Digitizing Downstream Operations Can Significantly Capture Value by Improving Efficiencies and Productivity for Oil and Gas Companies

Oil and gas companies can significantly cut costs and improve efficiencies by digitizing their downstream operations, according to a recent report published by Strategy&, part of the PwC network. Companies, however, are unlikely to unlock this value using a traditional approach to adopt new technology. Instead, they need to prioritize the options with greatest and fastest impact, build the right capabilities, and implement them using an agile approach.

Anil Pandey, partner with Strategy& Middle East, said: “Given the strategic push by many companies to expand the downstream component of the oil and gas value chain, digitization is more than an opportunity, it is an imperative. Based on our experience, companies that successfully digitize can cut operating costs by up to 20%, increase plant efficiency by as much as 12%, and reduce the number of unplanned shutdowns. But new technologies are constantly emerging, and downstream operations are extremely complex, making it tough to introduce new tools quickly for companies across the industry.”

The report, which surveyed senior executives at national and international oil companies, also found that most organizations in the industry struggle with other common issues. For example, many companies lack a clear vision for implementing a digital strategy across the organization, and move too hastily to invest in the latest digital offerings without thinking carefully about their underlying business needs. They often try to implement new tools using traditional approaches to project management, which tend to be slow, linear, and overly structured.

The Strategy& Middle East report outlines a three-step approach for oil and gas companies to overcome these challenges and unlock significant value:

1. Link projects to business priorities. First, companies need to prioritize their digitization efforts by linking them to the functions with the maximum value. This includes emphasizing operations and maintenance excellence to drive efficiency and productivity; connecting the entire supply chain digitally from raw material to end customer to improve service efficiency, optimize inventory and incorporate customer insights; and adopting smart health, safety, security, and environment to reduce human exposure to hazardous operations and streamline key processes. Organizations can use digital support tools to achieve this. Some digital tools are relatively basic, such as mobile and hand-held devices. Others are more advanced, such as “digital twins” which are virtual facilities that can model the effect of changing input parameters and help managers make better decisions.
2. Build foundational capabilities. Companies invariably need to revamp their technology architecture to incorporate newer technologies and applications while ensuring effective cybersecurity protocols are in place to protect critical operations and assets. In some cases, these replace older processes and systems entirely. In other cases, these technologies can sit on top of existing hardware, making implementation faster.

At the same time, companies need to build new skills in the workforce, particularly data and analytics capabilities. For example, organizations will need data scientists to maximize insights from vast amount of existing and new data. The greater reliance on data means that companies need to think about data governance and management—making information accessible to the right people at the right time.  

3. Apply an agile approach to IT implementation. “Companies need to assess their digital maturity across selected lines of business, pilot a few new technologies linked to business priorities, and scale up the initiatives that have proven their applicability and delivered associated benefits”, said Jean Salamat, Principal with Strategy& Middle East. For example, a company could launch a pilot project to establish a proof-of-concept in terms of digitizing one process in a specific geographic market. Based on the outcome of that pilot, it could then expand the implementation to other functions and markets, or make adjustments based on lessons learned.

Dr. Reinhard Geissbauer, partner with Strategy&, concluded: “The latest advances in digitization provide a significant opportunity to change the management and operations of downstream oil and gas facilities in a fundamental way. However, many management teams are overwhelmed by the sheer range and complexity of new technologies, and the pace at which they are developing. To make sense of the options, they need to take a business-first approach to technology, rather than a technology-first approach to business. By following this method, they can rewire their organizations for better performance today, and position themselves to capitalize on the new technologies that will emerge tomorrow.”