White Paper

Oil and Gas Industry

The case for a smarter oil and gas industry

Oil and Gas Industry

Contents
2 What catalysts will drive the oil and
gas industry to become smarter? 2 Dwindling productivity 3 The need for better visibility 3 Due diligence 3 The natural environment 4 Our approach to smarter oil and gas 4 Enhanced exploration and production 5 Improved asset management 6 Optimize global operations 7 Conclusion

White Paper

The oil and gas industry is, in one sense, a very simple business: Its about extracting large amounts of a small number of substances from the earth for use by consumers. But this conceptually straightforward task is risky, dangerous, wildly expensive and very, very important to everyone on the planet. Its also an intricately related system of systems, ranging from the relentless geologic search operations, to the awesome engineering needed to capture resources miles beneath the ocean floor, to a supply chain of giant physical assets (pipelines, tankers, storage facilities and refineries). Along the way, irrevocable decisions must be made about converting a resource into one end product or another in anticipation of future patterns in weather, traffic or consumer buying behavior, and only then delivering raw materials to other industries and retail products to outlets everywhere. Some of the largest companies in the world compete in this industry. It is an industry where financial commitments must be made years ahead of payback, putting a tremendous premium on predictive information that can be trusted. And the financial uncertainty is compounded by political uncertainty, with governments regulating its activities in many dimensions, as well as actively participating in the industry itself.

It is an industry where prices fluctuate based not only on supply and demand, but on economic forecasts, currency trends and speculation. It has a results-oriented, show me engineering culture, a lot of financial sophistication in the C-suite, a need for collaboration between firms on major projects and a sub-industry of support, service and construction firms that can mask the true points of decision-making on major efforts.

As the events of April 20, 2010 have shown, the cost of a single accident can be devastating. The spill in the Gulf of Mexico will influence how the industry moves forward in ways that are not yet knownalthough a tougher regulatory and compliance environment is a certainty.

On top of that, its an industry where, as the events of April 20, 2010 have shown, the cost of a single accident can be devastating financially, environmentally and in the loss of life. The gulf spill will influence how the industry moves forward in a number ways that are yet to be known though a tougher regulatory and compliance environment is a certainty.

Oil and Gas Industry

The industry also finds itself in the crosshairs of the great global awakening about the environment, and facing a near-universal desire to see some of its main products completely replaced with renewable alternatives. All in all, a lot to deal with. Considering the financial risks, as well as the growing difficulty of locating new reserves, its no surprise that oil and gas firms have been significant users of information technology for a long time, both upstream (exploration and production) and downstream (refining and delivery). This includes analog instrumentation on wells up to 75 years old. More recent systems capture data digitally, but with a wide variety of tools and processes that reflects 40 years of experimentation and customization. And these instruments are operated by a specialized workforce with a well-developed (and thus perishable, when they retire) body of tacit knowledge. Thus, the oil and gas industry already has a level of instrumentation that probably exceeds that of most other industries, a level that will only grow in the years ahead, especially upstream, as new energy targets become increasingly remote. This instrumentation enables such leading-edge

technologies as horizontal drilling and multilateral wells. But in general, the readings and measurements are not shared across tools or processes, and are highly dependent on human interpretation, making it difficult to optimize in an integrated and timely way. The same goes for business intelligence. The analytic tools in the industry today are often very sophisticated scientific devices. But most are focused on answering a particular question, such as: Is there oil down there? or How long can we expect that safety device to keep working? Those dont scratch the surface of what is possible by mining captured data in real time, in an interconnected way, with new analytical tools.

What catalysts will drive the oil and gas industry to become smarter?
Given the difficulty of finding new reserves, combined with rising conservation and environmental pressures, we might have expected to see more of a transformation in this industry already. But sustained higher prices and rising demand in emerging economies, along with the growing importance of Liquefied Natural Gas (LNG) and Shale Gas, have combined to give the industry something of a second wind. Regardless of how fast renewable energy sources are developed, its widely agreed that the demand for marketed energy will continue to grow into the foreseeable future, by as much as 50 percent from current levels. So what will finally convince the industry that it needs to become smarter?

Regardless of how fast renewable energy sources are developed, its widely agreed that the demand for marketed energy will continue to grow by as much as 50 percent from current levels.

White Paper

Dwindling productivity A decade ago, there was a burst of mega-mergers aimed at significant productivity gains. That strategy paid off, but has now about run its course. Recently announced layoffs by a major international oil company and the shopping of their downstream capabilities both underscore that many firms are scrutinizing their operations very carefully for further improvements. But the well is nearly dry in trying to squeeze additional margin out of current ways of doing business. The cost of lifting oil out of the earth keeps rising in the U.S. by as much as 18 percent over what it was as recently as 2006. As an industry that gets a lot of attention from the investment community, oil and gas firms will have a powerful incentive to achieve fundamental changes in how work is done within the industry if they hope to take their financial performance to the next level.

The cost of lifting oil out of the earth keeps rising - in the U.S. by as much as 18 percent over what it was as recently as 2006.

Oil and Gas Industry

The need for better visibility As the odds of finding new sources become longer, and optimizing the downstream more essential, the financial leadership at major firms will demand more line of sight into the financial impact of operating decisions. But that wont be possible without creating a more integrated, transparent and predictive analytic capability. The oil and gas industry is also notable for the degree to which key operating decisions are often made in real time by individuals with hands-on process responsibility, rather than hierarchical authority. This can be especially true when responsibilities are shared among corporations acting in consortium. So pressure for better visibility on key performance metrics will come from engineers at the process level, as well as from the corporate boardroom. Due diligence As firms collaborate to fund expensive explorations and jointly financed infrastructures, there will be a heightened premium on being a more knowledgeable dealmaker. Trust is never in oversupply in an industry that regularly makes multi-billion dollar trades of invisible assets. So being a successful player in this environment will depend more than ever on knowing in real time ones own circumstances (assets, finances, markets, skills, commitments), AND being able to accurately evaluate information offered by others. The stakes will be too great to play industry poker with twentieth-century levels of knowledge.

The natural environment Environmental pressures will escalate from both public and private sources, placing even more of a premium on developing processes and operations that leverage system intelligence to meet and maintain a firms environmental objectives. As the world demonstrates an increasing level of concern about all forms of emissions, the ability to know, evaluate and respond to emissions data, in real time, will represent a significant competitive advantage. So will the ability to quickly recognize, understand and fix breakdowns of any sort throughout the system.

Our approach to smarter oil and gas

The industry is no stranger to doing original research in basic science, and many firms maintain significant laboratories. Some also support think tanks to explore the impact of various issues and public policies. And, as weve seen, its an industry with a lot a highly instrumented, heavy duty infrastructure that is operated by highly trained personnel. So in what sense is the oil and gas industry not smart enough already? The answer to that question lies in the very breadth and complexity of the industry itself the amount of instrumentation in use today, the amount of data already being captured, and the vast gains to be had from insights and actions that data could provide if it were integrated and analyzed in real time across the industrys vast global landscape, where even small improvements can add up to multi-billion dollar payoffs. When we think about where the industry can start becoming smarter, three key areas jump out.

White Paper

Enhanced exploration and production The harder it becomes to find oil and gas reserves, the more it makes sense to look for them with instrumentation, analytics and graphic representation. By integrating seismic and geologic data from multiple sources, and using advanced data modeling combined with supercomputing (including seismic cloud computing or above-petascale resources), the industry can find reservoirs that are very remote, like the large Tupi field that is 180 miles off the coast of Brazil, beneath 7000 feet of water, 10,000 feet of sand and rock, and 6600 feet of salt. When it comes to getting the most out of reservoirs that have already been identified, a host of new, enhanced oil recovery techniques have been developed. But each one adds more physical variables to manage, and more volumes to estimate and track. By using advanced visualization to render larger amounts of complex data in more intuitive ways, a smarter industry can achieve improved decision making and faster time-to-oil. And by deploying advanced nano-sensors to improve reservoir modeling, as well as drawing on spatial and temporal data assimilation from time-lapse seismic systems, it can run predictive assumptions that dramatically increase efficiency in extracting oil and gas.

Its been estimated that some industry workers spend up to 60 percent of their time mining data. Yet even with all that brain power sifting through numbers and images for patterns, the average recovery from a given field is, according to several surveys, around 30 percent. Other studies, however, have reported that recovery can go as high as 70 percent with the help of secondary recovery techniques, driven by the data. So the financial reward for increasing the amount of resource extracted per reservoir would be, on an industrywide basis, gigantic. And it will not only be more profitable, but safer too, for both workers and the environment. By using historical trends linked to event triggers, the industry will be able to create a sense-and-respond environment that maximizes well life and minimizes physical risks, anticipating situations remotely and responding automatically. Where tacit knowledge is vital, firms will bring together global teams (including retirees employed on a part-time basis) to analyze sensitive data in secure real-time virtual collaboration. The payoff: longer well life, optimized production, and less risk to people and the environment.

Using integrated seismic and geologic data, advanced data modeling and supercomputing, its possible to find remote reservoirs such as the Tupi field located 180 miles off the coast of Brazil under 7000 feet of water, 10,000 feet of sand and rock and 6600 feet of salt.

Oil and Gas Industry

Its already starting to happen. A major oil company is currently working to extend oil field life and increase production yield through the implementation of new decision support tools. They expect to reduce unplanned downtime by 5 percent, as well as to reduce costs by up to 30 percent through the use of predictive maintenance techniques. These decision-support tools bridge the gap between different parts of the companys operations so that BOTH data and employee knowledge can be leveraged across all processes, resulting in lower costs and improved production efficiency, as well as great interdisciplinary collaboration. Much of the industrys future is being invented in the laboratory right now. For example, IBM Research is doing original research in reservoir simulation, grid-based visualization, 4D seismic imaging, and stream analytics. And academic institutions are working on it too, such as the University of Calgary, which is teaming with the IBM Center of Excellence there to focus on oil sands development. Stanford University is also leading a multidisciplinary, multi-department consortium to conduct research in such areas as optimizing where and when to drill, the design of wells to be drilled and the type of monitoring that would maximize the life of the well. As oil and gas become harder and harder to find, the tools to look for them in ever smarter ways will only grow.

Improved asset management The industry is both asset and data intensive. An oil well at sea can easily cost $150 million. And such a well can generate a terabyte of data per day, roughly the information in 1 million medium-sized novels. But few firms currently manage their assets in a way that optimizes the data they are already gathering. Consider, for example, how a typical oil and gas firm manages alarms. To ensure safety and prevent environmental dangers, the industry carefully monitors its systems for unusual events. When an alarm goes off, the technician who receives the alarm will ascertain what has gone wrong and decide how to respond. Certainly it would be helpful for them to be able to consult the systems history (to see if this event has happened before), or its maintenance information (to see what work has been done on this system, or what maintenance is being done close by, which might have caused the event), or its purchase records for the failing part (to see if the right part had been installed in the first place), etc. Today, all of these elements of data are likely to reside in different places, perhaps even different and incompatible systems. And even if all of this information were instantly available to the operator, he would still need to perform the act of integrating the data into a response plan, because very little analytic intelligence has been applied to the data other than what can be provided by the operator himself.

An oil well at sea can easily cost $150 million. And such a well can generate a terabyte of data per day, roughly the information in 1 million medium-sized novels.

White Paper

But if the data had been integrated, in context something that a smarter asset management system can do it would not only add speed and accuracy, but also automate and apply analytics to the alarm itself, leveraging the wisdom of the companys prior experience. In other words, it would be smarter. That is just one example, and a hypothetical one at that. But it gives a sense for how much smarter asset management in the oil and gas industry can become when it applies instrumentation and analytics in an interconnected and integrated way. By combining workflow information and decision support tools across production activities, the industry will be able to use dashboards to optimize both planned and unplanned shutdowns, assess the preparedness of turnarounds, run scenario planning with the benefit of mathematical models, asset by asset, and thus maximize production, while minimizing cost, down time and human error. For the first time, engineering, operations and maintenance functions will be able to collaborate through knowledge sharing tools and peer networks that facilitate the sharing of tacit knowledge, especially regarding safety and reliability issues. And we will even be able to automatically factor marketplace fluctuations in supply and demand into decisions about production.

This challenge has attracted serious academic investigation. For example, the Norwegian University of Science and Technology is working to build a multidisciplinary approach to the integration of asset management processes. As science-fiction writer William Gibson once said, the future is already here, just not evenly distributed. But that future has already arrived at a major global energy company that is using a design once-build many approach for its offshore production facilities, enabling them to bring new fields to production in a fraction of the time and cost of previous operations. Consider what design once-build many can mean in a sphere of human activity where a structure that is routinely customized design once-build once can cost $150 million. Optimize global operations Few industries are as inherently global as oil and gas. But the challenge of turning an oil and gas company into a truly global enterprise remains daunting. One of the key challenges is the handovers that exist throughout the industry across professional, geographic, national and chronological boundaries. How does a company ensure that they are seamless and eliminating the redundancies while maintaining knowledge through the life of systems and assets?

Few industries are as inherently global as oil and gas.

10

Oil and Gas Industry

In a smarter industry, handovers will capture real-time field, plant, pipeline and logistics information for improved visibility, planning, flexibility and decision support through sensor-based technologies deployed enterprise-wide. And that will automate supply chain transactions implemented through advanced analytics and optimization programs. Supply chains will be standardized and integrated across multiple geographies through a common open standardsbased information infrastructure. Already, one oil company is able to simultaneously monitor the flow of oil from more than 100 fields and nearly 50 gas-oil separators, through 11,000 miles of pipeline, into seven refineries and chemical plants with only two dozen people in one remote location. Building on that example, a smarter industry will consolidate global support operations into centers of excellence that use remote collaboration and robust knowledge management capabilities. It will also reduce IT costs and energy use through standardized tracking and consolidation. Predictive weather models, which are getting better all the time, will be harnessed to minimize storm-related damages and supply disruptions.

Currently, a major liquefied petroleum corporation is working to implement a comprehensive radio-frequency identification (RFID)-enabled solution for tracking its cylinders. Like everyone else, they need greater efficiency, but they also need to prevent theft. Their RFID-tag solution will address both of those needs, tracking the consumption level at each distributor, while identifying unusual consumption patterns and short turnaround times, indicating diversion. The customer dashboard they are creating to oversee all of this will enable the company to gain new and actionable business insights in every step of their operation from bottling plant to cylinder management. Thats what we mean by smart. Globalized solutions will require the industry to make the most of new compute-intensive analytics. Thats why King Abdullah University of Science and Technology is working to build the most complex high performance computing system in the Middle East. And IBMs Center of Excellence in Stavanger, Norway is focusing on the science of Integrated Operations from the perspective of the industrys unique global needs. Collaboration will be key, as oil and gas firms, IT vendors, strategic business partners and academics work together with oil and gas standards bodies in collaboratories to drive more smartness into the industry.

11

White Paper

Conclusion
The oil and gas industry has never been an easy business, and its not getting any easier. Virtually no one expects the industry to survive the twenty-first century in its present form, with its present products. Yet its importance in todays economy cannot be overestimated, and will remain enormous for a long time, matched only by the size of the self-reinvention it must execute, as it gradually transforms from Oil and Gas to Energy. In this environment, there is no alternative but for the industry to become much smarter. The degree to which it can do that will depend on the vision of its leaders, as well as on the ability of its business partners, including IBM and many other vendors, to apply instrumentation, interconnectedness and advanced intelligence to the awesome physical and financial challenges of this unique industry.

 Copyright IBM Corporation 2010 IBM Corporation Route 100 Somers, NY 10589 USA Produced in the United States July 2010 All Rights Reserved IBM, the IBM logo, and ibm.com are trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. If these and other IBM trademarked terms are marked on their first occurrence in this information with a trademark symbol ( or TM ), these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this information was published. Such trademarks may also be registered or common law trademarks in other countries. A current list of IBM trademarks is available on the Web at Copyright and trademark information at ibm.com/legal/copytrade.shtml Other product, company or service names may be trademarks or service marks of others.
Please Recycle

CHE03001-USEN-00