Wash Your Hands and Fine-Tune Your Production Operations to Survive the COVID-19 Oil and Gas Downturn
It’s a scary time to be in the oil and gas industry.
It has been ten days since Moscow walked away from its three-year alliance with OPEC, sending Saudi Arabia and Russia into an all-out oil price war and triggering the biggest oil price crash since 1991.
The hard truth is that we are now in deeply troubled times for the oil and gas industry, and no one can say how long they will last or where the industry will be when the smoke clears. The disintegration of OPEC+ is only the tip of the iceberg—even before the disastrous March 8th summit, oil prices had fallen by 30% since the start of the year (1). As the COVID-19 pandemic spreads unabated and the world’s population is increasingly forced into quarantine, consumption of oil and gas has slowed to a trickle. Meanwhile, the glut in crude oil supply is the largest it has ever been in history, and experts estimate it will swell to over twice the previous high-water mark (2). And all of this is against the backdrop of what is certain to be a massive oncoming global recession, as coronavirus brings worldwide economic activity to a standstill.
The bottom line is that no one knows what to expect from this unique intersection of crises. Pulitzer Prize-winning oil historian Daniel Yergin has commented publicly that he “can’t think of any [oil market crash] that was in the context of a larger global epidemic”(3). Experts can’t reach a consensus on how long the Russia-Saudi Arabia oil price war will last, either—some believe it can’t go on much longer, as it poses too great a threat to the economies of both nations involved, while others say that both Saudi Arabia and Russia are set up to continue their battle long-term. And of course, no one has a clear idea of how long the COVID-19 crisis will last.
So What Can You Do?
All of this paints a bleak-looking picture. It’s clear that oil and gas operators are going to need to tighten their belts if they want to survive the coming months or even years, but many are unsure where to begin. In the aftermath of the downturn that began in 2014, many oil and gas companies have already been working to run leaner operations. Now, those same companies are unsure how to trim down further to keep themselves afloat.
It isn’t all as dire as it seems, though, and there are still ways to dramatically reduce excess costs and optimize operations. Despite the progress the industry has made, many if not most oil and gas operators are still incurring unnecessary extra costs in unscheduled downtime and inefficient operations. Addressing these issues can provide dramatic benefits to a company’s bottom line—enough to stay afloat even through the hard times ahead.
Predictive Maintenance
One of the biggest sources of this lost revenue, and a major driver of extra costs, is unscheduled downtime. A critical asset failure on an offshore production platform can wind up costing a company $3 million in a single day. But too many companies still rely on outdated methods for maintenance, leaving them spending more money than necessary on maintenance paradigms that leave their operations vulnerable to unexpected failures.
AI-powered predictive maintenance is the best way to keep your assets up, running, and producing. In this approach, machine learning algorithms ingest sensor data from critical assets and analyze it, uncovering the patterns that indicate an asset might be trending to failure. This technology can then flag impending asset failure days or even weeks in advance, allowing operators to plan accordingly.
Predictive maintenance is also surprisingly cost-effective. Research from the Electric Power Research Institute compared the annual price tag on scheduled maintenance, reactive maintenance, and predictive maintenance, and the results were clear: Scheduled maintenance costs an average of $24 per horsepower each year. Reactive maintenance costs $17 per horsepower annually, though this is without taking into account the additional costs that may be incurred by letting an asset run to failure. But predictive maintenance costs an average of just $9 per horsepower each year, and without any hidden extra costs.
Operational Efficiency
Another way for oil and gas operators to cut back on costs is by better optimizing their operations. Research by McKinsey & Company has found that offshore platforms only realize an average of 77% of their full production potential (4). Each year, the industry loses a whopping $200 billion to operational inefficiencies.
This is in large part because of the sheer amount of variables and data involved in oil and gas production. Detecting inefficiencies requires analyzing and understanding these heaps of data, and it’s more than any human analyst can make sense of.
Here, again, artificial intelligence can change the game. AI is specifically designed for analyzing large amounts of data and complex variable interactions. In this case, machine learning models can be used to forecast production rates based on both historical and real-time data. More powerfully still, machine learning is able to evaluate control variables in drilling operations, identify the parameters that are driving performance, and use this knowledge to build recommendations to operators on what variables to tweak to optimize production.
None of these are theoretical applications—many leaders in the oil and gas space were leveraging AI capabilities in all the ways described above even before the current crisis.
It’s still unclear how the industry—and the globe—will change in the days, weeks, and months to come. Not all companies will make it out the other end. But it doesn’t have to be as scary as it seems. By making smart, thoughtful investments, oil and gas companies can future-proof their operations, and stay standing through whatever comes.
The tools you need already exist, and they are all within your reach.
(2) https://oilprice.com/Energy/Crude-Oil/Largest-Oil-Glut-In-History-Could-Force-Oil-Even-Lower.html
(Semi Retired) Well's drilling and engineering, instructor, facilitator, advisor.
4 年Agreed, a priority remains as getting the basics, right first time, every time first.?