I had an interesting time recently, at a Technology Day hosted by one of my clients in the oil and gas industry. ICT was the host of the event, with the different lines of businesses (upstream, downstream, retail, etc.) and a few government ministers attending it. Being one of the IT speakers, I felt it was crucial that the role of IT is made apparent in this oil-glut climate. So, I put together a content that gives some technology adoption directions for oil and gas companies in South East Asia. Hopefully.
Here are some findings from oil and gas industry pundits, as well as my take on navigating IT adoption in this oil and gas climate.
Disruption’s here to stay. Shale disrupted the global oil and gas industry big time. In 2011/12, there were approximately 1000+ wells in North America, producing 6.4m bbls/day, at a cost of USD 100-ish per boe. OPEC planned for shale producers fall-out by causing an oil glut. They succeeded in some sense – the number of shale wells have actually dropped. But the cost of producing a barrel of shale oil has dropped as well, by around 40% due to efficiency breakthroughs. And the productivity of shale oils have increased. See summarized figures below. So why is this a prolonged disruption? Well, in a simplistic manner, whenever the price of oil increases, more shale producers will get back on the bandwagon. Shale is here to stay.
South East Asia and Asia. So, how have nations reacted to the global oil glut? Well, net oil importers like South Korea, India, Philippines and Thailand have generally enjoyed some form of lower rates, lower cost of business and improved government finances. Some nations have taken the opportunity to revise national fuel subsidies. On the other hand, as expected, net oil exporters like Malaysia and Brunei are now faced with drastically reduced oil income. Oil income contribute as high as 30% of the national gross domestic product. As a result, national budgets are revised, exchange rates are weakened.
NOCs and IOCs. Without a doubt, all energy companies are affected by weak oil price. Companies have lost up to 40-50% of their annual oil revenues. Oil companies are taking actions that likely fall into 3 broad categories – Severe cost cutting to stem the spend on pricey exploration projects; invest in marginal efficiency projects that were ignored when the price of oil was high; and investing in future readiness eg. in less volatile products, in products that will have a growing demand like cleaner energy options.
IT Role and Relevance. IT will need to have similar alignment with the business as well. That means :
- Taking risks to drive severe cost cutting. This is where a detailed, multi-faceted understanding of the risks of change and risks of project failure is critically needed. Will there be unnecessary disruptions? Will the migration to the architecture be too lengthy to be of any productive use to the business?
- At the same time, IT must have greater visibility into assets to drive reclamation, standardization and finally resource automation. This drives efficiency behaviors. It is therefore crucial for IT to be ran as a service, and for IT resources to be consumed as a service.
- Finding a sweet-spot for investments to drive digital initiatives for future-readiness (IDC predicts that by 2016, 70% of oil and gas companies will invest in programs to evolve their IT into a 3rd platform environment). In my previous post, I shared some strategies in navigating the bi-modal IT landscape. Check it out here http://wp.me/p6zlyQ-2s.
- IDC predicts that 50% of oil and gas companies will have advanced analytics by 2016 to support predictive analytics and optimization. Analytics is arguably the core capability in the digital universe. But it’s not easy to derive a convincing use case in this industry. There is a huge gap between knowing the business, and knowing where to apply predictive analytics. This often results in lines of business investing heavily into engineering-centric analytics platforms, or IT not being able to build a convincing case. So, it is key to begin building in-house data science capabilities and get a launchpad through data science workshops with companies that specialize in this.
- A study by PWC shows that the top 3 fastest growing sources of cyber security incidents are foreign nation states, current employees and activists / hacktivists. In that study, it was mentioned that the number of incidents detected by oil and gas companies declined by 16% in 2014. It pointed to two obvious reasons – either companies have been effective in deploying analytics-based security technologies, or security teams are missing the attacks in the security whitespaces like network packets and mobile end points.
Here is a summary of possible focus areas for IT in oil and gas companies. As usual, I welcome your comments and your thoughts!
References : https://www.asiapacific.ca/blog/many-implications-cheap-oil-southeast-asia | http://nationalinterest.org/feature/southeast-asia-cheap-oil-double-edged-sword-12268 | http://www.bbc.com/news/business-31444344 | http://oilprice.com/Energy/Oil-Prices/How-The-Majors-Are-Playing-The-Oil-Price-Slump.html | http://www.pwc.com/gx/en/consulting-services/information-security-survey/industry/oil-gas.jhtml | https://www.idc.com/getdoc.jsp?containerId=prUS25343214