How COVID-19 hit the energy industry by bringing down prices and creating opportunities for innovation to rise against the odds.
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This past February, the International Energy Agency (IEA) estimated that the global demand for oil would grow by 825,000 barrels per day throughout 2020. Less than a month later, the COVID-19 pandemic would begin shuttering businesses and closing borders at a rate and scope so unprecedented it seemed to shut down the world in a matter of weeks. By April, the demand for oil had declined nearly 90,000 barrels a day from the same period in 2019.
Oil prices suffered their steepest decline in 30 years — dropping from $60 per barrel to $27 per barrel in the course of 30 days.
Unfortunately, as prices fell, so too did the demand for innovation. As Boston Consulting Group Partner & Director Philip Whittaker wrote in March, the oil and gas industry’s immediate priority was to “assess what it will take to make cash available in the next one to two years. Beyond ensuring business continuity, the top priority is to gain both stability and time.”
This reaction is a common one: A 2012 study on the 2008 economic recession found that organizations’ willingness to innovate decreased significantly whereas before the downturn, they were extremely entrepreneurial. Many predict the same to be true for companies during the COVID-19 crisis, which has already had an incredibly negative impact on the global economy.
As Jacob Ruiter, of InnoEnergy Benelux, puts it, “[This is] an industry that has for so long focused on delivering the same oil and gas projects over and over, only bigger and better.” Ruiter goes on to claim that there is a feeling in the industry that technology is often “pushed rather than pulled.”
But even in the most dire of circumstances, opportunities remain. According to a recent report from Kin and Clareo, there is a significant amount of venture capital in oil and gas that can and should be used — especially since the industry is so in need of simpler solutions for complex, urgent problems.
But it’s more than just a financial push. Now is the time to welcome new voices into the energy conversation By tapping into the younger talent available to the oil and gas industry, the industry could emerge stronger and more resilient.
A New Way Forward
Even in the most robust economies, the oil and gas industry isn’t the easiest place to implement innovation. Before the pandemic, the push for increased digitization was slow, since companies are traditionally project-focused and safety-conscious — not to mention extremely keen on predictability. Not exactly the ideal conditions for experimentation or disruption.
According to the Kin and Clareo report,
“The current business model, with multiple uncoordinated vendors and technologies with differing agendas, is out of step with market conditions. This environment opens the door for new entrants and new business models, particularly those with a more Silicon Valley approach — startups who can slice the market into small opportunity segments, attack them one at a time, and rapidly erode incumbent’s shares.”
Oil and gas companies not only have yet to adopt new business models, but there is a need for technological advancements. This is an industry that still operates with “often old, handwritten documents, in dated calligraphy and handwriting styles,” when dealing with processes such as securing land leases for plants or exploration sites. These inefficient and cumbersome paper-based processes could be automated, via technology like artificial intelligence and cloud computing, to create more efficient workflows and enable cross-discipline collaboration.
There’s also a massive amount of data that, through data science and advanced AI, can be analyzed and harnessed to reduce operational expenses, increase defect detection, down well times, and lessen risk by using AI to monitor work sites for protocol deviations. Technology has the potential to strengthen the O&G industry as a whole, and make it better equipped to withstand the unexpected.
Accessing the Industry’s Hidden — But Available — Talent
The oil and gas industry has an aging workforce that has long been in danger of losing fresh talent to other sectors. The primary roadblock to diversifying the talent pool isn’t a lack of applicants. Some blame the industry’s typical recruitment methods, which do not focus enough on hiring younger, more technologically advanced candidates.
But here, Studio X can help. As a talent incubator for exploration, this innovation studio aims to bring skilled, fresh talent together to come up with innovative solutions for oil and gas’s inefficiencies. For example, one of Studio X’s initial products, called Xeek, showed how data scientists and engineers could come together using AI and machine learning to solve common problems within exploration. These methods include making historical seismic data available during the exploration phase, or creating predictive models that forecast potential equipment failures — something that could conceivably save millions of dollars and countless work hours.
Overall, The goal of these projects is to decrease risk and produce tangible results via innovation. Like any “disruptive” technology — think Uber vs. the taxicab — the key to proving an innovation’s worth is by showing how it eliminates costly inefficiencies. Although oil and gas exploration is complex and carries an enormous cost, the effects of the current economic climate proves that it’s well-positioned for cost-cutting, efficiency-driven changes.
Energy work is facing a fundamental change in how resources are sourced and used going forward, and it is through increased collaboration that a post-pandemic future becomes brighter and more resilient. By bringing modern tech to the energy industry’s workflow and increasing the opportunity for collaboration among more diverse thinkers, O&G will be able to attract a new generation of innovative talent to the energy field, and help legacy companies better equip themselves for a changing and unpredictable landscape.