Digital: the new inflection point
The words disruption and change are becoming more and more common in many industries, including offshore oil and gas.
From inside the boardroom to the office floors, reimaging business and rethinking the way we operate are discussions that occur every day across a range of factors, including a growing demand for greener and more sustainable energy, increased volatility over oil prices, and more recently, the potential impact of the COVID-19 coronavirus.
Adding to this, every stakeholder within every organization will have given serious consideration to the impact that advances in digital technology are having on their business. And, given this time of extreme change, no organization can afford to ignore this. Because if they do, they risk the sustainability of their business.
That’s why it’s important for the offshore energy industry to understand:
What the advances in digital technology are
The challenges and opportunities they represent for the industry
How businesses and their leaders should adapt to embrace the benefits digital can bring
Challenges and opportunities
Technology has long been a disruptive force within the industry. Whether minimizing costs, improving safety performance, or optimizing maintenance and operations performance, businesses have continued to adopt the latest technology to improve various aspects of their assets.
Digital technology adds an additional dimension to this disruption, but with one major humanistic obstacle; the pace of change far outweighs anything ever seen before, coupled with a lower level of understanding about what’s involved.
An organization’s ability to ‘de-mystify’ digital establishes a baseline understanding that organizations can start from to accelerate and impact change. Digital means different things to different people. Some see it as nothing more than a ‘catch-all’ term used by consultants and managers; others perceive it as the use of technology to better engage with customers; others still view it as the modification of a business’s existing technologies, practices, and mindset to meet changes in market requirements.
While this unprecedented pace and advanced knowledge is challenging, it also presents a unique opportunity to those who are prepared and willing to embrace it. By embracing digital technology and all it entails, demystifying it, and understanding how it relates to a business, it’s possible to devise a strategy that can lead to a more efficient and sustainable business model. In talking with CEOs, senior leaders and industry experts, there’s certainly a willingness to do so. The challenge lies in clarifying just what digital means, tying it back to the business need and making it relatable to everyone’s accountabilities.
Improving operational efficiencies
Improving operational efficiencies has long been a hot topic across the offshore oil and gas industry before new digital enablers and levers were ever introduced. Businesses are now turning to digital technology, across the entire value chain, to achieve their end-goals and deliver better value for all stakeholders. But with recent world events and business decisions that change daily, dependence on digital has shifted from enabling to vital.
So, how do we make this a reality?
Firstly, as the delivery of engineering becomes more data-centric, businesses now face the growing need to increase automation to not only collect data, but leverage it to make quick and sound decisions. Case in point, when companies look to reduce the number of people working on their facilities to address safety concerns and improve HSE performance, they’re often employing digital technology to simplify and minimize the design of existing equipment, or even eliminate it altogether.
Secondly, companies are now beginning to measure ROI and business impact to create a pathway from adoption to sustainability within their organization. By their very nature, offshore projects have a long cycle from discovery to market. Using digital technology to simplify designs and standardize equipment and processes, organizations can act faster and improve their speed to market, making their investments work harder.
The offshore wind sector is also seeing a similar trend, although often for different use cases. As offshore wind farms move into deeper waters into the future, organizations and teams will be employing digital technology to help manage the complex design and construction of floating substructures that are needed for deep-water offshore facilities. Others have used IoT sensors to harness data needed for AI and machine learning to monitor their performance and enhance the predictability of a failure and improve asset performance.
With all this, digital technology remains an uncharted territory for many. It’s clear that the tools are available to address a range of challenges faced by the industry, but adoption will require businesses to look at these challenges - and how to address them - in a new light from multiple angles.
Surviving turbulent times… will history repeat itself?
2014’s oil price collapse had a significant impact on offshore deep-water production. Navigating the effects of the event required the industry to rapidly change its approach and, in some cases, innovation got caught in the crossfire.
In between then and now, the energy transition has created positive disruption that encourages teams, organizations, communities and even countries to look towards the future and consider how we produce, leverage and sustain our energy sources.
Today we find ourselves at another potential inflection point. Businesses are looking closely at the spread of COVID-19 and how it might affect their operations. But while the current climate is undoubtedly different from anything many businesses have experienced in the past, there is one lesson to take from the turbulence of the mid-2010s; businesses who lean into innovation, embrace technology, develop partner ecosystems and take a considerable focus on digital will increase their ability to operate well past ‘survival’ mode.
With the future in mind, one thing is certain - digital technology is here to stay. It’s the compass that will keep businesses on a path to performance, profitability and sustainable operations.
By Geeta Thakorlal, President, Worley Digital
Magellan, Enterprise and ICE unveil new futures contract
The Midland WTI American Gulf Coast contract is being launched in response to market interest for a Houston-based index with greater scale, flow assurance and price transparency. It will use the capabilities and global reach of ICE’s trading platform and is due to be launched by ICE by early 2022, subject to regulatory approval.
The quality specifications of the new futures contract will be consistent with a West Texas Intermediate crude oil originating from the Permian Basin with common delivery options at either the Magellan East Houston terminal or the Enterprise Crude Houston terminal. In support of this new futures contract, Magellan and Enterprise anticipate discontinuing their existing provisions for delivery services under the current futures contracts deliverable at each terminal once the new contract receives regulatory approval and is finalised.
“Magellan is pleased to join forces with Enterprise and ICE to offer this leading-edge joint futures contract,” said Aaron Milford, Magellan’s chief operating officer. “The new contract improves the transparency, flexibility and marketability of Midland WTI crude oil for Gulf Coast and export customers while maintaining industry-recognized quality and consistency.”
Harold Hamm, Chairman of the Board of Continental Resources and Founding Member of the American Gulf Coast Select Best Practices Task Force Association said on April 20 last year, when the Cushing, Oklahoma WTI contract traded down to -$38, it was a wake-up call to the oil industry that the storage constraints and landlocked location of the Cushing contract could no longer be ignored.
"I started the American Gulf Coast Select Best Practices Task Force to develop specifications for a new US light sweet crude oil price benchmark in the American Gulf Coast, and to advocate for its implementation and adoption as the main pricing point for the US oil markets," he said.
"We think a futures contract in the most interconnected market center in the country, with a widely accepted quality spec, which settles with guaranteed delivery of crude oil is an important new alternative for the industry. The task force has worked tirelessly to create a marker with transparency and liquidity that is waterborne for this modern era. The Midland WTI American Gulf Coast futures contract ... is a huge step forward for the industry and goes a long way to accomplishing the mission on which the task force has been working.”
Brent Secrest, Executive Vice President and Chief Commercial Officer of Enterprise’s general partner, said: “We are excited about this new crude oil futures contract, which features the combined strength of two extensive and complementary networks of midstream assets with a world-class trading platform to provide customers with greater supply reliability, flexibility and price transparency.
As the market hub for Permian Basin production, Houston represents the most logical choice for a new futures contract. Between Magellan and Enterprise, we offer access to virtually all of the export capacity in the Houston region, redundant connectivity to all area refineries, a robust Gulf Coast storage position and interconnects to all of the relevant supply pipelines, including those owned by third parties.”
Jeff Barbuto, Global Head of Oil Markets at ICE, said combining efforts with Magellan and Enterprise to establish a benchmark for pricing Midland quality WTI on the Gulf Coast allows it to offer the industry a futures contract with over four million bpd of supply capacity from Midland into Houston, access to both domestic and foreign demand, and nearly 60 million barrels of storage capacity in the Magellan and Enterprise systems.
"Traded on the same global platform as ICE Brent, Murban and Platts Dubai Crude Oil futures contracts, the new Midland WTI American Gulf Coast contract can also offer significant capital efficiencies to the industry and provide industry-leading quality that buyers have grown accustomed to in the Houston market," he said.
According to EIA forecasts, global consumption of petroleum and liquid fuels will average 97.7 million bpd for all of 2021, a 5.4 million bpd increase from 2020. US crude oil production averaged 11.2 million bpd in March, up 1.4 million on February.