By Geoffrey Cann
ESG and digital transformation pressures are hammering the fortunes of oil and gas, but digital can also help accelerate the ESG agenda. I call it Digital ESG. (part 2)
This is part two of a two part article, written initially as a speech specifically for a webinar hosted by Finboot (a European blockchain middleware company), on how digital innovations can drive the ESG agenda. Part 1 sets out the rationale for treating ESG and Digital in a coordinated way.
- Read more -> Digital ESG (Part 1)
If you’re not familiar with my work and my passion, it’s my mission to help the oil and gas industry embrace digital innovation as a means to improve its environmental and economic performance, and to buy time for a successful energy transition.
With industries facing huge headwinds, a global economic recession, and in the case of some, little capital available, funding a transformation of the business to align fully with all possible ESG dimensions is impractical. ESG will be about making hard choices and trade offs.
McKinsey states that an effective ESG proposition has 5 dominant effects on cash flow (the key oil and gas metric):
First is to drive growth – either by attracting customers such as our millennials, or drive access to resources because of respectful management (or the converse, loss of customers or denial of resources).
Next is to reduce cost – either through lower energy cost or lower water use. Converse is higher energy use per unit output, or higher cost energy or emissions taxes.
Third is beneficial regulatory and legal advantages. These include more strategic freedom, government subsidies and public support. The converse we can see playing out with the social media giants.
Fourth is the productivity boost from a more engaged workforce (again, the millennial effect), and talent attraction.
Fifth is asset optimisation — superior capital allocation to better prospects and avoided stranded assets
Beyond the bare minimum of compliance with existing regulations, here are several candidate areas for digital investments to improve ESG performance.
Number one: Brownfield Analytics
The majority of industrial infrastructure, from power plants to wells to gas stations, predate ESG concerns and the digital era. These assets now serve as a drag on the ability of companies to achieve much progress on their ESG commitments because they are so resistant to change. On the other hand, they can be data rich assets because of their connections to SCADA and other monitoring systems.
Where digital can help is by boosting analytic possibilities through machine learning and artificial intelligence. These tools can help improve the quality of legacy data so that it yields better analytic outcomes, as well as by conducting better analytics. Better analytics leads to better operations decisions that include ESG targets. In time brownfield assets can be managed more tightly and in conformance with ESG goals such as energy use and waste.
Number two: Carbon Tracking and Tracing
Brown field assets will continue to be carbon sources for the foreseeable future, which means the industry will need to track carefully its carbon position so that it can make appropriate positive offsets. Today, carbon measurements tend to be from engineering principles, whereby a given asset, designed to run at a certain level with a fuel of known characteristics, has an estimated carbon output.
However, assets leak, and valves decalibrate. Because of scale effects, minor variances in carbon measurement accuracy can add up to huge absolute differences from engineering estimates.
Digital tools can help by providing better monitoring of actual asset carbon impacts, by detecting vapours and recording measurement data with low latency in easy to access cloud databases. Simple cameras are now very good at directly measuring vapour emissions, and new satellite technologies are bringing satellite imagery boosted by artificial intelligence to improve carbon measurement. A company called Osperity provides this ability for Shell’s assets.
- Read more -> Visual Analytics Comes of Age
Some US states cap oil production because of emissions targets but by capturing emissions or incinerating them, tracked using blockchain, regulators allow producers to achieve higher well productivity.
Number three: Optimisation of Movement
Optimisation of work is hard. Imagine you’re running a tank farm, with hundreds of tanks of varying sizes and capacities, constantly changing customer demand, limits on pipe and pumps between tanks, and fluctuating power prices which you need to run the facility. Movement of things costs money and carbon. Today you can perhaps optimise for ratability, but what if you wanted to manage to some other factor, such as lowest carbon, by taking occasional advantage of green energy?
It turns out this is an extremely hard problem to solve. Networked assets such as tank farms, wind farms, rail yards, and marine ports need to be continuously optimised as circumstances change, in real time.Disruptions are constantly throwing plans into disarray, and operators need to be able to rapidly adjust operations to preserve facility economics. Market leaders now use the immense processing capacity afforded by cloud computing and new digital modelling tools, like Stream Systems, to calculate optimisation possibilities.
This problem is everywhere — from the movement of shipping containers, to the loading of Amazon delivery vehicles, to crewing workers to driving trucks…
Number four: Asset Automation
Upstream oil and gas assets are subject to the Pareto Principle, where the majority of wells produce piddling amounts of fossil fuels. These tiny wells cannot sustain the cost of dedicated and highly compensated petroleum engineers. In addition, the wells on a single pad are curiously linked underground so that a production decision on well one can have an impact on others on the same pad.
By strapping inexpensive sensors on wells, and feeding the data from the sensors into an artificial intelligence engine called Kelvin in the cloud, one producer, BP, has cut its field costs by 22% and improved production by 20%. Field costs include mobilising workers to the wells, which causes carbon emissions from driving.
In addition, and this is the ESG angle, methane venting is down 74%. If you measure it, you can manage it.
This drives growth, cost reduction, productivity gains, asset optimisation.
Number five: Supply chain transparency
In our global world, the supply chains for many products, including oil and gas, is long and complex. Tracing products throughout the supply chain to provide the assurance that the products were sourced from ethical suppliers with meaningful ESG practices is fast becoming a requirement by global brands. This is already very pronounced in consumer goods, pharmaceuticals, and many food products, and has now come to chemicals.
Finboot, a supplier of blockchain middleware, is helping the chemical sector better track and trace fluids, gases, and commodities throughout the supply chain, given the chain’s high level of fragmentation, multiple hand offs, discrete services, frequent changes in control, and high regulatory burden. Companies such as Stahl Chemicals use tools like blockchain to deliver the transparency that supply chain participants need to assert to their ESG metrics.
Kicking Digital ESG Into Gear
How do you move forward?
I recommend taking a page from the book entitled Ten Types of Innovation by Larry Keeley, who, along with Jay Doblin, has studied why innovation fails and how to build a culture of innovation break throughs.
First step is to organize for success.
Most likely, your organization has set up a digital center of excellence, or an innovation council, or a digital team, or a strike force. You may have set up an ESG team or at least handed aspects of the ESG agenda to an internal champion. Big energy companies often have someone focused on, say, indigenous relations.
Assign a point person in your ESG team to connect regularly with the digital leaders to compare notes, explore for opportunities, and highlight wins. Chances are good that some of your digital activity is already accretive to your ESG agenda.
Second is to provide resources.
Let’s face it. Money talks. Nothing important happens without money. Set aside a portion of ESG funding that is aimed explicitly at digital solutions, or direct a portion of your digital budgets to explicit ESG goals. Your organization can figure out which initiatives will best meet your targets.
Third is to set targets and metrics.
Nothing motivates change more than having a specific goal to hit. Shell now directly links manager bonuses to achieving ESG goals. Why not incorporate a measure into performance management that ties ESG and digital together, such as number of ESG initiatives that include a digital element. Require that every manager with a budget in excess of $2m to spend on improvements be required to spend something on digital ESG.
Create a scorecard of ESG gains (such as reduction in water usage, or land footprint), and use digital tools to collect the data for the scorecard.
Fourth is to adapt your ways of working.
Bring your digital and ESG teams together for occasional meet ups. Train your digital team on your ESG principles and your annual ESG plan so that they can be sensitive to your ESG goals. Similarly, expose your ESG team to the power of digital innovation through digital awareness training, so that they can support digital ideas from the field and to propose to ESG teams how digital can amplify their efforts.
Alternate your safety moments with an ESG moment or a digital moment or an ESG -digital moment.
Feature in your company internal communications (newsletters or employee portals) field trials and successes that you’ve had in digital ESG to showcase progress.
These four steps will serve you well.
Digital ESG Conclusions
So in conclusion, the next time you’re asked:
• What is your commitment to ESG?
• How are you dealing with technology-driven change?
You should counter with how you are leveraging digital innovations to meet your ESG objectives. You will surprise and delight your stakeholders, investors, and talent.
Check out my book, ‘Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, available on Amazon and other on-line bookshops.
Take Digital Oil and Gas, the one-day on-line digital oil and gas awareness course.