Oil and Gas- from ugly duckling to black swan

The IIoT enhances the environment and Asset Performance Management

The lobby for a quick end to oil and gas exploration and utilisation in the belief that it will push back global warming, has scored an own goal. Since 2018 oil and gas (O&G) companies have offloaded $44 billion in fossil fuel assets without that having the slightest impact on oil and gas usage. The vast majority of these wells or refineries are still in production, now owned by non-listed firms that have since 2020 invested $60 billion worth of oil, gas, and coal assets.

Fossil fuel companies are here to stay for the foreseeable future: either as listed companies in the public eye or under the radar as private equity funded companies.

The latter, being far from the public eye, are likely to be less stringent in their compliance with emission targets.

This process is not limited to oil and gas: mining houses are shedding coal divisions or individual coal mines whilst utilities are disposing coal-fired power plants. Non-EU listed firms or private equity firms are often the buyers of these assets.

Vattenfall, a Swedish energy company wholly owned by the Swedish government, at the Summit on Climate Change in 2021, announced that it was “phasing out emissions”. What Anna Borg, Vattenfall’s President and CEO did not spell out, was that Vattenfall merely sold its emission producing assets to willing buyers. It didn’t prevent her from proudly stating that it boiled down to a sustainable business strategy for Vattenfall.

Offloading fossil fuel assets may help the carbon footprint of a Shell, a Total and a Vattenfall, thus lessening the criticism from a stringent environmentalist lobby. But it will not have any environmental impact

Apart from this environmental window dressing, at least three other forces are pushing O&G (as well as coal) back to the realm of energy reality:

The years of an oil and gas surplus at a depressed price are over. Decades of under-investment in both exploration and the development of new oil fields (largely due to the growing hostility to fossil fuels and increased government commitments to get rid of oil and gas) has led to a supply shock as the world emerged from the 2020/21 lockdowns. Together with the fact that the growth in global energy demand cannot be fully met by the growth in renewable energy supply, resulted in a sharp increase in the price of oil in 2021. This happened to such an extent that the higher oil price is one of the key driving factors of rising inflation.
In Europe in the outcomes of the rising oil price in 2021 caused higher energy costs and a decision by European utilities to generate more electricity from coal that gives them a better margin as well as the ability to absorb some of the higher energy cost caused by the oil price. EMBER, an independent think tank on energy, in their European Electricity Review 2022 show how coal has had a resurrection.

The Russian war in the Ukraine with its disruptions of the world-wide supply of oil and gas, strengthens the other two trends. Though many voices are calling for an abrupt European wide switch to renewables thus achieving energy independence from as well as advancing the green agenda, the reality looks different. Anatol Lieven, senior fellow of the Quincy Institute for Responsible Statecraft, reckons there is a far higher probability of a “panic-stricken rush to secure fossil fuels” and especially “a new reliance on coal, the most dangerous fossil fuel of all, but the most dependable because of its near-universal availability”

In short: an energy mix of renewables and O&G is from a climatic perspective preferable to an energy mix of renewables and coal. Two questions are important: Will the O&G sector respond to this opportunity and, if so, how?

Staying with less entropy: an opportunity for O&G

This gives O&G firms the opportunity to prove that they are not only “here to stay” as The Economist concluded, but also that they can operate with far less environmental entropy than what it is associated with. The technologies of the 4IR enable O&G to transform their productive assets into digitally linked Industrial Internets of Things (IIoT) changing oil fields and refineries into gigantic smart devices.

The outcome of such change will be:

greater efficiency;
better value creation, and
a reduced impact on the environment.

IIoT: the new mode of in asset performance management

For many people IIoT is intelligent hardware: pumps with sensors, pipes with sensors, simply sensors galore. Strides in nanotechnology has brought forward sensors that are small enough to fit into previously inaccessible places and instruments, even inside the drill strings of deep sea exploration rigs. Sensors cover temperature and pressure, liquid and gas flows, metal-fatigue or vibration and are either physically connected or transmit data by Wi-Fi.

But sensors and the continuous stream of data that they generate are not effective in themselves: integrated instantaneous data assessment is required as well. Through smart integrated software it will not only immediately detect anomalies of below par functioning of any asset component compared to its operational history, but also compare such behaviour against the Big Data available from other similar operations and the suppliers’ performance benchmarks.

This could automatically trigger calibration of an underperforming pump or other hardware, or divert and slow down the oil flow along another network in case of leakage, shutting off the problematic segment whilst alerting maintenance crews not only of the problem, but the nature of the problem and its precise location, activating the packaging of the required spares and instruments for repairing that segment and based on the asset investment plan place orders for parts and instruments where stock at hand drop below a predetermined level.

Tony Turner, Vetasi’s Director Innovation, says IBM’s new integrated MAS (Maximo Application Suite) that will replace existing Maximo applications enables enhanced utilisation of assets and less interrupted production, all contributing to better value creation. The creation of digital twins will also enable more reliable forecasting and predictions on the performance of asset components, thus minimising replacement of parts or instruments when performance data (as well as Big Data) indicate that such assets can have a lifespan of, say, 30% longer than what routine maintenance schedules would have prescribed.

This is achieved by digitally fast-tracking production cycles, compressing months into minutes, thus detecting specific component or even system failure long before it would happen. Predictive asset maintenance is no longer the future, “it is here”, says Turner.

An environmental dividend

But large scale embracing of IIoT by O&G will also yield environmental dividends. O&G has already in the transportation of crude obtained a dramatic reduction not only in the number of oil spills from tankers, but also in the volume spilled into the oceans.

The spilled quantity had decreased from an annual average of 320 000 tons of crude in the period 1970 – 1979 to less than 15 000 tons crude from 2010 – 2019, despite a massive increase in the volume of crude transported. This was achieved through enhanced asset management and skills development.

Another example of IIoT technologies and AI that are available in the O&G sector is Rocsole’s tomography imaging that can assess subsea pipelines to establish build-up of waxes, sand and sediment that can clog flow and even cause blow ups. This non-invasive imaging mean that measurements can be conducted from inside the actual pipes without damaging or disturbing it.

Whilst a similar reduction in carbon dioxide cannot be achieved, O&G can through IIoT and cutting-edge asset performance management systems implement both a range of carbon capture technologies and minimize spills and pollution through asset failures.

There is still a long way to go, according to Mika Tienhaara, CEO of Rocsole. Pointing out that 75% of maintenance on the US Gulf Coast is unplanned, often triggered by failure and existing instrumentation that doesn’t support efficiencies, Tienhaara says predictive maintenance has a long way to go. “Inefficiencies are still huge and this leads to greater emissions”.

Turner says O&G should not waste the window of opportunity they now have. The technology and the systems are available for integrating ISO 55 000 and IIoT: “Systems produce the outcomes they were designed for: a beer brewery cannot deliver a champagne outcomes. Whilst the Oil & Gas (O&G) sector cannot transform their fossil fuel into renewables, the technologies of the IIoT offer opportunities to change the ugly ducklings of oil spills and carbon emissions into technologically astute swans with far less impact on global warming.”

You can download the new IBM Maximo Application Suite for more information