Decarbonization of industrial sectors: the next frontier

In the Paris Agreement of 2015, member states agreed to limit global warming to 2 °C versus pre-industrial levels. This would imply reducing greenhouse gas (GHG) emissions by 80 to 95 percent of the 1990 level by 2050. As industry accounted for about 28 percent of global greenhouse gas emissions in 2014, it follows that these targets cannot be reached without decarbonizing industrial activities. Industrial sites have long lifetimes; therefore, upgrading or replacing these facilities to lower carbon emissions requires that planning and investments start well in advance.

In this report, we investigate options to decarbonize industrial processes, especially in the cement, steel, ethylene, and ammonia sectors. We selected these sectors because they are hard to abate, due to their relatively high share of emissions from feedstocks and high-temperature heat compared to other sectors. We conclude that decarbonizing industry is technically possible, even though technical and economical hurdles arise. We also identify the drivers of costs associated with decarbonization and the impact it will have on the broader energy system.

The industrial sector is both a global economic powerhouse and a major emitter of GHG emissions

The industrial sector is a vital source of wealth, prosperity, and social value on a global scale. Industrial companies produce about one-quarter of global GDP and employment and make materials and goods that are integral to our daily lives, such as fertilizer to feed the growing global population, steel and plastics for the cars we drive, and cement for the buildings we live and work in.

In 2014, direct GHG emissions from industrial processes and indirect GHG emissions from generating the electricity used in the industry made up ~15 Gton CO2e (~28 percent) of global GHG emissions. CO2 comprises over 90 percent of direct and indirect GHG emissions from industrial processes. Between 1990 and 2014, GHG emissions from the industrial sector increased by 69 percent (2.2 percent per year)[1], while emissions from other sectors such as power, transport, and buildings increased by 23 percent (0.9 percent per year).[2]

Almost 45 percent of industry’s CO2 emissions result from the manufacturing of cement (3 Gton CO2), steel (2.9 Gton CO2), ammonia (0.5 Gton CO2), and ethylene (0.2 Gton CO2)—the four sectors that are the focus of this report. In these four production processes, about 45 percent of CO2 emissions come from feedstocks, which are the raw materials that companies process into industrial products (for example, limestone in cement production and natural gas in ammonia production). Another 35 percent of CO2 emissions come from burning fuel to generate high-temperature heat. The remaining 20 percent of CO2 emissions are the result of other energy requirements: either the onsite burning of fossil fuels to produce medium- or low-temperature heat, and other uses on the industrial site (about 13 percent) or machine drive (about 7 percent) (see Exhibit 1).[3]

Exhibit 1: Why are the steel, cement, ammonia, and ethylene sectors hard to abate?

Why are the steel, cement, ammonia, and ethylene sectors hard to abate?

Source: IEA data from World Energy Statistics © OECD/IEA 2017 IEA Publishing; Enerdata: global energy and CO2 data; expert interviews

After breakthroughs in the power, transport, and buildings sectors, industrial decarbonization is the next frontier

Global efforts have driven innovation and the scaling up of decarbonization technologies for the power, buildings, and transport sectors. This has led to major reductions in the costs of these technologies. Examples are the recent reductions in the costs of solar photovoltaic modules and electric vehicles. Less innovation and cost reduction have taken place for industrial decarbonization technologies. This makes the pathways for reducing industrial CO2emissions less clear than they are for other sectors.

Besides that, CO2 emissions in the four focus sectors are hard to abate for four technical reasons. First, the 45 percent of CO2 emissions that result from feedstocks cannot be abated by a change in fuels, only by changes to processes. Second, 35 percent of emissions come from burning fossil fuels to generate high-temperature heat (in the focus sectors, process temperatures can reach 700 °C to over 1,600 °C). Abating these emissions by switching to alternative fuels such as zero-carbon electricity would be difficult because this would require significant changes to the furnace design. Third, industrial processes are highly integrated, so any change to one part of a process must be accompanied by changes to other parts of that process. Finally, production facilities have long lifetimes, typically exceeding 50 years (with regular maintenance). Changing processes at existing sites requires costly rebuilds or retrofits.

Economic factors add to the challenge. Cement, steel, ammonia, and ethylene are commodity products for which cost is the decisive consideration in purchasing decisions. With the exception of cement, these products are traded globally. Generally, across all four sectors, externalities are not priced in and the willingness to pay more for a sustainable or decarbonized product is not yet there. Therefore, companies that increase their production costs by adopting low-carbon processes and technologies will find themselves at an economic disadvantage to industrial producers that do not.

Industrial companies can reduce CO2 emissions in various ways, with the optimum local mix depending on the availability of biomass, carbon-storage capacity and low-cost zero-carbon electricity and hydrogen, as well as projection changes in production capacity

A combination of decarbonization technologies could bring industry emissions close to zero: demand-side measures, energy efficiency improvements, electrification of heat, using hydrogen (made with zero-carbon electricity) as feedstock or fuel, using biomass as feedstock or fuel, carbon capture and storage (CCS), and other innovations.[4]

The optimum mix of decarbonization options depends greatly on local factors. The most important factors are access to low-cost zero-carbon electricity and access to a suitable kind of sustainably produced biomass because most processes in the focus sectors have significant energy- and energy-carrier-related feedstock requirements that could be replaced by one or both of these alternatives. The local availability of carbon storage capacity and public and regulatory support for carbon storage determine whether CCS is an option. The regional growth outlook for the four focus sectors matters, too, because certain decarbonization options are cost-effective for use at existing (brownfield) industrial facilities while others are more economical for newly built (greenfield) facilities.

Since the optimum combination of decarbonization options will vary greatly from one facility to the next, companies will need to evaluate their options on a site-specific basis. To help industrial companies narrow down their options and focus on the most promising ones, we offer the following observations, which account for current commodity prices and technologies (see Exhibit 2):

    • Energy efficiency improvements can reduce carbon emissions competitively, but cannot lead to deep decarbonization on their own. Energy efficiency improvements that lower fuel consumption by 15 to 20 percent can be economical in the long run. However, depending on the payback times on energy efficiency required by companies (sometimes less than two years), implementation can be less than the potential of 15 to 20 percent.

    • Where carbon-storage sites are available, CCS is the lowest-cost decarbonization option at current commodity prices. However, CCS is not necessarily a straightforward option for decarbonization. CCS imposes an additional operational cost on industrial companies, whereas further innovation could make alternative decarbonization options (for example, electrification of heat) cost competitive vis-à-vis conventional production technology. CCS can only be implemented in regions with adequate carbon-storage locations, and supportive local regulations and public opinion. CCS has the distinction of being the only technology that can currently fully abate process-related CO2 emissions from cement production.[5]

    • At zero-carbon electricity prices below ~USD 50/MWh, using zero-carbon electricity[6] for heat or using hydrogen based on zero-carbon electricity becomes more economical than CCS. Electricity prices below USD 50/MWh have already been achieved locally (e.g., hydro and nuclear-based power-system of Sweden) and could be achieved in more places with the current downward cost trend in renewable electricity generation. The minimum price that makes it less expensive to switch to zero-carbon electricity than to apply CCS for decarbonization depends strongly on the sector, local fossil fuel and other commodity prices and the state of the production site.

» At electricity prices below ~USD50/MWh, electrifying heat production at greenfield cement plants is more cost-competitive than applying CCS to the emissions from fuel consumption, provided that very-high-temperature electric furnaces are available.[7, 8]

» At electricity prices below ~USD35/MWh, hydrogen use for greenfield ammonia and steel production sites is more cost-competitive than applying CCS to conventional production processes.

» At electricity prices below ~USD25/MWh, electrification of heat in greenfield ethylene production and in brownfield cement production and usage of hydrogen for brownfield steel production are more cost-competitive than applying CCS to conventional production processes.

» Finally, below an electricity price of ~USD15/MWh, usage of hydrogen for brownfield ammonia production and electrification of heat for ethylene production are more cost-competitive than applying CCS to conventional production processes. This means that electric heat production and usage of electricity to make hydrogen are more economical approaches to decarbonization than CCS in all four focus sectors at this electricity price level.

Exhibit 2: With low electricity prices, cost-based trade-offs will favor more electrification and hydrogen than CCS

With low electricity prices, cost-based trade-offs will favor more electrification and hydrogen than CCS

Lower costs for capital equipment or process innovations could make electrification or the use of zero-carbon electricity based hydrogen economical at higher electricity prices.

    • Using biomass as a fuel or feedstock is financially more attractive than the electrification of heat or the use of hydrogen in cement production and at electricity prices above ~USD 20/MWh in steel production. Mature technologies are available for using biomass as fuel and feedstock in steel and as fuel in cement production. These technologies reduce emissions more economically than CCS on the conventional process. Biomass can also replace fossil fuel feedstocks for ethylene and ammonia production. Though this approach costs more than electrification or hydrogen usage, it also abates emissions in both the process and at end-of-life of the product, such as the emissions from incineration of plastics made from ethylene. The global supply of sustainably produced biomass, however, is deemed limited at the global level. Additionally, re-forestation to generate offsets might be a counter use of biomass rather than the shipping and usage in industrial processes.

    1. Demand-side measures are effective for decarbonization but were not a focus of this report. Replacing conventional industrial products with lower-emission alternatives (e.g., replacement of cement with wood for construction) would result in significant reductions in CO2 emissions from the four focus sectors. Radical changes in consumption patterns driven by technology changes could further offset demand, such as reduced build-out of roads (and therefore cement) through autonomous driving, reduced demand for ammonia through precision agriculture. Moreover increasing the circularity of products, by e.g., recycling or reusing them can also cut CO2 emissions. Producing material based on recycled products generally consumes less energy and feedstock than the production of virgin materials. As an example, producing steel from steel scrap requires only about a quarter of the energy required to produce virgin steel.

Industrial decarbonization will require increased investment in industrial sites and has to go hand in hand with an accelerated build-out of zero-carbon electricity generation

  • Completely decarbonizing the energy-intensive industrial processes in the four focus sectors will have a major impact on the energy system. It is estimated that it would require ~25 EJ to 55 EJ per year of low-cost zero-carbon electricity. In a business-as-usual world, only 6 EJ per year would be needed, indicating that, regardless of the mix of decarbonization options chosen, electricity consumption will go up significantly. The transition in the power and industrial sectors should thus go hand in hand. The industrial sector might be able to lower the costs of the power sector transition, e.g., by providing grid balancing, while being a large off-taker that can support increased build-out of generation capacity.

  • The total costs of fully decarbonizing these four sectors globally are estimated to be ~USD 21 trillion between today and 2050. This can be lowered to ~USD 11 trillion if zero-carbon electricity prices come down further compared to fossil fuel prices (see Exhibit 3).[9] These estimates are based on cost assumptions that do not allow for process innovations or significant reductions in the costs of capital equipment. Furthermore, they heavily depend on the emission reduction target, local commodity prices, the selected mix of decarbonization options, and the current state of the production site. The estimated costs for complete decarbonization of the four focus sectors are equivalent to a yearly cost of ~0.4 to 0.8 percent of global GDP (USD 78 trillion). According to the estimations in this report, about 50 to 60 percent of these costs consist of operating expenses and the remainder consists of capital expenditures, mainly for cement decarbonization.

An analysis of the effects of different electricity prices suggests that decarbonization would have an upward impact on the costs of the industrial products: cement doubling in price, ethylene seeing a price increase of ~40 to 50 percent, and steel and ammonia experiencing a ~5 to 35 percent increase in price.[10]

Exhibit 3: The total costs of decarbonization are highly dependent on the electricity price

The total costs of decarbonization are highly dependent on the electricity price

Source: McKinsey Energy Insights

Advance planning and timely action could drive technological maturation, lower the cost of industrial decarbonization and ensure the industry energy transition advances in parallel with required changes in energy supply

    • Governments can develop roadmaps for industrial decarbonization on local and regional levels. Setting such a longer-term direction for decarbonization could support planning for decarbonization by other parties, including industrial companies, utilities and owners of key infrastructure (such as the electricity grid or hydrogen pipelines), and unlock investments with long payback times. Such a roadmap should take a perspective, e.g., on the production outlook, resource availability (including carbon-storage sites), additional resources required (zero-carbon electricity generation, etc.), coordinated roll-out of infrastructure and demand-side measures, as well as the role government would play (e.g., in the development of critical infrastructure).

    • Adjust regulation and incentives in line with decarbonization roadmaps. Various policy mechanisms could support industrial decarbonization. These might include direct incentives for companies to decarbonize or adjustments to the financial requirements placed on utilities and other companies involved in energy generation and distribution.

    • Industrial companies should prepare for decarbonization by conducting a detailed review of each facility in their portfolio. Such a review should include the availability of low-cost zero-carbon electricity, zero-carbon hydrogen, biomass, and carbon-storage capacity near the facility as these will differ on a country-by-country basis. Interaction with other stakeholders, such as governments, utilities, and other industrial companies, could help to identify synergies between industrial decarbonization and decarbonization in other sectors or companies, driving targeted innovation and driving down costs. For example, companies in an industrial cluster might benefit from shared carbon-storage infrastructure.

    • Governments, industrial companies, and research institutions can support innovation and the scale-up of promising decarbonization technologies, which is required to reach full decarbonization of the industrial sector. Innovative decarbonization technologies could potentially lower the costs of the industry transition. Governments can support the development of innovative decarbonization options, including the scale-up of global markets, e.g., in certain types of biomass, or the introduction of innovative processes to lower implementation costs. Overall, decarbonizing industrial sectors requires collaboration across governments, industrial players, and research institutes, similar to the effort that led to the cost reduction and scale-up of renewable energy generation.

McKinsey & Company, www.mckinsey.com. Copyright (c) 2018 McKinsey & Company. All rights reserved. Reprinted by permission.

About the authors


Occo Roelofsen is a Senior Partner, Arnout de Pee is a Partner, Eveline Speelman is an Associate Partner, and Maaike Witteveen is an Engagement Manager in McKinsey’s Amsterdam office. Dickon Pinner is a Senior Partner in McKinsey’s San Francisco office and Ken Somers is a Partner in McKinsey’s Antwerp office.

References


[1] Feedstocks are the raw materials that companies process into industrial products. High-temperature heat is defined in this report as a temperature requirement above 500 °C.

[2] Based on IEA data from the World Emissions Database © OECD/IEA 2018, IEA Publishing; modified by McKinsey.

[3] Breakdown of emissions is defined by the use of various reports and datasets, most importantly IEA, Enerdata, heat and cooling demand, market perspective (JRC 2012), and sector energy consumption flow charts by the US Department of Energy combined with input from experts. Activities up and down the value chain are not included in these numbers and could lead to additional emissions, e.g., transportation of fuel to the production site or incineration of ethylene-based plastics at end of product life.

[4] Other innovations can be non-fossil-fuel feedstock change (e.g., alternatives for limestone feedstock in cement production) and other innovative processes (e.g., reduction of iron ore with electrolysis).

[5] At the current state of technology, process emissions from cement production can only be abated by a change in the feedstock. Alternatives for the conventional feedstock (limestone) are not available (yet) at scale. Hence, decarbonizing cement production currently relies on CCS.

[6] The zero-carbon electricity price should be the average wholesale industrial end user price, so including, e.g., transmission, distribution, and storage costs.

[7] Electrification of very-high-temperature heat (>1,600 °C) required in cement production would require research, as these temperatures are not yet reached in electric furnaces.

[8] Process emissions from cement production cannot be abated by a fuel change and therefore require CCS, irrespective of electricity prices.

[9] These total costs include all capital and operational costs on industrial sites, but exclude other costs, e.g., build-out of zero-carbon electricity generation capacity.

[10] Conventional prices assumed are: cement USD 120/ton, steel USD 700/ton, ammonia USD 300/ton and ethylene USD 1,000/ton.

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PRESS RELEASE: Oildex Announces OpenTicket

Oildex, the leader in financial automation solutions for the oil & gas industry, today announced OpenTicket, the next generation of the company’s digital field ticket solution. OpenTicket is the industry’s only comprehensive, end-to-end cloud-based platform that provides both operators and service providers with all the software they need to generate, review and approve digital field tickets. New capabilities of OpenTicket include a dedicated mobile application that supports both online and offline generation of digital field tickets, support for Drilling & Completions (D&C) and Lease Operating Expense (LOE) organizations, and processing optimizations that speed payments, improving operator/supplier relationships.

“Highly inefficient paper field tickets are the last obstacle to overcome when it comes to automating and digitizing the oilfield,” said Craig Charlton, CEO of Oildex. “OpenTicket solves this problem and allows service providers to quickly and easily submit field tickets while allowing operators to quickly and easily approve those field tickets. Coupled with our OpenInvoice platform and recently announced Supply Chain Finance program, we are creating the most efficient source-to-settle ecosystem in the oil & gas industry.”

New Capabilities in OpenTicket

  • Complete solution for both operators and service providers: Through online portals for both operators and suppliers, OpenInvoice integration, a cloud-based collaborative workflow engine, integration APIs and a dedicated mobile application, OpenTicket is a complete solution for both service providers generating and submitting field tickets, as well as operators adjudicating and approving field tickets.

  • Offline mobile support for service providers: A native iOS and Android mobile app allows for the creation of digital field tickets as work is completed with Store and Forward functionality, so it works even when service providers are offline. The application features a user interface designed with the needs of service providers working in the field in mind.

  • Support for Drilling & Completions (D&C): New OpenTicket D&C functionality including rentals support, as well as integration with industry-leading morning reporting systems to provide accurate up-to-the-minute cost information from field tickets submitted via the mobile app.

  • “Virtual Company Man” capability: For Lease Operating Expense (LOE) production operations field supervisors, OpenTicket provides a ‘virtual company man’ capability whereby service provider personnel become members of a virtual team, allowing the field supervisor to be aware of all operations and costs across a broad geographic territory in near real time.

  • Optimized processing expedites approval enables ‘Pay on Ticket’: Several new processing improvements such as automated price book reconciliation allow OpenTicket to significantly decrease the time associated with the approval, invoicing, and payments, leading to improved operator/service provider relationships.

“With the introduction of OpenTicket, Oildex seems to have figured out a solution to a problem that has plagued the oilfield services industry since the very beginning,” said Bob Cohen, Research Director, Ardent Partners. “Oildex has streamlined the field ticket process by offering reconciliation with price books and purchase/work orders, added support for auto-approval scenarios that automatically ‘flip the ticket’ into an invoice, and applied AP workflow and approval capabilities to the field ticket automation process.”

By removing the use of traditional paper field tickets, OpenTicket improves safety by eliminating unnecessary travel, makes all field ticket information analyzable data to support analytics initiatives, gives field supervisors complete visibility into all activities and costs, and automates compliance and reconciliation processing to expedite approvals and payments. OpenTicket fully integrates with OpenInvoice to create a seamless and automated platform for submitting field tickets and creating digital invoices for review and approval.

Packaging and Availability
Formerly known as OpenInvoice Field Ticket, OpenTicket is available now. Operators can subscribe to OpenTicket and purchase OpenTicket Mobile seats they can distribute to their service providers. Existing Field Ticket subscribers will be able to obtain OpenTicket Mobile licenses from Oildex. As an agile development shop, Oildex updates OpenTicket every month. While most of the new capabilities in OpenTicket are already available, some including D&C functionality is planned to be available this summer.

About Oildex
Oildex is transforming the way the oil and gas industry connects, collaborates and automates. More than 1,100 operators, 67,000 service providers, dozens of financial institutions and millions of mineral rights owners use the Oildex Network to seamlessly and securely collaborate with their business partners, automate critical business processes, eliminate the high cost and errors associated with the handling of paper, and obtain access to key data to make more informed business decisions. Oildex is headquartered in Denver and has offices in Calgary; Houston; Austin; Fayetteville, Arkansas, and Tennessee. Learn more about Oildex at http://www.oildex.com.

Contact:
Andy Prince
Public Relations
(512) 289-4728
[email protected]

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OTC 2018 – RealWear Adds Scaling Capability Through New Industry Support

RealWear Signs Global Agreement with Honeywell to Connect Frontline Workers in Energy and Process Manufacturing Industries with Intrinsically Safe Devices

May 1, 2018 – HOUSTON (Offshore Technology Conference – OTC) – RealWear®, the global leader in ruggedized wearable computers for industrial customers, today announced that it has taken a big step forward and further validated the industrial wearable computing market.  RealWear signed a strategic agreement with Honeywell to co-brand and sell the RealWear HMT-1® and HMT-1Z1™ wearable computers and accessories globally. The HMT-1Z1 is the world’s first and only intrinsically safe head-worn wearable computer (ATEX Zone 1 and Class 1 Division 1) for the highly competitive industrial sector, including the energy and process manufacturing industries.

“The RealWear HMT-1Z1 head-mounted, wearable computer helps us to efficiently connect the worker to the information he or she needs in real time from anywhere.” – Youssef Mestari, Honeywell Connected Plant 

“With Skills Insight Intelligent Wearables, part of our Honeywell Connected Plant portfolio, we are focusing on how to make industrial workers safer and more productive when they are out in the field,” said Youssef Mestari, Program Director, Honeywell Connected Plant.  “The RealWear HMT-1Z1 head-mounted, wearable computer helps us to efficiently connect the worker to the information he or she needs in real time from anywhere.”

“With the level of strength from Fortune 100 players like Honeywell, we are well poised to get these intrinsically safe wearable computers quickly into the field to empower hands-free connected workers, wherever they go,” said Andy Lowery, Cofounder and CEO of RealWear.

Certified for ATEX Zone 1 use, the HMT-1Z1 is the only global intrinsically safe product on the market, meaning it presents no ignition risk where potentially explosive atmospheres exist during routine operation.

Certified for ATEX Zone 1 use, the HMT-1Z1 is the only global intrinsically safe product on the market, meaning it presents no ignition risk where potentially explosive atmospheres exist during routine operation.

“We’ve had good success onboarding and deploying HMT-1 units and are eagerly awaiting the HMT-1Z1™ units,” said Bryan Shackelford, an innovation representative at Eastman Chemical, Worldwide Engineering and Construction Services and Solutions. “Those intrinsic safety-rated units will serve to bridge workflow into hazard-rated areas where we’ve historically had difficulty deploying new technology. We hope to see a step change in operations with the deployment of the RealWear HMT-1Z1.”

In a recent Bloomberg-Business Week article, it was reported that one oil and gas company spent $50,000 in just travel to fly a specialized crew by helicopter to replace a critical turbine.  However, that cost is dwarfed by the lost revenue incurred during the arduous travel.  An average-sized refinery will lose $12 million per day due to an unplanned outage. These travel costs and the loss of revenue is avoidable with a connected worker strategy centered around the RealWear HMT-1Z1. A connected field worker can safely communicate with experts anywhere in the world, adding eyes and real-time information to a complicated operation at a refinery or on an oil platform. The device can help bring a heavy-duty machine back online in minutes or hours, not days, saving millions.

Certified for ATEX Zone 1 use, the HMT-1Z1 is the only global intrinsically safe product on the market, meaning it presents no ignition risk where potentially explosive atmospheres exist during routine operation. There are about 700 oil refineries globally with 250,000 users in North America alone who are currently using intrinsically safe two-way radios, mobile phones, and other devices that all require the use of workers’ hands, but who are better served with a voice-controlled ruggedized wearable computer.

ABI estimates energy and utility companies’ annual spend on AR headsets and related technology will reach $18 billion in 2022, among the most of any industry.

The RealWear HMT-1Z1™ can be purchased directly through Honeywell.

About RealWear

RealWear®, the global leader in hardware technology for industry, has built the first hands-free ruggedized head-mounted wearable computer for Connected Worker programs, the HMT-1. RealWear has more than 350 customers worldwide in oil and gas, utilities, automotive and manufacturing. Through its growing ecosystem of 75 software providers, RealWear offers remote mentor, document navigation, industrial IoT visualization and digital workflow solutions to reduce downtime, increase productivity and improve worker safety, eliminating the need for costly or dangerous repairs.

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Aaron Cohen, Head of Communications
[email protected]
415-819-7791

www.realware.com

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New technologies will fuel surging US oil production

Commentary by David Farr, Chairman and CEO of Emerson

A funny thing happened to the oil and gas industry as it lay flat on the mat after the collapse of oil prices about four years ago.

It figured out how to get up and start investing for the future again.

While scores of exploration and production companies went bankruptand more than 200,000 American energy industry workers lost their jobs, some resourceful producers figured out how to slash costs and boost efficiency. Upstream, midstream and downstream, they adopted new technologies that enabled them to cope with much lower-priced oil.

Now, with oil back to $60 a barrel and more, their production is surging, and the world has in some ways been turned upside down. As The New York Times recently reported, the United States is rapidly becoming a significant world oil and gas producer. Led by shale oil companies that adopted innovative technologies, America will likely surpass Saudi Arabia and rival Russia as the world’s leading oil producer this year.

Good news just beginning to flow

But for oil and gas companies, it’s fair to say, the good news has really just begun to flow. That’s because the opportunities for applying technologies that bring down costs and boost productivity are still enormous, and innovation is expanding rapidly. The turnaround we have begun to see in some companies’ fortunes is only the tip of the iceberg.

In part that’s because until just recently, the industry has been decidedly slow to adopt new digital technologies. That’s understandable, given the hefty profit margins companies reaped when oil surpassed $100 a barrel – peaking a decade ago this summer at more than $145.

Prices like that made new approaches and innovation a low priority; the overwhelmingly primary challenge was production – maximizing output now. Then, when prices crashed – to $26 just two years ago – most companies were more focused on cutting their capital spending than innovation. The same pattern seemed to hold true across all manufacturing industries in general.

But as prices began to creep up again, at least some oil and gas companies began to fold more automation and technology into their plans. A year ago, I wrote that for the first time in years, I was beginning to see hope in the industry, as companies were finally beginning to make long-overdue investments to enhance safety, efficiency and productivity. Now these companies are playing a major role in the U.S. production surge.

For that very reason, more and more companies are going to want to jump on the bandwagon with them, accelerating the trend’s momentum. Also playing a role in companies’ plans: digital technology itself is better than ever before, and more reliable and safer.

Chewing on ‘Big Data’

Consider sensors, for example. Today they can measure not only variables such as temperature, pressure and fluid levels, but also more sophisticated ones, like corrosion, vibration and hazardous leaks. And they can wirelessly communicate all these measurements reliably, saving vast sums on engineering, no-longer-necessary wiring and labor. They can communicate over the Industrial Internet of Things (IoT), which is no longer a dream – it’s a reality. But this innovation is just beginning.

Then consider the ability to access the reams of information – the Big Data – that all these tireless sensors are producing. Cloud computing makes it possible to set up central operations wherever we want, even as the sensors operate in “four D” environments – places that are Dull, Distant, Dirty and Dangerous. New software and analytics are enabling companies to chew the Big Data into digestible bites and give them actionable insights. As a result, companies can predict, save and optimize in ways that would have been considered impossible only a few years ago.

An example: End-to-end Exploration and Production (E&P) solutions are now available to help oil and gas operators increase efficiency, reduce costs and improve return on investment. These solutions range from seismic processing and interpretation to production modeling.

Companies can now interpret data and generate high-fidelity representations of existing brownfield assets in ways that enable them to maximize production and avoid nonproductive drilling and wasteful exploration spending.

Advances like this will help companies ensure ongoing safety, improve reliability, maximize availability and reduce operating costs, as well as avoid negative environmental impacts. They’re the kinds of innovations that have already changed the world in just the last couple of years. It’s clear now that in the years ahead, we can confidently look forward to much more in a safer, more productive, more environmentally friendly environment.

Reference source: CNBC Published March 5, 2018

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