Fuel Facing Headwinds
The last 10 years have been a wild ride for the oil and gas industry. After spending much of the period between 2011 and 2014 at $100+ per barrel, the price of oil (West Texas Intermediate) plummeted for two consecutive years, bottoming out at roughly $30 in January 2016.
By mid-2018, the price had rebounded to nearly $80 per barrel. However, at that point it fell like a rock all the way back to $45 and has been whipsawing back and forth ever since. Today, the price sits at $56 per barrel.
There are several severe headwinds currently facing the industry:
- The global oversupply of oil and natural gas.
- Unfavorable prices for oil and natural gas, caused in large part by the global glut. When prices are too low, upstream companies have no economic incentive to drill.
- Environmental headwinds, with many countries and environmental organizations cracking down on fossil fuels and supporting the push into renewables.
- Tariffs and other macroeconomic conditions have led many economists to predict a global slowdown at some point over the coming years, which would decrease demand for oil and further weaken the price.
Escaping the Headwinds?
Will the industry be able to escape these headwinds and continue to operate profitably?
It is too soon to tell. What is clear, however, is that over the coming decades, oil and gas companies will likely need to improve operating efficiency to stay afloat, and that their best hope for doing so may lie in the Internet of Things.
Internet of Things to the Rescue
The Internet of Things (IoT) has the potential to increase operating efficiency in the oil and gas industry. I will highlight several such ways that companies might capitalize on the technology.
It all starts with the price of sensors.Sensors have been declining in price for more than a decade, from greater than $1 on average in 2005, to about $0.50 per sensor today. Along with the decline in price, sensors have also continued to improve in accuracy and precision.
The combination of low price and high performance means that today sensors can be deployed to improve oil and gas operations. Here are four possible use cases.
- To produce specific insights about where companies should drill, how to optimize production and how the drilling process can be made more efficient.
- To track equipment performance and alert maintenance personnel when machinery needs to be repaired, reducing downtime.
- To cut down on the time it takes to troubleshoot problems with equipment from days to minutes.
- To track oil level inside tanks, so that trucks can know exactly when tanks are full and need to be emptied.
On top of increased operating efficiency, IoT is also likely to improve worker safety, increasing worker productivity and job satisfaction, and saving companies money through reduced risk of fines and lawsuits.
IoT may also contribute to reduced carbon emissions. In the United States, the oil and gas industry leaks roughly one million tons of methane into the environment annually. Much of this leakage stems from problems in oil and gas transmission and distribution. Using sensors can help companies monitor pressure in their transmission networks and cut down on leakage.
Since adoption of new technology in the asset-intensive oil and gas industry tends to take a long time, it may well be a few years until companies have outfitted their entire production processes with IoT technology. As soon as they do, however, they are likely to notice that even the smallest of efficiency gains may have considerable impact on their bottom lines. Therefore, companies in the industry would be well advised to integrate these technologies as swiftly as possible.