Global oil and gas sector is operating in an environment of unparalleled opportunity coupled with dynamism and volatility. In today’s world companies are looking for ways to create a sustainable cost-efficient model of operation. This model should be targeted to meet the challenges of the oil and gas industry, which includes margin pressure, cost competition, supply-chain issues, manpower shortage, global competition, technological advancements, and asset reliability. The good news here is, there is a solution within our reach that has immense untapped potential. Let us understand how Information technology can be leveraged in the oil and gas industry for greater benefit and sustainability.

What Is trending in Information Technology?

There are numerous technological advancements that are governing the oil and gas industry and are referred to as the drivers of the sector, these include:

Big data management - The use of automation and information technology resulting in the creation of volumes of data. This is then categorized and analyzed to create insightful information that helps in better decision-making.

Cloud computing - Cloud computing enables the oil companies to store and access a large volume of data. It allows seamless data management and computing across the organization.

IoT and SCADA (Supervisory Control and Data Acquisition) architecture - Industrial Internet of Things and SCADA help the operational process of oil and gas industry by merging it with information technology. The IT interface provides broad operational insights that help in optimizing the operational process. It can also enhance the cost efficiency and productivity.

Digital Oil-field- The sensors in pumps and well-heads create numerous data, both internally and externally. With the advent of information technology, this data is monitored and analyzed to create a digitally integrated oil value chain.

 However, it is important that the oil and gas sector should adopt new IT practices to make them future-ready. The focus should not be just on data analysis via sensors but rather it should start addressing the entire E&P value chain and foray into complete automation. Until now the data collected and analyzed has been used to detect anomalies but now the time is right to optimize the resources and predict the future course.

 How and where can IT be used in the oil and gas industry?

The important IT concepts like Big Data and analytics, IoT and SCADA can be used effectively in various areas of oil and gas industry, here are some of the applications:

Preventive maintenance of critical components

The real-time operational data derived from various critical components can help in setting a benchmark of quality parameters. The IT system will detect any deviation from the expected baseline and will alert the operational division to take prompt action. This system can be centralized such that the information available is real-time and accurate to plan preventive maintenance on time. This will help in reducing the maintenance cost and will avoid any hindrance in productivity.

 Drilling strategies

By analyzing the historical data and real-time data from the well site, the drilling managers can discover the best performing wells. The current site location and its characteristics will be matched to the existing well site information to diagnose the right location for drilling, the rate of penetration and the expected issues that the team might encounter. This will help in better planning and execution.

Reservoir limits.

With the integration of digital application, the oil companies have significantly increased the limit of the reservoir. Which resulted in a decrease in upstream and downstream capital expenditure along with additional ancillary benefits.  Some oil and gas companies are using 4-D seismic imaging to add a time-lapse dimension to traditional 3-D imaging which enables them to measure and forecast fluid changes in reservoirs. This enhanced view of reservoirs typically increases the recovery rate by boosting upstream revenue.

 Intuitive marketing and distribution

Retailers and marketers in other industries have successfully implemented digital technologies to understand consumer psychology for better positioning and marketing of their products and services. They also use this data to optimize pricing strategies, supply chain management, and product improvement. Oil companies have successfully replicated the result in the industry. With the help of geospatial analytics, the logistics department of the oil and gas company can efficiently manage the supply and distribution networks through location planning and route optimization.

 Informed decision making

The availability of a large amount of detailed real-time data categorized into various formats can help the management and stakeholders to understand the performance and problems with each segment. It enables them to make informed decisions to maximize productivity and performance.

 Recruitment and talent management 

Technology has completely transformed the talent acquisition, management, and retention process. The oil companies can use digital platforms like NrgEdge.com to advertise their job openings and reach out to potential candidates. They can conduct screening tests, background checks, telephonic or video interviews for hiring suitable candidates. Additionally, they can also manage and monitor the performance of the employees via dedicated platforms. Even the on-job training can be conducted to upskill the existing employees through audio/video interface and via augmented or virtual reality like simulators. Oil and gas companies require highly skilled professionals, Information technology allows them to fix the skill, talent and knowledge gap efficiently.

It’s time for the oil and gas companies to reinvent themselves by investing in digital technologies. With the right application of big data and analytics, the oil and gas industry can be immensely benefitted. It can help optimize performance, predict breakdowns, streamline maintenance work, and help in better and informed decision making. This will result in higher productivity, enhanced operational activity, reduction in downtime and wastage which means higher profitability and sustainability.

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Market Watch

Headline crude prices for the week beginning 15 October 2018 – Brent: US$81/b; WTI: US$71/b

• After settling lower on promises of increased supply, the crude oil markets were rocked this week as it became clearer and clearer that the Saudi Arabian state was involved in the disappearance and alleged assassination of prominent Saudi critic Jamal Khashoggi in Istanbul
• Internal condemnation has been loud, but US President Donald Trump has ruled out trade sanctions and cancelling of defense contracts with Saudi Arabia; the Kingdom issued veiled threats to use its vast oil reserves as a political weapon if punitive measures are taken against it – the first time it has made such a threat since the 1973 Arab oil war.
• Grapevine chatter suggests that Saudi Arabia is preparing to admit its involvement of Khashoggi’s disappearance as the result of an ‘investigation gone wrong’, and has activated its diplomatic network to push back against criticism
• This comes at a fragile time, with Saudi Arabia required to play a key role in balancing the market ahead of the new American sanctions on Iran and the upcoming OPEC meeting on December 3
• Meanwhile, global oil demand and supply have risen to new records according to the International Energy Agency, with global supply rising to 100.3 mmb/d and demand very close to the 100 mmb/d level, implying a very narrow level of spare supply in the market
• Fears of the removal of Iranian crude from the market continue to haunt prices, but Saudi Arabia did state that the Kingdom was ready to absorb the shock and supply additional to India to counter their loss of Iranian volumes
• The level of crude prices is expected to persist at their current levels for a while, with BP now looking to sanction projects that would require crude oil prices at the US$60-65/b level, up from US$50-55/b last year
• While China hasn't imposed sanctions on US crude imports yet, Chinese importers have largely halted all imports of American crude since August, moving to using West Africa and also tapping into cheap Canadian oil sands crude, which is currently selling for under US$50/b
• With the American EIA reporting an unexpected decline in US crude inventories, crude prices also got a boost from that early this week
• After weeks of caution, American drills boosted active rig numbers last week, adding 8 new oil rigs and 4 new gas rigs for a net gain of 11 sites, with all new rigs being onshore ones; this comes as signs are showing that mature wells in the Permian are showing high decline rates
• Crude price outlook: The Saudi scandal over Jamal Khashoggi is concerning, but there is resistance to taking too harsh an action on the fear that it could lead to a deliberate supply shock. As the market settles, we think Brent and WTI will trend downwards to the US$79-80/b and US$69-70/b this week

Headlines of the week

Upstream

• BP, Eni and Libya’s National Oil Corporation have agreed to work towards resuming exploration activities on the EPSA production contract in Libya, covering the onshore Ghadames basin and the offshore Sirt basin, with Eni acquiring 42.5% interest in the contract
• Chevron is fully exiting the Norwegian portion of the North Sea Basin, transferring its 20% stake in the PL859 licence in the Barents Sea to DNO ASA, part of the plan to completely exit the area in search of higher returns elsewhere
• While others are exiting the North Sea, others are still keen; RockRose Energy has sanctioned FID on the Arran field, expecting to produce 100 mscf/d and 4,000 b/d of condensate at peak production
• Murphy Oil and Petrobras’ American subsidiary have agreed to enter into a joint venture merging their Gulf of Mexico, with Murphy holding 80% and Petrobras the remaining 20% of a JV covering the St. Malo field and other assets
• ConocoPhillips has achieved first oil at the Greater Mooses Tooth#1 site on the Alaskan North Slope, with peak output expected to be 25-30,000 b/d

Downstream

• Hammered by the recent rise in crude prices, India is taking a commercial model for its strategic petroleum reserves, inviting global oil producers and traders to invest US$1.5 billion in storing some 6.5 million tons of crude at two sites
• Saudi Aramco and Total have signed a new joint development agreement for engineering and design of the giant 1.5 mtpa petrochemicals plant in Jubail, located next to the SATORP refinery and now scheduled for start-up in 2024
• Fresh off signing an MoU with Italy’s Eni on developing bio-refineries, Indonesia is mulling plans to convert two of its aging refineries – Plaju and Dumai – into biofuels plants producing 100% biodiesel from palm oil
• The new 200 kb/d SOCAR Star refinery in Turkey – the first in the country in 30 years – will be starting up this month, boosting Turkish capacity by 30%
• Total has opened up a new state-of-the-art 40,000 tpa lubricants blending plant in Russia’s Kaluga region, aimed at localising production to feed Russia’s growing hunger for top quality lubricants

Natural Gas/LNG

• The first cargo at Inpex’s Ichthys LNG export project in Australia is ready for loading this week, finally bringing to a fruition a much-delayed project
• Qatar Petroleum has signed a new mid-term supply agreement with China’s Oriental Energy, providing 600,000 tpa of LNG over a five year period
• Egypt’s plan to import natural gas from Israel is accelerating, with partners now evaluating the condition of the East Mediterranean Gas pipeline, expecting the first gas to flow in March 2019 at 100 mscf/d
• Shell is reportedly dropping plans to purchase a stake in Kazakhstan’s KazMunayGas National Co, after the results of a due diligence study into the role of the Kazakh state in the natural gas firm
• ExxonMobil has signed a long-term, 20-year deal to supply Zhejiang Provincial Energy Group with LNG, as the Chinese power utility player expands on its role in energy after agreeing to a joint venture with Glencore this year
• Novatek has made a massive 11 tcf gas discovery in the Ob Bay area of the North Obsk licence area, expected to feed into a future Arctic LNG project

Less than two weeks ago, the VLCC Navarin arrived at Tanjung Pengerang, at the southern end of Peninsular Malaysia. It was carrying two million barrels of crude oil, split equally between Saudi Arab Medium and Iraqi Basra Light grades.

Its destination? 

The RAPID refinery in Johor. An equal joint partnership between Malaysia’s Petronas and Saudi Aramco whose 300 kb/d mega refinery is nearing completion. Once questioned for its economic viability, RAPID is now scheduled to start up in early 2019, entering a market that is still booming and in demand of the higher quality, Euro IV and Euro V level fuels RAPID will produce.

Beyond fuel products, RAPID will also have massive petrochemical capacity. Meant to come on online at a later date, RAPID will have a collective capacity of some 7.7 million tons per annum of differentiated and specialty chemicals, including 3 mtpa of propylene. To be completed in stages, Petronas nonetheless projects that it will add some 3.3 million tons of petrochemicals to the Asia market by the end of next year. That’s blockbuster numbers, and it will elevate Petronas’ stature in downstream, bringing more international appeal to a refining network previously focused mainly on Malaysia. For its partner Saudi Aramco, RAPID is part of a multi-pronged strategy of investing mega refineries in key parts of the world, to diversify its business and ensure demand for its crude flows as it edges towards an IPO.

RAPID won’t be alone. Vietnam’s second refinery – the 200 kb/d Nghi Son – has finally started up this year after multiple delays. And in the same timeframe as RAPID, the Zhejiang refinery by Rongsheng Petro Chemical and the Dalian refinery by Hengli Petrochemical in China are both due to start up. At 400 kb/d each, that could add 1.1 mmb/d of new refining capacity in Asia within 1H19. And there’s more coming. Hengli’s Pulau Muara Besar project in Brunei is also aiming for a 2019 start, potentially adding another 175 kb/d of capacity. And just like RAPID, each of these new or recent projects has substantial petrochemical capacity planned.

That’s okay for now, since demand remains strong. But the danger is that this could all unravel. With American sanctions on Iran due to kick in November, even existing refineries are fleeing from contributing to Tehran in favour of other crude grades. The new refineries will be entering a tight market that could become even tighter. RAPID can rely on Saudi Arabia and Nghi Son can depend on Kuwait, both the Chinese projects are having to scramble to find alternate supplies for their designed diet of heavy sour crude. This race to find supplies has already sent Brent prices to four-year highs, and most in the industry are already predicting that crude oil prices will rise to US$100/b by the year’s end. At prices like this, demand destruction begins and the current massive growth – fuelled by cheap oil prices – could come to an end. The market can rapidly change again, and by the end of this decade, Asia could be swirling with far more oil products that it can handle.

Upcoming and recent Asia refineries:

• Nghi Son (Vietnam): 200 kb/d crude capacity, 700,000 tpa petrochemicals
• RAPID (Malaysia): 300 kb/d crude capacity, 7.7 mtpa petrochemicals
• Zhejiang (China): 400 kb/d crude capacity, 10 mtpa petrochemicals
• Dalian (China): 400 kb/d crude capacity, 8 mtpa petrochemicals
• Pulau Muara Besar (Brunei): 175 kb/d crude capacity, 3.5 mtpa petrochemicals