these four areas is extensive, with 30,000 sensors monitoring 260 shaft lines and 540 pieces of equipment. Data is sampled every 10 minutes to limit the burden on data storage without impacting analysis and effectiveness.

In Argentina, state-owned oil company YPF is extending deployment of monitoring and optimization software to approximately 30,000 assets, encompassing rotating, instrumentation, and electrical equipment. The move is allowing technical knowledge transfer across numerous sites in remote areas of the South American country.

Power consumption is projected to triple by 2050 as electrification and living standards grow. Despite all the uncertainty of what tomorrow brings for the global economy there is no debate that energy demand will increase.

The entire energy industry, including power generation, chemicals, and mining will benefit from software and digitalization to deliver environmental and economic gains in a world that will continue to demand more green energy. 2023 could be the perfect year for the oil and gas industry to accelerate investment in digitalization, with the profits gained in 2022.

[1] International Energy Association, World Energy Outlook, The Oil and Gas Industry in Energy Transitions

[2] Forbes, Big Profits For Big Oil From The High Price Environment Of 2022

[3] Gartner, 2023 CIO and Technology Executive Agenda: An Oil and Gas Perspective, Simon Cushing, Rich McAvey, Published 9 December 2022

GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved.

[4] EY-Parthenon, How can your digital investment strategy reach higher returns?