Energy markets gear up to ride the digital wave

By Deepti Nayak Energy markets today operate in a highly competitive and dynamic environment where change is one of the few constants. In the last few years, extreme price volatility has forced producers, traders, and consumers to reconfigure their strategies to deal with the evolving ecosystem. Let us understand these changes and how digitisation is no more a choice but a mandate for these market participants.  According to Barclay’s Exploration and Production (E&P) Spending Outlook released in March 2016, global capital expenditure on exploration dropped 26% in 2015 and 15% in 2016 till date. This decline has put pressure on E&P companies to maximise production output by sweating the existing assets. Observing the ongoing initiatives and emerging trends, we foresee following key themes which can help shape digital transformation.  Energy Value chain To fully understand the processes in the oil, gas and power industry, we subdivide the value chain into three stages.  Energy utility companies have always been overly cautious of where they invest and have always been last to embrace changes, leaving them behind the curve as compared to industries such as banking, retail, and e-commerce, etc. Motivated by digitally savvy competitors, new regulations, innovative business models, and changing consumer preferences, energy utility companies are now moving away from their “old-school” methods. Let us understand how these companies are transforming their existing business models by implementing digital solutions: Upstream A single drilling rig can generate one terabyte of data per day, leading to an oil field generating up-to one petabyte (1024 terabytes) or more per day.  If this data needs to transmit to offshore control centers, it will take about 24-48 hours to do so. By this time, the data would have become irrelevant for any quantitative analysis. However, the new age digital solutions solve this problem by processing the field data continuously in real time, with applications automating decision-making, performing predictive analysis, reacting to alarms, and monitoring and controlling production process - with or without human intervention. This makes the quantitative analysis more insightful and saves a significant part of the costs associated with the manual processes. Deploying these solutions becomes even more viable as Cloud Storage reduces the cost of setting up the necessary IT infrastructure and various mobility solutions for workforce to bring down the operational cost. Going forward, we will witness significant  automation in the industry using robots that can communicate with each other (using IoT enabled sensors), analyse large amount of data (big data analytics), and making decisions basis insights, that were humanly impossible a few years ago. Midstream Smart sensors at processing plants, vessels, and turbines etc. enable real-time data to be transmitted to control rooms for process monitoring. However, the opportunity for midstream companies is in extracting and utilising the vast amount of data for safety, integrity and asset management. Another opportunity is for remote surveillance or monitoring of pipelines, plants and storage facilities by using drones or smart robots armed with video analytics and artificial intelligence that can go to places unsafe for humans. Downstream Refineries are some of the most automated divisions in the entire energy value chain. The key objectives stated by refiners include better enterprise connectivity and use of real-time analytics. To accomplish productivity & quality improvements, organisation must invest in business process re-engineering by adopting newer technologies. Smart grids have the potential to change the interaction between the utility and the consumer thereby breaking the monopoly of the utility companies.  Advanced Metering Infrastructure systems can be used to detect the power thefts, thereby reducing the losses as well. (The worldwide power loss including theft is estimated to be about two-hundred billion dollars annually). Way forward Digitization has evolved over time and provides incremental value over what was already available in the market. Therefore, we will witness several value-add applications that transform the entire energy value chain. The need is to have more end-to-end digitisation platforms that can be customized according to the business needs of different organisations (upstream, midstream, or downstream). As the global energy markets ecosystem matures to adopt these new age technologies, the cost to do so will reduce significantly. The author is Senior Manager, Trading and Risk Management, Sapient Global Markets.