Innovation that will transform the energy future — Part 1

How digitalisation enables oil and gas operators to transition to a new energy ecosystem.

In 2016 the World Energy Council captured the energy transition challenge when it coined its “energy trilemma”, which involves balancing three seemingly conflicting, yet intertwined objectives:

• Energy security — ensuring the reliability of energy supply to meet current and future demand.
• Energy equity — ensuring the world has access to energy at an affordable cost.
• Environmental sustainability — ensuring that global warming calls for improved energy efficiency and the development of renewable low-greenhouse energy sources are met.
   

The realisation that fossil fuels are a limited resource, however long supplies might last, and the growing awareness of the negative impact that their emissions have on the planet, has impacted every oil and gas major.

These companies have now issued their own ‘energy transition’ strategies that outline plans to migrate their core business to new energy sources between now and 2040.

There is a realisation among the majors that their dependency on oil or gas as their main source of revenue needs to evolve. Nearly 70% of respondents to a Wood Mackenzie survey¹ said investing in renewables to reduce carbon footprints was a more progressive pathway towards transforming the energy ecosystem.

Over the past year, European-based oil majors that include BP plc, Royal Dutch Shell plc, Equinor ASA (formerly Statoil ASA) and Total SA have emerged as leaders in alternative energies investments, a strategy highlighted as a priority by 15% of the survey’s respondents.

In fact, BP’s annual review of world energy published in June 2018 revealed 17% of the world’s energy growth in 2017 came from renewable sources, the largest increase on record. New renewable energy installations were equivalent to the energy output of 69 million tonnes of oil — the annual energy consumption of Sweden and Denmark.

What the oil majors also agree on is that there is no single mix of energy sources that would be ideal worldwide. The energy transition is specific to each country or continent, with some advocating emission-free facilities, others opting to grow markets for hydrocarbons, while the rest aim to get people out of energy poverty.

Energy transition is a slow process, but the enabler is most definitely today’s technology and future breakthroughs supported by radical changes in energy use by consumers.

As the world demands more energy, it also demands that it be produced and delivered in new ways, with fewer emissions. Digital technologies are going to play a key role in this.

Changing landscape

For many years the oil and gas industry has confronted many diverse challenges, whether that be between onshore and offshore, different geographies or national versus international oil companies. As the industry looks towards transitioning to a different energy mix, adding to these challenges will be local versus global energy policies, the reliance on oil and gas for national budgets and employment, the skills shortage and the uncertainty over oil and gas prices and demand.

It is forecast that the shift to renewables, along with the emergence of electric vehicles, could lead to profits of US$65–70 billion² migrating from oil and gas companies to the broader energy ecosystem. Upstream players stand to be most at risk, with approximately US$60 billion² of their profits potentially migrating to this broader ecosystem.

However, this shift is expected to benefit the environment, with a potential reduction of 900 million tonnes of CO₂ emissions².

Another positive is that an estimated 35,000 jobs² will be created, as generation from renewables tends to be more people-intensive than that from fossil fuels.

There are many trends accelerating the introduction of new energy sources and delivery platforms into the global energy system. Four stand-out developments can potentially transform the global energy landscape:

Global population growth brings new expectations and requirements

By 2025³, the population born early 1980s to early 2000s — commonly known as millennials — are expected to make up 75% of the global workforce. They bring with them their own expectations about technology, collaboration with colleagues, the pace of work and accountability.

As energy consumers, this generation have different preferences for energy sources and embrace the idea of energy from solar, wind and tidal. They are focused on global issues such as climate change and air pollution. They are prepared and willing to make bold changes, such as switching to eco-friendly energy providers or brands to help tackle these challenges.

These developments are already affecting demand for oil and natural gas.

However, it is not all about the millennial. Equally important, is the very different progress of developing countries. Africa, for instance, is the fastest growing continent with more than half of global population growth expected between now and 2050. It is highly likely that these countries will bypass, altogether, any involvement building a hydrocarbon-based energy infrastructure, turning instead to the power of renewables.

Electric vehicles

Road transport, aviation and shipping account for more than 60% of the world’s oil consumption and approximately the same proportion of emissions. Introducing a sustainable transport solution is seen as an important part of the strategy to limit the impact on the climate.

At the 2015 United Nations Climate Change Conference in Paris, the United Nations Environment Programme set a target for at least 20% of road transport vehicles to be driven electrically by 2030.

This would require an increase in the number of electric vehicles (including hybrids) on the road from the 1.5 million electric cars registered worldwide in 2017 to 100 million in 2030, which could result in a reduction in demand for oil by 1.5 million barrels per day⁴.

While e-mobility and e-transportation will have a dramatic negative impact on the demand for oil, in the short to medium term global gas and coal demand could increase if the transition happens faster than the change to renewables.

To meet increasing demand, the big automobile manufacturers are investing billions in the conversion of their product ranges and production facilities. Analysts predict that by 2040 more electric cars will be produced worldwide than petrol or diesel vehicles. Volvo has announced that as of 2020 all vehicles rolling off its production lines will be electrified.

Cost of power generation

Beyond the charging infrastructure, e-mobility requires a transformation of the energy system, both to ensure that the grid can cope with the increased demand for power and to expand the contribution of renewables. Otherwise the world will simply be using fossil energy to power our new electric vehicles.

According to Bloomberg New Energy Finance⁵, US$7.4 trillion will be invested in renewable energy projects by 2040. This makes up 72% of the US$10.2 trillion that will go towards new power generation worldwide.

Utilities are successfully lowering the cost of generating power from renewables.

• Cost of solar panels has fallen by 26% each time global solar-panel capacity has doubled.
• Solar capacity has increased sevenfold over the past 15 years.
• Investment in renewables is expected to reach US$7.4 trillion by 2040.
• US$2.1 trillion is the predicted spending on fossil-fuel projects to 2040.
• Over the next decade, the average levelised cost of electricity generated from solar and onshore wind energy is expected to come down by 59% and 35% respectively⁶.

Distributed generation

Energy supply has shifted from large-scale, one-way and centrally driven supply (from energy producers’ large power plants to consumers) towards generation closer to the point of consumption and bidirectional in nature (consumers selling excess energy back to the grid), such as rooftop solar and self-generation by industrial consumers.

These renewables need to be integrated into grids that are able to manage new complexities such as intermittent supply, more distributed power generation, demand management and electric vehicles. The transformation necessarily involves the application of advanced digital technologies.

Technologies that enable effective energy transition

Headwinds over the past several years have taught oil and gas companies to maintain strict cost disciplines and be more efficient than ever. Organisations and budgets were cut, and investments were limited.

Yet, at the same time demand for energy continued to grow. And now as the oil and gas companies expand their portfolios towards future energy markets, like renewables, there is a realisation that the need for efficient operations and maximised production uptime is more prevalent than ever.

As oil prices begin to rise, producers are firmly adopting digital technologies to impact planning, building and operations of assets while maintaining their capital discipline. Producers have already made great strides in technologies and applications in which plants with volatile processes or remote locations can be operated with low or no local human involvement. This trend will progress for more than just safety or cost reasons, but also for the productivity benefits.

It is these same technologies that will provide the transformational step change to enable oil and gas companies to move into the broader energy ecosystem.

However, the real game changer — or disruption — lies in integrating these technologies in a way that drives the evolution from connected operations, to collaborative operations and ultimately autonomous operations to achieve maximum value.

Visualisation, analytics and machine learning

These technologies are moving companies to an era where critical assets equipped with smart sensors now tell people what is wrong, long before failures even occur. Providing operators with quick access to hundreds of years of data and analytics, rather than relying on the experience of individual employees, increases efficiencies, reduces downtime and avoids costly shutdowns.

Cloud-based technology

This technology creates an ecosystem connecting the workforce in a way that enables it to collaborate anywhere — and in real time. For example, moving SCADA to the cloud allows managers and operators to have complete information for their facilities while on the go.

Connected operations

The future will bring more enterprise-wide use of remote-enabled condition monitoring technologies, predictive and descriptive data analytics, and advanced process control applications so that operational effectiveness of plants can be understood in near-real time. This provides the right blend of technology, expertise and information. Providing the correct information when it is most needed means the best decisions can be taken. By continuously collecting and analysing data, and through special algorithms, early warnings can be in place to reduce any risk to a process or plant.

Artificial intelligence

New digital technologies and the rise of artificial intelligence (AI) are enabling totally new designs and concepts.

Industrial Internet of Things (IIoT)

Connecting field assets and equipment using sensors enhances monitoring and diagnostics. The IIoT helps build real-time insights on the operation of assets and whole processes, thereby helping to optimise utilisation and maintenance planning.

However, digital success, and ultimately the profitability of a business, hinges not on individual technologies but the integration of the IIoT. Key to this are collaborative operation centres and control rooms which pull the data from these sensors and devices together.

Digital twin applications

A good digital infrastructure is almost impossible to implement without a digital model of the plant. A digital twin is a complete and operational virtual representation of an asset, subsystem or system, combining digital aspects of how the equipment is built (PLM data, design models, manufacturing data) with real-time aspects of how it is operated and maintained. The capability to refer to data stored in different places from one common digital twin directory enables simulation, diagnostics, prediction and other advanced use cases.

Collaborative operations

This approach transforms how every member of the supply chain works together during operation. Collaborative operation enables remote operations and fleet wide management. It uses digital technologies to monitor and analyse assets and processes. Collaborative operation centres help to maximise productivity and ensure safety always. They achieve this through decision supporting tools and the 24/7 remote availability of process and data engineers located in collaborative operations centres globally. These centres pave the way for the application of further technology advancements such as AI.

Intelligent project execution

Digital technologies are successfully streamlining project execution and integrating traditionally separate systems in the planning and build phase. Studies show that 64% of oil and gas projects experience cost overruns and 73% of them have scheduling delays. Streamlining project execution uses smart engineering technology to combine people, processes, tools and standards. This not only results in 25% quicker schedule completion but can also reduce change orders by 50% and decrease costs up to 30%.

Taken together, intelligent projects and collaborative operations are perfectly complementary, spanning the full life cycle of an asset with cost savings alone exceeding 35% if applied consistently.

Part 2

This article will conclude next month, discussing the hurdles to be overcome and the business changes needed.

References

1. Wood Mackenzie 2018, ‘State of the Upstream Industry’ survey.
2. World Economic Forum 2017, Digital Transformation Initiative, Oil and Gas Industry.
3. EY 2015, Global generations: A global study on work-life challenges across generations.
4. World Economic Forum 2017, Digital Transformation Initiative, Oil and Gas Industry.
5. Randall, T 2016, The World Nears Peak Fossil Fuels for Electricity, Bloomberg, 13 June 2016, <<https://www.bloomberg. com/news/articles/2016-06-13/we-ve-almost-reached-peak-fossil-fuels-for-electricity>>.
6. International Renewable Energy Agency (IRENA) 2016, The Power to Change: Solar and Wind Cost Reduction Potential to 2025, <<http://www.irena.org/-/media/Files/IRENA/Agency/Publication/2016/IRENA_Power_to_Change_2016.pdf>>.

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