By Geoffrey Cann
Digital innovations are setting up a number of time bombs that will eventually go off. Now is the time to defuse them before it’s too late.
Life’s Time Bombs
My elderly parents faced a time bomb that they couldn’t see.
On and off for a few years, I tried to encourage Mom and Dad to sell off the family home. As they aged, the house was becoming a costly burden and a more physically demanding property to maintain. To heat the hot water radiators, the furnace burned heating oil which was priced by the prevailing cost of crude oil, and sometimes the winter heating bill was a couple thousand dollars a month. In the fall Dad had to climb up a three storey ladder to install the storm windows, and again in spring to take them down.
I suspected they did not have the pension resources to pay the heating bills and the funds to pay for upkeep, but I didn’t have the data to be sure. And try as I could, I could not convince them to sell and move on—their emotional attachment was simply too strong.
One evening, Dad called for some advice—should they buy or lease their next car. I told them that I could help with the analysis, and we sat together round the kitchen table where I gathered up the details of their income, their costs, and their savings, so that I could figure out what they could afford.
A week later I returned. “I have good news, but I discovered some bad news. The good news is that you can afford a new car. The bad news is that in just a few years, you’ll need to decide what furniture to burn because you’re running out of money”. My analysis was believable because I had no interest in their house, I hold an MBA in finance, and I showed them all the math.
A week later, they put the house on the market.
Oil and Gas Time Bombs
A time bomb is an event that is going to manifest, and it will likely have significant (and usually negative) impacts when it does. The exact timing may be uncertain and there may be steps to take to defuse the bomb or at least mitigate its impacts. The bomb itself may go unrecognised.
Environmental time bombs are much easier to grasp because often you can see them:
- Oil facilities located in dense forested areas that are prone to forest fires.
- Off shore facilities in the path of seasonal hurricanes and cyclones.
- Nuclear power plants in seismically active areas or on tidal zones with a history of tsunamis.
- Oil and gas infrastructure on flood plains.
The oil and gas industry is very good at identifying and mitigating short and long term risks or time bombs that could cause mayhem when they go off. Facilities can be hardened, or reinforced, to withstand storms. Fire breaks can insulate facilities from encroaching fires. Controlled shut downs and evacuation plans can be tested and held on stand by.
The industry needs to come to grips with a number of time bombs that are specific to the digital world.
Digital Time Bombs
The biggest and most well-known digital time bomb was the turn of the century, or Y2K, when date calculations in various computer systems were forecasted to fail. By the mid 1990’s, most enterprises had started to analyze the scale of the problem, project the likely impacts, and gear up the transformation programs to overhaul their legacy systems. I was part of several such programs, mostly involving the adoption of ERP systems like SAP and Oracle.
But there are a handful of other time bombs waiting to explode.
DECRYPTING STOLEN DATA
Thousands of businesses have been the victims of hacking and data thefts. The most visible recent attack in oil and gas was on Colonial Pipelines, whose systems were penetrated because a password to access their systems had been made available on the dark web. It doesn’t matter if the password was stolen, or placed there for other fraudent or revenge reasons. It was used.
Many companies prepare for such data thefts by encrypting all their data, including passwords. But encrypted data is only as secure as the encryption algorithm used to encrypt the data in the first place, and the available computer processing to work on breaking the encryption.
The time bomb is that quantum computing is evolving so quickly that it will be able to crack older encryption algorithms in a reasonable amount of time (under a week). Combined with cloud computing, and the ability to rent cloud compute cycles without having to own the quantum computer, the probability that stolen encrypted data will be decrypted is verging on 100%.
Companies with encrypted data in the wild might want to devote some energy to planning for its eventual release.
HACKING THE BUSINESS
Related to the decryption of stolen data is the ongoing interception of live data with ineffective encryption. The combination of quantum computing and cloud processing enables criminal enterprises to apply digital horsepower to hack the business in more creative ways. And not simply SCADA plant data (older systems are usually unencrypted anyway). The more valuable data to hack would be routine messages, email traffic, commercial transactions, and voice conversations.
Data encrypted with techniques that are effective pre quantum will be completely ineffective when faced with quantum horsepower. Imagine your business under continuous criminal surveillance, with an AI engine interpreting everything and looking for points of entry. Just point and shoot.
Companies need to move their encryption algorithms forward to the next level (from say, 128-bit to 256-bit) on commercial data, on new digital connections and all telecommunications. Investments in hardware-based encryption will be faster and lower cost than software-based encrypt-decrypt compute load.
UPGRADING OLD SOFTWARE
During the early days of the pandemic, I ran a training event for an oil producer. They knew they needed to modernize, but one of their key business systems was an old dog that had kicked around for years, refusing to die and falling hopelessly behind. Yet they couldn’t find the courage to move on it.
Many technology providers still sell only on-premise versions of their systems. Many of their customers still harbour misplaced ideas that cloud-based software is somehow inferior or presents greater risk. The value of cloud-based technology now thoroughly overwhelms their traditional counterparts. Not only is cloud technology cheaper to operate and maintain, it has lower distribution costs, and sets up new commercial models such as subscription models, app stores, API integrations, and many other innovations.
Technology investors are shifting away from supporting the older software model, given the extraordinary valuations of the technology giants. Capital will eventually be withdrawn.
Some call this situation a technology debt to be paid (a paucity of upgrades over the years, leading to a big replacement). But I see it as a ticking bomb, blowing up into a crisis at an inopportune time.
The oil and gas talent pipeline is drying up. Fewer young people want to work in the industry given the attractive personal growth (ie stock options) elsewhere, the fun and excitement of other more dynamic sectors, and the perception of the industry as a climate laggard. The steady vilification of the industry by western governments, climate activists, and educators are steering youth away to fintech, healthcare, CleanTech and even entertainment. The fuse has been lit.
At some point in the future, oil and gas businesses will be unable to hire enough young people in petroleum to replace their retiring senior hands, and fewer still with the requisite digital skills. Put another way, there is no ‘they’ coming to join the company. They don’t exist. HR plans that are based on hiring to replace are, in a word, delusional.
Oil and gas companies need to recognize that the team they have today is likely to be their team tomorrow and for the foreseeable future. Training has to step up to create the desired workforce of the future. The business culture that creates a kind of permafrost middle management that is unable to move forward must be transformed.
Just like my elderly parents had an invisible financial time bomb, oil and gas has its digital time bombs. If there’s an upside from knowing you have such a thing, it’s that you at least have advance warning to put in place some mitigations or even to defuse it entirely. You just don’t know how much time. So get going.
Check out my book, ‘Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, coming soon in Russian, and available on Amazon and other on-line bookshops.
Sign up for my next book, ‘Carbon, Capital, and the Cloud: A Playbook for Digital Oil and Gas’, coming March 15, 2022.
Take Digital Oil and Gas, the one-day on-line digital oil and gas awareness course on Udemy.