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The upstream oil and gas sector is under increasing pressure to
reduce costs and increase efficiencies so it can remain competitive
in an evolving energy landscape. This statement might read like
déjà vu from the most recent 2014-15 downturn when the industry
faced a similar set of challenges. But this time is different.
Capital constraints are more firmly in place, there are fewer
dollars to wring from an already stressed supply chain, and
scrutiny is rising on greenhouse gas (GHG) emissions from core oil
and gas operations. Effectively managing these multiple demands,
while respecting emerging operational and fiscal constraints,
requires fundamentally new approaches to developing and operating
oil and gas assets. IHS Markit sees technology and broader forms of
innovation at the heart of these efforts.
Oil companies delivered during the last downturn. Between 2014
and 2016, the industry collectively reduced unit costs in such key
resource classes as unconventionals and deepwater by an impressive
35% to 40%. A closer examination of these results, however, reveals
that they may be difficult to replicate today. IHS Markit analysis
indicates that roughly two-thirds of those cost reductions were
achieved through supplier price concessions, with some key cost
segments (e.g., offshore rigs and installation vessels, equipment,
and steel) seeing 20% to 30% drops. (The other third was realized
through such things as standardization and simplification of well
and facility designs.) It will be difficult to mine this vein once
again though, as additional IHS Markit analysis suggests that key
supplier segments can only bear additional price cuts in the low-
to mid-single digits under today's market conditions.
If new approaches for developing and operating hydrocarbon
assets hold the greatest promise for driving future cost and
efficiency gains, where should the industry focus first? A growing
number of project delays coupled with a significant reduction in
drilling activity points the needle squarely at operating
expenditure (OPEX) reductions that can directly and materially
impact the cash flows needed to fund the business. Refining the
potential opportunity scope even further, the need for near-term
results, an ability to scale solutions rapidly across an
organization, and limits on additional capital investments are
well-aligned with what digitalization and automation technologies
can offer. That makes these technologies good candidates for
initial deployments. With these guidelines in place, IHS Markit
lays out a set of initiatives that companies might pursue to
deliver results:
Remote operations: By leveraging advances in
sensor technologies, communication and control networks, and IT
infrastructure, oil companies can shift onsite work to remote
support (see Figure 1). This shift goes beyond basic surveillance
tasks that have been underway for years and toward more complex
activities such as complete asset control, true visit-by-exception,
facility inspection, and remote maintenance support.
Equipment performance and reliability: Taking
advantage of greater access to real-time asset performance data and
the development of advanced analytical tools, technical staff can
better spot suboptimally performing equipment or impending
failures, and then take early corrective actions. Not only do such
activities increase asset productivity and uptime, they also reduce
maintenance expenses and the use of consumables (such as fuel and
glycol).
Supply chain and logistics optimization:
Periods of low commodity prices often expose inefficiencies in how
companies manage their logistics and transportation networks.
Through integrated planning, improved vehicle utilization, and
route and speed optimization, oil companies have demonstrated 10%
to 30% reductions in overall transportation costs.
Energy efficiency: Power and fuel consumption
are a significant cost component of many resource classes,
especially maturing assets and offshore oil and gas. By proactively
monitoring critical equipment and overall production systems to
ensure optimal energy use - and taking steps when they fall outside
such windows (without negatively impacting production) - even
industry-leading companies have been able to reduce consumption by
5% to 15%.
IHS Markit investigates industry-leading deployments of such
technology-related initiatives to identify the technical and
organizational factors enabling their success, along with the
performance improvements that oil companies are achieving through
their efforts. Taking the midpoint of such performance uplifts and
then applying them to the major operating cost components of key
asset classes offers a realistic view of the near- and medium-term
unit cost reduction potential. We estimate that oil companies could
realize reductions of 20% and 18% in tight oil and deepwater oil,
respectively (see Figure 2).
As mentioned earlier, stakeholder pressure is intensifying on
oil companies to reduce the GHG emissions associated with their
operations. But won't efforts to shrink the carbon footprints of
oil and gas assets necessarily increase the expenses associated
with developing and operating them? IHS Markit views reducing costs
or reducing emissions as a false choice. Instead, we see a strong
correlation between the most efficient operators and those doing
the most to lower the carbon intensity of their assets. As
evidence, most of the digitalization- and automation-related
initiatives outlined above offer benefits in both areas. Here's
how:
Supply chain and logistics optimization coupled with remote
operations minimize both the number of trips taken and the number
of miles traveled to perform necessary work. The 20% to 40%
efficiency improvement potential documented by IHS Markit would be
accompanied by a similar reduction in vehicular emissions, with
electrification of the fleet decreasing it even further.
The carbon-reducing benefits of energy efficiency are
self-evident, with a direct correlation between the number of BTUs
consumed and carbon volumes emitted. A 5% to 15% improvement in
energy
efficiency would thus lead to an equivalent reduction in CO2
emissions.
The same technologies used to identify and predict equipment
failures can also be applied to monitor and mitigate unintended
methane releases. Fixed sensors along with mobile ones installed on
drones, airplanes, and satellites can alert operations staff to
existing or impending methane releases and then link to maintenance
management systems that automatically initiate repair
activities.
As every oil and gas asset has its own carbon emissions profile,
so too will each have a unique set of initiatives that offer the
greatest impact on lowering that profile. IHS Markit analysis
indicates that for most assets, however, some combination of the
above can reduce total GHG emissions on the order of 20% to
30%.
It is probably not too strong a statement to say that the oil
and gas industry is at a critical juncture. With modest commodity
prices projected for years to come and mounting climate-change
concerns, industry players must find ways to lower their cost
structures even further while substantially reducing the carbon
footprints of their assets. A portfolio of digitalization- and
broader technology-related solutions is increasingly available to
get companies at least partway there.
The oil and gas sector is under increasing pressure to
reduce costs, raise performanceand lower GHG
emissions associated with its operations to remain competitive in
anevolving energy landscape. Technology and
broader forms of innovation are centralto these
efforts and IHS Markit experts study the practical application and
strategicimplications of such solutions to deliver
on the industry's aspirations.Find out more:
ihsmarkit.com/upstream-technology-and-innovation
Posted 23 February 2021 by Carolyn Seto, Director, Upstream Research, IHS Markit and
