Connecting CommerceOil and gas industry confidence in the digital environment

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About the researchThis article is part of the Connecting Commerce research programme from The Economist Intelligence Unit, commissioned by Telstra. The analysis is based on a survey of 2,620 executives in 45 cities across 11 industries conducted in June and July 2017. C-level respondents account for 42% of the survey sample, with the balance being other senior executives. Based on the survey, The Economist Intelligence Unit created a “digital cities barometer for industry” to assess and compare confidence in the digital transformation environment across industries. Business confidence is a highly subjective measure of a state of affairs, based on attitudes, and is not necessarily an indication of an industry’s actual level of digital development.

In oil and gas, operational efficiencies are cited as the primary motivation to pursue digital transformation to a far greater extent than in other industries (56% v 47%), followed by cost savings.

“Digital transformation can make a material difference to the two big levers applied across the entire oil and gas sector: increase efficiency and reduce cost,” explains Srikant Kadambi, director of energy and resources in Asia-Pacific for Microsoft.

At the same time, executives surveyed rate the overall digital transformation environment supporting their organisations as relatively low (with oil and gas ranking seventh out of 11 industries). However, in subcategories ranging from innovation to ICT infrastructure, the supporting environment is considered high (ranking second among 11 industries across all subcategories), inferring that disparate elements are strong but need to come together to maximise opportunities.

Figure 1: Overall barometer readings—oil and gas

6.58 7th

6.85 2nd

6.82 2nd

6.87

6.85

6.87

Overall environment

Innovation and entrepreneurship

Financial environment

Development of new technologies

ICT infrastructure

People and skills 2nd

2nd

2nd

Score (out of 10) Rank (out of 11)

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1 https://www2.deloitte.com/global/en/pages/energy-and-resources/articles/digital-transformation-in-oil-and-gas.html2 https://www.bv.com/insights/expert-perspectives/securing-natural-gas-critical-infrastructure-against-cyber-threats

As a key element of a country’s infrastructure, energy (including oil and gas) is one of the key industries that warrants greater attention than others. A report from Deloitte, a consultancy, also underscores the need to put cyber-security at the core of digital transformation efforts in the industry.1 One reason is that a cyber-attack on a large oil and gas company may have an impact well beyond the industry.

This feeling is reflected in our survey. More survey takers in this industry cited cyber-security as the main barrier to digital transformation compared with other industries (20% v 17%). Indeed, the oil and gas industry is treating cyber-security seriously. When asked which digital skills are most needed by their organisation to support digital transformation initiatives, digital security skills were cited at a higher rate than other industries (34% v 30%).

In response to the cyber-security challenge and related regulatory requirements, the industry is allocating large amounts of resources to shore up their systems. ABI Research, a UK-based analysis firm, estimated that spending on cyber-security for critical oil and gas infrastructure would reach US$1.87bn by 2018.2

“The lack of a consistent regulatory or industry standard for cloud adoption is a major obstacle for national oil companies wanting to execute digital transformation,” says Mr Kadambi. “The regulator’s view on data sovereignty, data classification, and a clear policy on the use of public clouds become a much-needed stepping stone in the journey towards digital transformation.”

Digital transformation at an organisational level only succeeds if ownership stems from the top of the company (such as the CEO or the chief financial officer), a recognition that is now manifesting itself in the industry. “In many oil and gas companies we have seen the evolution of the chief digital officer position, supported by very senior executive sponsorship,” says Mr Kadambi. “It also helps that the framework for success is outlined by clear yet simple directives and measurements.”

Such measures are increasingly important in the industry today. For example, legacy systems coupled with an increase in cyber-attacks have increased concerns about the vulnerability of oil and gas companies, in which a breach could have big repercussions beyond the industry as it is often considered as critical infrastructure.

Legacy challenges

Security concerns

“ The lack of a consistent regulatory or industry standard for cloud adoption is a major obstacle for national oil companies wanting to execute digital transformation”

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A positive problem

Regional takeaways for oil and gas firms

“Irrespective of industry or sector, organisations seek four key outcomes from digital transformation: one, engage customers; two, empower employees; three, optimise operations; and four, transform products or services, and perhaps even evolve new business models,” says Mr Kadambi. The abundance of data, for example, is a positive problem for the industry, as it provides organisations with an opportunity to apply big data and analytics, artificial intelligence (AI), and cloud computing across the value chain.

“Data and AI are central to today’s digital transformation,” says Mr Kadambi. “This is an industry that has enjoyed access to vast amounts of data across its entire value chain: everything from seismic data acquisition, to drilling logs and production reports, to telemetry on refinery assets and refinery production, all the way down to retail fuel sales.”

“Application of AI will become foundational, as it will offer the ability to reason over large amounts of data and convert that into meaningful business insights and outcomes,” says Mr Kadambi. He predicts that technology will have an enormous impact, affecting everything from reducing non-productive drilling time to managing and maintaining unmanned offshore platforms. In addition, it can help with improving production yields and product categories in the refinery, changing the operating profile of expensive field assets, down to lowering gas dispenser downtime at gas stations.

Figure 2: Barometer readings by region—oil and gas

OVERALL ENVIRONMENT

ASIA 6.99

US 6.80

EMEA 6.45

AUS 5.59

FINANCIAL ENVIRONMENT

US 7.32

ASIA 7.07

AUS 6.49

EMEA 6.11

INNOVATION AND ENTREPRENEURSHIP

US 7.49

ASIA 7.19

EMEA 6.19

AUS 6.13

PEOPLE AND SKILLS

US 7.92

AUS 6.67

ASIA 6.63

EMEA 6.54

DEVELOPMENT OF NEW TECHNOLOGIES

AUS 7.30

US 7.23

ASIA 6.87

EMEA 6.02

ICT INFRASTRUCTURE

AUS 7.21

US 7.14

ASIA 6.79

EMEA 6.45 Asian oil and gas executives rate their overall digital transformation environment higher than all other regions, possibly due to rapid regional growth.

Australian respondents are more positive about their digital transformation environment in terms of the development of new technologies and ICT infrastructure than other regions.

The environment in the US is particularly strong in the innovation and entrepreneurship, financial environment, and people and skills subcategories, illustrating broad confidence in digital transformation in the region.

EMEA is last in four (out of five) subcategories, despite being home to many large oil and gas companies.

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