The global oil and gas (O&G) industry is in turmoil due to oil price declines and growing demand for cleaner energy resources. IMF announced cuts in 2019 and 2020 oil price forecasts and indicated that renewable energy is becoming more affordable. Upstream operations involve major capital expenditures for oil and gas companies, so cost optimization is now a top priority for them. The World Bank has also confirmed that it will not invest in upstream oil and gas post-2019 to promote sustainable energy, as it is cleaner and cheaper. This PoV enables oil and gas companies to evaluate the AI solutions that they can implement for upstream oil and gas to achieve cost reductions and overall efficiency.
Oil and gas companies have prioritized AI solutions for their upstream operations performance-improvement lever
In 2019, HFS published a Top 10 energy service providers report that describes the value chain of the oil and gas industry, as described in Exhibit 1. The upstream operation is known as exploration and production (E&P), and it includes exploration, development, and production processes focused on the search for rock formations associated with oil or natural gas deposits, exploratory drilling, designing and building of wells, and the process of extracting the hydrocarbons.
Exhibit 1: Energy operations value chain
Source: HFS Research 2019
For the report, HFS interviewed more than 30 energy leaders who mentioned that the near-term top priority is to increase both top and bottom lines with the help of emerging technologies; AI is the target of most of the investments. The availability of real-time data is one of the most crucial factors for the effective implementation of AI solutions. Previously, due to remote locations and poor availability of network connectivity, real-time data collection was not possible. With the advent of low-power wide-area networks (LPWAN), O&G companies can collect data across all production touchpoints into a single platform for future analysis and forecasting.
Oil and gas companies have started to adopt AI solutions in upstream operations
We have observed several investments and partnership announcements in this space among the major oil and gas organizations in the past few years; here are some notable events:
The oil and gas ecosystem is focusing on AI solutions
Software vendors and service providers have also taken several initiatives in this space; here are some of the key announcements:
Five ways oil and gas companies can implement different AI solutions for their upstream procurement
Implementing these AI solutions can improve operational efficiency, production output, asset utilization, workflow automation, and drilling decisions. AI solutions will enable an integrated and automated upstream operation closely collaborating with the other parts of the value chain.
Source: HFS Research 2020
The Bottom Line: Exploit AI solutions for improved decision quality and cost optimization making for upstream operations in the oil and gas industry.
Oil and gas companies can improve their upstream operations and create an integrated view of the value chain through the application of different AI methods and solutions. Early adopters of the technology will be in an advantageous position through better asset planning, utilization, and maintenance; reducing downtime and running costs; and improving the front-facing business activities such as sales, marketing, and customer experience. As competition grows more intense in the oil and gas industry, organizations need to invest in new areas (new locations for exploration, investment in renewable energy, etc.), and, to do that, they need to leverage AI for cost optimization for existing operations.