By Geoffrey Cann
Carbon, Capital, and the Cloud celebrates 6 months in the market. Here’s an executive’s summary of its key messages.
The Origin Story
My first book, ‘Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, set out the business case for the oil and gas industry to adopt digital innovations to lower costs and improve asset productivity. It described a way for oil and gas companies to develop digital strategy, but was relatively light on the how of digital adoption, reflecting the industry’s relatively low level of adoption.
‘Carbon, Capital, and the Cloud: A Playbook for Digital Oil and Gas’ picks up the story where ‘Bits, Bytes, and Barrels’ ended, with the current state of the industry, the rapidly evolving technologies, the emerging business models, and the pressures on change management. To make the book practical, it includes nine case studies of companies drawn from across the oil and gas industry who are moving ahead with digital adoption.
The title, ‘Carbon, Capital, and the Cloud’ is carefully chosen. At first blush, it’s a simple rhyming alliteration from the first book, a play on getting from B to C. But actually it’s much deeper than that.
The world is not going to reverse course on its agenda to diversify the energy economy. The evidence about pressures on the planet stemming from the accumulation of fossil fuel carbon in the atmosphere is no longer questioned.
The incumbent energy industry needs two ingredients to survive (the third, access to resources, is moot, in light of the carbon pressure). These are financial capital (enamoured with digital possibilities, and scarce for energy businesses), and human capital (also becoming scarce).
The wave of digitally driven change that has transformed other sectors is finally becoming real for energy, thanks to the pandemic. Unlike capital, digital is in abundance.
There is a sweet spot, a set of investment possibilities at the intersection of abundant digital innovation, ESG targets, and the energy industry, that can help the industry lengthen its runway (by becoming more sustainable and less impactful).
The book is about describing this place, what digital technologies are fundamental to the sweet spot, the importance of helping people embrace the sweet spot, and the case examples of companies that are working to transform their businesses for this new world.
I believe every company working in oil and gas, and energy more broadly, can find their own version of the sweet spot, and claim it for their own. It’s not too late. The real challenge is not even technical, but rather the gap between our ability to innovate and the pace by which we can help people adopt innovation. The winners are going to be those that figure out how to close that gap, at scale.
The book opens with the current state of the industry.
The Current State
Energy products are foundational inputs to the global economy, and energy supply is generally in fine balance with energy demand. Even minor aberrations on either side of the supply and demand equation can cause wild price swings. And the past three years has seen more than the usual swings and round abouts in energy, caused by:
- The global pandemic
- A collapse in oil prices caused by a volume war between erstwhile market partners Russia and OPEC
- A global synchronized recession across nations and industrial sectors
- A sharp economic bounce-back from the recession
- Emerging energy shortages following several years of underinvestment in fossil fuel infrastructure and ESG pressures
Absent from the book is the new war in Europe that has thrown continental energy markets into chaos and threatened the recovery from the pandemic.
It is easy to be distracted by these disruptive factors, but they are all, to a degree, temporal. The pandemic will pass. The war will come to an end. Economies will recover. It’s the more longer stride changes to which we think companies should pay strategic attention.
Digital transformation, caused by the relentless advance of technology (shrinking in scale, cost and power while growing in capability, capacity and performance).
ESG pressures, which includes capital market access, energy transition, and social demands for just treatment of the planet.
We concluded that:
- The transition to a more diversified and rebalanced energy mix is now in motion and measurable.
- Future demand for fossil fuels for transportation is very much uncertain, but the demand for plastics and petrochemicals is still robust.
- Environment, social, and governance factors now weigh very heavily in making decisions about energy sourcing and consumption.
- The climate legislation from the European Union is the global pacesetter for the future of fossil fuels.
- Capital markets now decisively favor digital companies.
- The pandemic taught the energy industry that it can change quickly when necessary.
- Digital tools that were in place but underutilized demonstrated their value during the pandemic. The oil and gas industry is still far from capturing full value from digital innovation.
The book then turns to which digital technologies matter most to oil and gas.
The Digital Framework
The book introduces the notion of a digital framework for planning for, and making decisions, about where to find the digital sweet spot. The framework consists of three layers:
The digital core—comprising data, the industrial internet of things, artificial intelligence and autonomy—is infinitely configurable to create signature ways of working. The formula is things generate data, AI interprets the data, and robots apply the data to do real work.
The digital foundation—cloud computing, blockchain, enterprise systems—is table stakes: if you don’t have them in place, you’re not in the game. Cloud is required to house all the data and provide the enormous compute capacity at reasonable cost. Blockchain provides new trust mechanisms for all the data, algorithms and robots, and enterprise systems (applications, platforms, cyber support) handle the heavy lifting of standard business processes.
Digital capacity—the adoption of agile methods and user experience, and robust change management—is the means to embrace digital from a process perspective. Digital evolves much faster than human capacity to change, and new ways of working are necessary to keep pace and to get ahead of digital.
No aspect of oil and gas is immune. Even the operational systems in oil and gas, from remote devices to traditional control rooms, are benefiting from digital enablement.
Finally, data skills are now central to the operations and management of oil and gas, and such skills are likely in short supply.
As companies become more experienced with applying digital in an ESG world, new business models are emerging that look well situated to succeed.
Business Model Changes
The experience of other industries that have been upended by digital start ups (telecoms, media, financial services, entertainment, vehicles, services) tells us to look for the underlying rules, norms, and assumptions by which the established players operate, and by finding ways to creatively break those rules.
Oil and gas has many norms that look vulnerable to technology disruption—the value of data, the role of human workers, the reliance on paper documents to establish trust, the role of the US dollar in commerce, the anonymous consumer, the provenance of energy. Entrepreneurs both within companies and external to the incumbent operators, are working hard to apply digital innovations to the work of the industry to crack these long held practices. Some early successes include:
- Data-driven businesses, that are not based on the traditional hard assets of the industry
- People-lite businesses, that rely on edge devices, robots and autonomy, for engineering works, operations, asset supervision, and back office work
- New financial structures based on digital assets
- Energy and commodity tracing, to provide end-to-end visibility to products and emissions
- Capital asset execution, leveraging fully virtualized engineering services and improved construction
Of greatest impact is the energy consumer relationship which, for the first time in decades, is now in play.
And as the business models flex to embrace technology, the successful proponents are those that are most adept at dealing with the impacts on people in oil and gas.
The digital framework highlights that a company which has moved beyond doing digital to being digital is because of its attention to the people side of digital. Digital is proving to be a challenging people-change initiative.
Oil and gas struggles structurally with change. The nature of the industry has resulted in a sector culture that is risk-averse and, as a result, change-averse. Individual companies face their own specific change challenges, and the nuances of their culture will need to be addressed for change to be successful.
Change starts with leadership, who needs to be aligned with and committed to digital, which in turn requires a base level of knowledge and skill in digital to be effective.
Smart machines, robots, and algorithms hold tremendous promise for the industry, and building trust in machines accelerates their acceptance and deployment. Building that trust is a two-way street between the developers of the machines (who are motivated to keep their inventions confidential) and the customers (who need transparency to manage their risks).
For a variety of reasons there isn’t a standby digital-ready talent pool that awaits the opportunity to join the industry, and the industry is increasingly unattractive to talent for social reasons. The industry has to survive and thrive with the talent that it has.
The Case Studies
Rounding out the book are nine case studies drawn from across the global oil and gas industry, covering a good mix of the value chain:
- an international equipment supplier,
- three North American upstream companies (oil only, gas only, and full conventional and unconventional),
- a North American midstream startup,
- a European downstream products company,
- an integrated international producer, and
- two international services companies.
Each case study includes four or five key strategies that the case study company has used to fuel its digital transformation. It’s clear that companies throughout the oil and gas value chain in all geographies are aggressively repositioning their businesses for a more digital future. There is no place to hide.
Energy transition and digital transformation are unlocking an unprecedented opportunity for incumbents in the industry, and the pandemic has proved to be an unexpected accelerant in promoting the adoption of digital innovations.
I’m delighted that the largest publisher of petroleum industry books in China has acquired the global Chinese language rights for both Bits, Bytes, and Barrels and Carbon, Capital, and the Cloud. Soon the largest petroleum consuming nation will be caught up on the latest thinking on this important topic. No pressure.
You can find my latest book, ‘Carbon, Capital, and the Cloud: A Playbook for Digital Oil and Gas’, on Amazon and other on-line bookshops.
My first book, Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, is also available on Amazon.
Take Digital Oil and Gas, the one-day on-line digital oil and gas awareness course on Udemy.
Take the one-hour Digital for the Front Line Worker in Oil and Gas, also on Udemy.