Executive Briefings

Adoption of IoE by Oil & Gas Industry Could Fuel GDP Increase of Up to 0.8 Percent, or $816Bn, Over 10 Years

Worldwide oil production is outpacing demand, and oil prices have fallen by more than 50 percent since June 2014. Many factors - including soft demand, increasing U.S. production and diminishing storage for crude oil - suggest that the days of $100-a-barrel oil may not return. This scenario presents potentially disastrous consequences for oil and gas (O&G) firms that are not prepared to accelerate their digital transformation. Innovative oil and gas firms, however, believe today's turbulent market landscape provides an opportunity to grab competitive advantage by harnessing new technologies, such as the Internet of Everything.

Cisco Consulting Services conducted a survey that uncovers the urgency for the oil and gas industry to adopt digital technologies powered by the Internet of Everything (Cisco's preference over the term Internet of Things)  - the networked connection of people, process, data and things - to stay competitive. The survey identified intelligence from data as the key area needed to improve operational efficiency, and data analytics as the No. 1 IoE driver for faster, better decision-making.

Industry adoption of IoE could increase global GDP by up to 0.8 percent, or $816bn. To calculate this number, Oxford Economics began by incorporating into its Global Economic Model Cisco's $600bn IoE Value at Stake estimate for the oil and gas industry over the next decade (including productivity gains, reduced OpEx and CapEx, and IoE adoption cost of $180bn).

This estimate is based on both increased supply and greater demand, resulting in a "positive supply shock" for the global economy. Lower oil prices stimulate more spending on goods and services, with most of the gains being realized through the consumer sector. Oxford also projects that global consumer spending could be up to 1.5 percent higher than the base-case forecast by 2025. This aggregate increase includes a "second round impact" of higher economic activity, raising overall employment (and decreasing unemployment) around the globe.

IoE-driven value will come from improvements in asset utilization, process or supply chain efficiency, employee productivity, CapEx savings, and market innovations. For a mid-sized oil and gas company with $50bn in annual revenue, IoE can generate a $538m annual profit increase and an 11 percent bottom-line (EBIT) improvement. Seventy-two percent of these benefits are derived from cost reduction, while the remaining 28 percent are from increased revenues.

Key findings include:
Cisco's survey respondents named "operational efficiency of existing projects or reserves" and "maintenance of assets and infrastructure" as their top two areas of increased investment over the next 24 months. Leaders must improve operational efficiencies and asset life to stay competitive without cutting costs through layoffs and project cancellations. While survey respondents understand that connecting "things" is a necessity, true value lies in the intelligence of extracted and analyzed data from the "things." This intelligence allows oil and gas firms to drive business and operational transformation.

-- 48 percent of respondents named "data" as the area of IoE they need to improve most to make the most effective use of connected technologies (IoE).

Effective data management and analytics can generate operational and business benefits. Offshore oil platforms generate between 1TB and 2TB of time-sensitive data per day. Slow satellite communication is the most common link to transmit this data, requiring over 12 days to move one day's worth of oil-platform data to a central repository such as the cloud. An effective data strategy involves being able to automatically detect whether the data needs to be sent to the cloud for analysis, or whether it should be analyzed at the "edge" of the network, where the data is collected (e.g., from sensors on drilling equipment). Edge analytics allow O&G companies to gain greater real-time insight, thus providing specific business and operational advantages.

-- Survey respondents ranked "faster problem resolution" as the No. 1 business benefit of connected technologies (IoE), while "improved production efficiency" was the top operational benefit.

-- Respondents believe IoE will boost operational efficiencies primarily in the upstream segment of the value chain, naming "production" as the No. 1 beneficiary.

Analytics-driven insights will drive the opportunity for process change and optimization.

-- More than half of respondents believe IoE has the potential to automate anywhere from 25 percent to nearly 50 percent of manual processes.

-- "Production optimization" was identified by 56 percent of respondents as the process with most IoE-driven automation benefits, ahead of "Maintenance" and "Business Operations."

Protection of company information (including customer, transactional, and geological data) was identified as the chief security concern. The Department of Homeland Security stated that 53 percent of all cybersecurity incidents in the six months ending in May 2013 occurred in the energy sector, and the number of attacks is increasing.

-- "Process control systems" was the second-biggest security concern, followed by "IT systems."

Effective IT-OT convergence can optimize business processes, enhance information for better decisions, reduce costs, lower risks, and shorten project timelines.

-- O&G companies need to make improvements in this regard: 59 percent of survey respondents do not believe that their firms' IT and OT strategies are aligned.

Source: Cisco

Cisco Consulting Services conducted a survey that uncovers the urgency for the oil and gas industry to adopt digital technologies powered by the Internet of Everything (Cisco's preference over the term Internet of Things)  - the networked connection of people, process, data and things - to stay competitive. The survey identified intelligence from data as the key area needed to improve operational efficiency, and data analytics as the No. 1 IoE driver for faster, better decision-making.

Industry adoption of IoE could increase global GDP by up to 0.8 percent, or $816bn. To calculate this number, Oxford Economics began by incorporating into its Global Economic Model Cisco's $600bn IoE Value at Stake estimate for the oil and gas industry over the next decade (including productivity gains, reduced OpEx and CapEx, and IoE adoption cost of $180bn).

This estimate is based on both increased supply and greater demand, resulting in a "positive supply shock" for the global economy. Lower oil prices stimulate more spending on goods and services, with most of the gains being realized through the consumer sector. Oxford also projects that global consumer spending could be up to 1.5 percent higher than the base-case forecast by 2025. This aggregate increase includes a "second round impact" of higher economic activity, raising overall employment (and decreasing unemployment) around the globe.

IoE-driven value will come from improvements in asset utilization, process or supply chain efficiency, employee productivity, CapEx savings, and market innovations. For a mid-sized oil and gas company with $50bn in annual revenue, IoE can generate a $538m annual profit increase and an 11 percent bottom-line (EBIT) improvement. Seventy-two percent of these benefits are derived from cost reduction, while the remaining 28 percent are from increased revenues.

Key findings include:
Cisco's survey respondents named "operational efficiency of existing projects or reserves" and "maintenance of assets and infrastructure" as their top two areas of increased investment over the next 24 months. Leaders must improve operational efficiencies and asset life to stay competitive without cutting costs through layoffs and project cancellations. While survey respondents understand that connecting "things" is a necessity, true value lies in the intelligence of extracted and analyzed data from the "things." This intelligence allows oil and gas firms to drive business and operational transformation.

-- 48 percent of respondents named "data" as the area of IoE they need to improve most to make the most effective use of connected technologies (IoE).

Effective data management and analytics can generate operational and business benefits. Offshore oil platforms generate between 1TB and 2TB of time-sensitive data per day. Slow satellite communication is the most common link to transmit this data, requiring over 12 days to move one day's worth of oil-platform data to a central repository such as the cloud. An effective data strategy involves being able to automatically detect whether the data needs to be sent to the cloud for analysis, or whether it should be analyzed at the "edge" of the network, where the data is collected (e.g., from sensors on drilling equipment). Edge analytics allow O&G companies to gain greater real-time insight, thus providing specific business and operational advantages.

-- Survey respondents ranked "faster problem resolution" as the No. 1 business benefit of connected technologies (IoE), while "improved production efficiency" was the top operational benefit.

-- Respondents believe IoE will boost operational efficiencies primarily in the upstream segment of the value chain, naming "production" as the No. 1 beneficiary.

Analytics-driven insights will drive the opportunity for process change and optimization.

-- More than half of respondents believe IoE has the potential to automate anywhere from 25 percent to nearly 50 percent of manual processes.

-- "Production optimization" was identified by 56 percent of respondents as the process with most IoE-driven automation benefits, ahead of "Maintenance" and "Business Operations."

Protection of company information (including customer, transactional, and geological data) was identified as the chief security concern. The Department of Homeland Security stated that 53 percent of all cybersecurity incidents in the six months ending in May 2013 occurred in the energy sector, and the number of attacks is increasing.

-- "Process control systems" was the second-biggest security concern, followed by "IT systems."

Effective IT-OT convergence can optimize business processes, enhance information for better decisions, reduce costs, lower risks, and shorten project timelines.

-- O&G companies need to make improvements in this regard: 59 percent of survey respondents do not believe that their firms' IT and OT strategies are aligned.

Source: Cisco