May 2024Digital Technologies

HP Tagline--Digital TechnologiesDigital transformation shapes the oil and gas industry: Achieving unparalleled growth and operational efficiencyJ. Gardner, KBC, a Yokogawa Company, Houston, Texas; and S. FITZSIMMONS, KBC, a Yokogawa Company, The Hague, NetherlandsThe oil and gas industry is facing numerous challenges that are impacting its profitability and future growth. After averaging 3.7 MMbpd in the past year, global oil demand growth is set to decelerate sharply to 2.4 MMbpd this year, 1.2 MMbpd by 2025 and a mere 500,000 bpd in 2026.¹ One key challenge stems from the rapid expansion of electric vehicles (EVs) and the growing adoption of biofuels. With the increasing shift to cleaner energy alternatives driven by consumer behavior and market demands, oil and gas companies must adapt production, transportation and consumption processes. Furthermore, profitability is confronting dual pressures of volatile commodity prices and rising costs. The industry also struggles with heightened scrutiny around sustainability and climate change concerns.Embracing digital transformation. Traditionally, oil and gas companies have relied on large capital projects and infrastructure to drive returns. Today, the idea of sinking billions of dollars into mega-projects as the sole path to profitability is gone. Those clinging to legacy systems are stuck in a cycle of diminishing returns and risk falling behind their forward-thinking counterparts. To stay competitive, companies must embrace digital applications and focus on optimizing return on capital employed (ROCE). This can be achieved by generating profits efficiently from capital investments. In today's volatile market, maximizing ROCE is the key to thriving. Operational efficiency, technology-driven productivity and margin optimization are vital to value creation. Digital transformation facilitates value creation by increasing operating margins and revenues while lowering capital investment costs, trading capital expenditures for higher margins and predictable operational expenditures (OPEX). To boost returns on capital, oil and gas companies can leverage digital technologies. New technologies like digital twins, artificial intelligence (AI), machine-learning (ML), automation, Internet of Things (IoT) sensors and advanced analytics unlock value, uncover new revenue streams and increase efficiency. While this digital oilfield market size was valued at $27.4 B in 2020, it is projected to reach $54.4 B by 2030.²With predictive maintenance, companies can use data-driven insights to optimize production assets and extend asset life while cutting unplanned downtime. Digital transformation offers the opportunity for new discoveries, optimized production and reduced costs. By applying digital transformation, a company with a 250,000-bpd refinery and an estimated $5/bbl margin with a $150-MM investment can achieve an 11% internal rate of return (IRR) and the high-level production benefits shown in TABLE 1. Note: IRR is the rate of return that equates the present value of an investment's expected gains with the present value of its costs (i.e., the discount rate for which the net present value of an investment is zero).Gardner-Table-01Optimizing value. Companies must recognize and address their pain points and opportunities to gain the most value from their digital transformation projects. They must be clear about their business objectives and value drivers. According to the authors’ company, these drivers encompass (FIG. 1):

Growth and profitability

Operational efficiency and control

Sustainability

Organizational capacity and capability

Safety and risk management.

Gardner-Fig-01To maximize return on investment (ROI), companies must ensure these digital transformation objectives are realistic and achievable. By employing several strategies, companies can unlock the full potential of digital transformation. The following are some approaches to maximize ROI in digital transformation:

Clear objectives and metrics: Define the objectives and outcomes of digital transformation initiatives. Additionally, establish key performance indicators (KPIs) and metrics to measure progress and track ROI. These metrics can include factors such as revenue growth, gross refinery margin, cash flow, energy consumption, greenhouse gas emissions, customer satisfaction or operational efficiency. By consistently monitoring these metrics, companies can make data-driven decisions to refine their digital transformation strategy.

Prioritize value-driven investments: Take steps to create digital initiatives that contribute to achieving strategic goals. By focusing on value creation opportunities, companies can identify inefficient processes and transform them to create significant business value. This not only helps gain quick wins but also builds confidence among stakeholders. Moreover, this approach ensures a sustainable transformation journey in both the short and long term. To evaluate each investment opportunity, companies should consider its impact on revenue generation, cost savings, competitive advantage and/or customer experience.

Agile implementation and iterative approach: Adopt an agile methodology that emphasizes iterative implementation and continuous improvement. By breaking the transformation journey into smaller, manageable phases, companies can effectively manage risks and correct deviations along the way to deliver value incrementally.

Cross-functional collaboration: Foster collaboration and engagement across the company where employees feel valued and empowered to contribute their ideas. By involving key stakeholders from various business functions, companies can ensure alignment and identify opportunities for optimization. This collaboration allows for leveraging diverse perspectives to drive innovation.

Change management and employee enablement: Support employees throughout the digital transformation process. By providing employees with the necessary training, resources and support, companies can increase the likelihood of employee engagement. This not only helps them adapt to new technologies and processes but also empowers them to leverage digital tools effectively to become valuable drivers of ROI.

Continuous evaluation and optimization: Regularly assess the progress, impact and ROI of digital initiatives. By leveraging data analytics, companies can gain valuable insights into the performance of their digital initiatives and identify areas for optimization or further investment. This iterative approach allows organizations to refine and align their strategies to maximize ROI.

By adopting these strategies and approaches, companies can significantly improve their chances of unlocking the ROI in their digital transformation efforts. What is digital transformation? Digital transformation refers to the integration and adoption of digital technologies across all aspects of a company and the implementation of new business models. It includes prioritizing people, processes, technology and data and being prepared to do things differently than in the past. As shown in FIG. 2, digital transformation involves embracing new business models, creating new customer experiences and optimizing operations. It is not an overnight process, but rather a journey that involves two preliminary steps: digitization and digitalization. Digitization involves moving from analog to digital data, while digitalization focuses on automating processes using technology. Gardner-Fig-02According to the authors’ company, digital transformation goes beyond continuous improvement. It is defined as moving manual processes toward autonomous operation, where systems take control and human intervention is removed. The significant impact and cost of human error³ in manufacturing companies reached more than $25 B in 2023, and account for:

90% of safety incidents

25% of unplanned manufacturing downtime

95% of cybersecurity breaches

34% of data breaches.

These statistics highlight the urgent need for digital transformation in the industrial sector. The megatrend that is reshaping the industrial sector is autonomous operations, where systems can operate independently, make decisions, adapt to changing conditions and execute tasks without human intervention. The adoption of automation technologies like AI/ML and robotics is becoming increasingly crucial. While adopting autonomous operations often requires significant changes, the benefits can be substantial. One example of this transformation is seen in control rooms at the industrial level. Control rooms have evolved from analog and manual controls to digitally-enabled environments that have enhanced the capabilities of real-time data collection, analysis and visualization, resulting in improved decision-making and operational efficiency. Today, digital transformation has revolutionized company operations, making it possible to move to integrated operation centers. These centers consolidate operations from multiple facilities into one centralized location, seamlessly integrating facilities, control and automation systems, and business functions. They facilitate remote monitoring and control processes and equipment, and the co-location of operators from different assets for improved communication, optimized performance and standardized processes. This approach eliminates the need for physical presence and human intervention in hazardous and/or remote locations. Digital business transformation. To maximize digital transformation value, companies must reimagine their operating models. According to Gartner, 89% of companies have either adopted or have plans to adopt a “digital first” business strategy that goes beyond just adopting digital tools to fundamentally transform the business using technology. As shown in FIG. 3, these steps include task optimization, digital augmentation, digital process re-engineering and digital business transformation.Gardner-Fig-03In a digital-first company, value capture is closely tied to the company’s ability to leverage its digital assets and capabilities to generate revenue and maintain a competitive advantage. Key characteristics of a digital-first company include:

Culture of digital innovation: Foster a culture of innovation to stay competitive. This means prioritizing digital technologies and capabilities, along with having a desire to experiment and take risks. Creating new products, services and ways of working is essential for companies to thrive. Embracing a culture of digital innovation helps companies seize new opportunities and drive growth.

Hyper-automation of processes: Automate every possible process, thereby increasing efficiency and productivity. This includes streamlining processes using AI, robotic process automation and other technologies that minimize human intervention, as well as creating agile, adaptable infrastructures using cloud and robust cybersecurity.

Digital skills and talent: Invest in developing digital skills within the organization’s talent and fostering a learning culture that encourages upskilling and reskilling. Companies should look to improve employee productivity, reduce information overload and make information more readily available.

Organization agility: This term refers to the ability to quickly adapt to changing market conditions. Leaders walk the walk and talk the talk. This includes breaking down silos and promoting cross functional teams and collaboration across different teams company-wide.

Data-driven decision-making: Rely on data and analytics to drive decision-making. Collect and analyze data from various sources to gain insights, optimize processes and identify opportunities for improvement.

Customer-centric approach: This places the customer at the center of the organization’s strategy. This enables companies to better understand and meet their needs to improve their customer experiences. One way to achieve this is through numerous digital touchpoints to enhance customer interactions.

Technologies drive digital transformation. Several technology enablers play a crucial role in driving digital transformation. These high-impact technologies are divided into the following three categories:

Foundational and decision-making technologies. These technologies exist within current operations and augment human intelligence, and help companies manage data, gain insights and make informed decisions. These technologies include digital twins, process simulators, big data and analytics, AI and wearables. Each of these technologies plays a specific role in enhancing operations, improving efficiency and driving innovation. When integrated effectively, they can enable companies to embrace digital transformation and gain a competitive edge in today's dynamic business landscape.
Process simulators play a crucial role in enabling digital transformation and, when paired with AI/ML, the IoT and other advanced technologies, can provide a digital twin of real-world operations. They can be used to model performance, analyze the impact of different operating conditions and optimize process variables. By running simulations, operators can test different scenarios, evaluate the consequences of their decisions and identify opportunities for improvement. When paired with real-time optimization, the system can make real-time changes to optimize production variables, eliminating human intervention/error.

Sensing and control technologies. These technologies enable organizations to collect data, monitor processes and optimize operations. They include sensors, drones, robots and the IoT. These sensing and control technologies provide organizations with real-time data and insights, enabling them to make proactive decisions, optimize processes and improve operational efficiency. By leveraging these technologies effectively, companies can reduce costs, minimize downtime, enhance quality control and deliver better customer experiences. Control technologies, coupled with sensing data, enable autonomous systems to make decisions and take actions without human intervention.
Sensing and control technologies facilitate predictive maintenance in autonomous operations. By analyzing sensor data and using ML algorithms, autonomous systems can identify potential equipment failures before they occur. When paired with a digital work management system, companies can automatically schedule maintenance activities, reducing downtime and improving the overall reliability of energy systems.

Connectivity enabling technologies. These technologies are core for any digital business today to realize benefits. They include wireless networks, broadband connectivity, cloud computing and virtual networks, enabling organizations to connect with customers, suppliers and partners, and facilitating collaboration, the exchange of information in real time and innovation. By effectively implementing and leveraging these connectivity enabling technologies, organizations can transform their business processes, drive innovation and gain a competitive edge in today's digital landscape.
Connectivity enables the remote monitoring and management of assets in real time, regardless of their location. This capability allows operators to collect data, analyze performance and remotely control equipment, reducing the need for onsite personnel, which increases safety.
Connectivity plays a crucial role in enabling communication and coordination between autonomous vehicles and robots in the field. These technologies can perform tasks such as inspection, monitoring and maintenance with minimal human intervention, improving safety and increasing operational efficiency.

The digital transformation journey. Conducting a maturity assessment is a common step for companies in their digital transformation journey. It helps companies identify and understand the gap between their current and desired state. Additionally, it creates a culture that embraces change and innovation.Strategy alignment. Digital transformation helps companies remain agile and responsive in an ever-evolving digital landscape, ensuring they stay competitive and deliver value to their customers. Digital transformation provides companies insight into the strengths and weaknesses of their digital strategy and helps them develop a roadmap for future enhancements. By involving different stakeholders and departments in the assessment process, companies foster cross-functional collaboration and encourage collective ownership of digital initiatives. Embracing a mindset of ongoing learning and adaptation via regular digital maturity assessments can help drive accountability and transparency.Industrial automation to industrial autonomy^a is an assessment that has been developed by the authors’ parent company. The maturity levels range from 0–5, with 0 representing manual operations and 5 representing completely autonomous operations without human intervention. As depicted in TABLE 2, each level of maturity corresponds to specific benefits, such as:

Improved safety. Autonomous operations reduce the need for a human presence in hazardous environments to minimize the potential for human error and enhance overall safety. It helps refiners enhance safety measures and ensure regulatory compliance. With the help of technologies like remote monitoring, digital twin models and predictive analytics, refiners can identify potential safety risks in real time, as well as optimize maintenance schedules and mitigate operational hazards.

Increased efficiency. Automation and autonomous operations play a crucial role in improving operational efficiency by reducing manual labor, optimizing processes and streamlining workflows. Companies can leverage advanced analytics to gain insights from large datasets, enabling better decision-making and more effective resource allocation. By leveraging technologies like data analytics, ML and automation, refiners can enhance production planning, reduce downtime and optimize energy consumption.

Enhanced reliability. Autonomous systems can provide consistent performance and reliability. These systems operate based on predefined rules, algorithms or AI models. This reduces the risk of human error and variability. Companies can use ML algorithms to analyze production data and identify opportunities for improving yields, reducing costs and increasing productivity. By integrating technologies like the IoT, sensors and predictive maintenance, refiners can improve equipment reliability, extend asset lifecycles and reduce maintenance costs.

Scalability and flexibility. Autonomous operations can offer scalability by allowing for the smooth expansion of operations without a proportional increase in human resources. They also provide the flexibility to adapt operations to changing demands and conditions.

Cost savings. Automation and autonomy can reduce labor costs and downtime while optimizing resource utilization. Cloud-based platforms and digital tools facilitate collaboration and knowledge sharing among employees and partners. Furthermore, remote teams can work together seamlessly and share insights in real time, regardless of their location.

Sustainability. Autonomous operations—powered by advanced technologies—play a crucial role in sustainability efforts. They allow companies to monitor and manage their environmental impact more effectively by optimizing energy consumption, reducing emissions and integrating renewable energy sources.

Gardner-Table-02Choosing the approach. Companies pursuing digital transformation goals can employ multiple strategies. Choosing the right approach must align with each company’s specific needs and goals. To ensure success, it is crucial to carefully assess the company’s goals, resources, readiness for change and industry dynamics to select the most suitable pathway. Furthermore, it is necessary to regularly evaluate and adjust the approach as progress is made, while considering the evolving technology landscape and market dynamics. By choosing the right approach, companies can effectively deliver digital transformation projects, leverage technology, drive value and build the necessary capabilities for success.Technology-led approach. Technology is the primary driver for transforming and improving business processes and overall operations. Companies are increasingly prioritizing and implementing technologies across their operations. By deploying technologies at scale and pace, they can accelerate digital transformation and quickly realize the benefits of technology adoption. However, this approach requires careful planning, strategy and resources.Value-led approach. Companies implement digital transformation initiatives in small steps and prioritize high-value return projects to generate cash flow. This strategy enables companies to build momentum, demonstrate the benefits of digital transformation and secure resources for further initiatives. While this approach involves less risk and a more gradual organizational change, it may take longer to achieve the desired outcomes.Capability-led approach. This approach for digital transformation involves deploying initiatives in phased or modular stages. This approach prioritizes the deployment of company capabilities and change management to drive technology into new ways of working. By building the necessary capabilities and testing systems to support the implementation, companies can effectively manage risks and validate results before scaling up. This agile approach allows for iterative learning, ensuring that subsequent phases build upon the successes and lessons learned from previous stages. Greenfield and new startups. Greenfield projects and startups in the oil and gas industry have a unique advantage in today's digital age. With the opportunity to start from scratch without the burden of legacy systems and processes, they are well-positioned to embrace digital transformation from the outset. By leveraging digital technologies, these companies can streamline processes, reduce manual labor and mitigate environmental impacts. They can even optimize energy consumption and reduce waste by considering autonomous operations from the very beginning. By implementing advanced algorithms and AI, they can optimize production processes, improve safety and reduce human intervention. Ultimately, this leads to more efficient and self-sustaining operations. The possibilities for these startups are endless.CASE STUDIESThe following are two case studies within the upstream and downstream oil and gas industries. Digital maturity assessment and autonomous operations business case: Moving to a normally unattended facility. The following details an upstream company’s approach to autonomous operations:

Challenge: An upstream operations company wanted to move to autonomous operations where systems can operate independently, make decisions, adapt to changing conditions and execute tasks without human intervention. The objectives included defining initiatives to improve operational efficiency and uptime, minimizing field staffing requirements and realizing normally unattended operations.

Approach: Subject matter experts evaluated the company’s digital maturity across different dimensions (strategy, leadership, culture, technology, processes and data), assessing each dimension to determine the company’s maturity level. The team then analyzed the assessment results and collected information to identify key risks, challenges and opportunities, and used the information to develop use cases to move the customer to autonomous operations, prioritized cost benefit analysis and automation requirements.

Results: The company received a forward-moving strategy and roadmap of prioritized projects to achieve an autonomous minimally unattended facility. From the cost benefit analysis, the company was able to determine the capital investment required to move forward across three different scenarios (i.e., 1-d, 1-wk, and 1-mos unattended facilities). Scenario enablers were identified, including platform design simplification, equipment requirements, infrastructure upgrades, automation of systems and IoT requirements. The projected results for the customer moving to a normally unattended facility were projected to be a 2% production uplift, a 15% reduction in OPEX and a reduced risk profile with minimal time offshore staffing.

Closed-loop optimization business case. The following case study details a downstream company’s goal of reducing emissions in operations:

Challenge: A downstream refining operations company wanted to supply energy demanded by the process or contracted to be exported in the cheapest and/or least emissions possible way within emissions, costs, operational and contractual constraints. The company wanted to ensure rapid and consistent action to save energy and reduce emissions.

Approach: The company installed a digital twin-based energy management system to optimize—on a real-time basis—energy balances and KPI calculations. Optimum targets were calculated and sent back to the control system for setpoint definitions. The system operated with no human intervention in real-time optimization.

Results: The company realized a 2%–5% reduction in utility costs and a corresponding decrease in emissions, resulting in a quicker reaction to cost and emissions reduction opportunities.

Challenges and barriers in implementing digital transformation. According to Baker McKenzie, 77% of companies have already started their digital transformation journey. However, according to McKinsey Consulting, 70% of those initiatives will fail. The following reasons contribute to failure:

Risk aversion: The oil and gas industry’s cautious approach to change is heavily controlled with extensive rules and regulations. With projects spanning many years and needing massive capital outlays to fund operations, companies in the industry are cautious about change. Digital technologies are evolving rapidly to add another layer of complexity, forcing companies to decide quickly about what to embrace and adopt. Ultimately, fears about potential production interruptions, safety risks and regulatory compliance make companies reluctant to take risks.

Legacy systems and infrastructure: Energy companies often face challenges in integrating digital technologies into their legacy systems and infrastructure. The process of modernizing and integrating these systems can require significant investments, technical know-how and expertise in overcoming compatibility issues.

Data management and cybersecurity: The increasing use of digital technologies generates an overwhelming volume of data, which companies must collect, store, manage and secure. This requires appropriate data management practices and robust cybersecurity measures to protect sensitive information from potential cyber threats. By doing so, companies can ensure the integrity, confidentiality and availability of their data.

Skills and workforce training: The successful implementation of digital transformation in refineries requires a skilled workforce. Refiners need employees who are equipped with the technical knowledge and capabilities to operate and maintain digital systems. Training existing employees and attracting new talent can be challenging.

Change management and organizational culture: Digital transformation involves changes in processes, workflows and organizational culture. Refiners may encounter resistance from employees during this change and must foster a culture that embraces continuous learning, innovation and the adoption of digital technologies.

Gardner-Fig-04Takeaways. Many companies struggle to fully realize the value of their digital transformation efforts. However, research shows that partnering with a trusted ally can significantly increase the success rate, with 71% of companies achieving their digital transformation goals via collaboration. The process of digital transformation goes beyond technology. It entails deep organizational change and the development of new capabilities. When navigating the challenges alone, companies’ progress stalls and the potential of new technologies remains untapped. Conversely, working with the right partner brings valuable expertise, resources and an outside perspective needed to overcome common barriers to change. Partners play a crucial role in filling capability gaps, supplying specialized skills and solutions, and driving momentum. With the right partner, the path to true transformation becomes clearer. The steps are more achievable, turning possibilities into reality.Digital transformation is a necessity for the oil and gas industry. It offers the potential for unparalleled growth, operational efficiency and improved decision-making. By embracing digital technologies and becoming a digital-first business, companies can transform their operations, reduce human error and drive autonomous operations.The ROI for digital transformation in the oil and gas industry is significant. By leveraging data-driven insights and automation, organizations can achieve cost savings, operational efficiencies, improved safety and accelerated growth. The benefits outweigh the challenges, making digital transformation a strategic imperative for oil and gas leaders.While implementing digital transformation comes with its challenges, including legacy systems and cultural resistance to change, organizations can overcome these barriers through careful planning, collaboration and a comprehensive strategy. Addressing cybersecurity concerns and acquiring the right talent are also crucial to successful implementation.By following the roadmap outlined in this article, oil and gas companies can navigate the complexities of digital transformation and position themselves at the forefront of the industry. Embracing this journey will enable organizations to thrive in an increasingly interconnected and digital world, driving innovation and shaping the future of the oil and gas industry. HPNOTE ^a Yokogawa’s IA2IA^TM LITERATURE CITED

Valle, S., “Rystad sees oil at $60 a barrel by 2027 as demand peaks,” Reuters, October 6, 2023, online: https://www.reuters.com/markets/commodities/rystad-analysts-say-oil-demand-peaking-predict-60-barrel-by-2027-2023-10-06/

Allied Analytics, “Digital oilfield market to witness huge growth by 2030—Infosys, SLB, Siemens, Weatherford, etc.,” EINPresswire, February 22, 2024, online: https://www.einpresswire.com/article/690417031/digital-oilfield-market-to-witness-huge-growth-by-2030-infosys-schlumberger-siemens-weatherford-etc

Eser, A., “Essential human error statistics in 2024,” Zipdo, June 14, 2023, online: https://zipdo.co/statistics/human-error/

First Author Rule LineAuthor-pic-GardnerJeannie Gardner is the former Global Leader of Digital and Asset Transformation at KBC Advanced Technologies, A Yokogawa Company. She has more than 20 yr of experience in the oil refining and petrochemicals industries. In her role, she focused on delivering a comprehensive digital and asset transformation strategy for customers worldwide. She is an expert in large-scale business and digital transformation, and has been instrumental in delivering digital transformation, process optimization and standardization projects, and business strategies to drive optimal business outcomes that have resulted in revenue acceleration and cost reduction. Author-pic-FitzsimmonsShane Fitzsimmons is a Principal Consultant at KBC, A Yokogawa Company, leading the strategy and business excellence practice focused on operational excellence and digital asset transformation. With more than 20 yr of experience in oil, gas and power industries, including roles at bp, Reliant Energy, Ernst & Young and Booz & Co., Fitzsimmons drives efficiency through upstream and downstream oil and gas transformative digital projects, supporting unattended and minimal field staffing initiatives of assets. He has led engagements for business improvement, strategic direction and post-merger integration.CoverAd—AxensContentsAd—HoneywellMastheadAd—MerichemEditorial CommentAd—GraceInnovationsAd—Shell MEMMPodcastsAd—AMETEKColumn—Viewpoint (UOP)Ad—Catalyst Trading Company HVColumn—Sustainability (Alazemi, Petrochemical Industries)Ad—IRPCSpecial Focus OpeningSPECIAL FOCUS—Martinez Gacio (Axens)SPECIAL FOCUS—Ditsch (Oleo-X)Ad—GEI Excellence AwardsSPECIAL FOCUS—Keller (Sustainable Transportation Fuels)SPECIAL FOCUS—Vincent (BASF)Ad—CCS Strategy EuropeProcess Optimization—Wan (Trindent Consulting)Ad—WGLCHeat Transfer—Kulkarni (BASF Chemicals India)Heat Transfer—Donnangelo (Emerson)Ad—BoxscorePDECC—Sakthivel (TATA Consulting Engineers)Refinery and Petrochemical Integration—Al Anazi (University of Bahrain)Ad—InstruCalcHydrogen—Nair (Center for Green Technology & Management)Digital Technologies—Gardner (KBC)Ad—H2T CircSales OfficeAd—HP Circ (Back Cover)