The Not So Well Known Partnership Between Technology and Oil
- Forward Thinking
- May 17, 2020
- 3 min read
Recently, I was doing some industry research on the future of the oil and gas sector and how companies are implementing technology and AI to support growth. This includes, of course, major opportunities to improve and streamline operational efficiencies in extraction, refining, and distribution operations, which will assist in lowering the break-even price per barrel (An issue oil and gas companies faced when oil prices dipped) and "future-proof"oil profits. However, an area I stumbled upon and was surprised by was the use of technology and AI in oil and gas exploration.
It seems that the major technology companies, such as Amazon, Google, and Microsoft, have created AI applications that use different data inputs, such as gravity fields and geology, (Which there is a large amount of collected by the oil and gas companies) to identify optimal places to explore and extract oil. The key aspect is that the AI will assist not only with current reserves, which will eventually be depleted, but also with not easily identified or extractable reserves. This will assist with fueling the use of oil and gas into the future.
I'd like to analyze this not directly from a strategy perspective but rather from a perspective as a support to a strategy. To clarify, what I mean by a strategy perspective is an analysis of the strategy of a firm itself; a support to a strategy is understanding the operations, human capital, technology, and different functions a company utilizes to support a growth strategy (It is key to remember operational efficiency is not strategy).
In this blog, I'll review ExxonMobil and how it is using technology and AI to unlock growth potential. To begin, it is key to understand ExxonMobil's strategy: using the firm's competitive advantage of innovation, technology, and integration to drive long-term value and return through low cost of capital via economies of scale.
For ExxonMobil, its competitive advantage is technology; as result, its actual investment in technology and the creation of new innovations are an operation in itself.
As part of its technology operation that has invested billions of dollars, ExxonMobil is growing one key area: artificial intelligence. Now, AI has two main uses:
Process improvement and operational efficiencies in maximizing current reserves and production.
Operational effectiveness in new reserve exploration to boost growth.
In regards to process improvement and operational efficiency, oil and gas companies can use AI to optimize plants and reduce operational costs. For instance, AI can centralize data management and support integration to find insights and predictive analytics for plant operators. For instance:
AI can be used, through the storage and management of current knowledge from industry veterans, to predict when maintenance is needed on pipes to prevent corrosion.
It can also be used to identify equipment that is being overused and prevent production plant failures.
AI is also being used to optimize effectiveness in the identification of new oil and gas reserves during the exploration and production phase. As demand for oil and gas continues to increase and as supplies becomes tighter (For a numerous amount of reasons ranging from foreign policy to reduced oil reserve renewal rates), AI is being used to drive effectiveness in the upstream phase (Consisting of exploration and production). Through analyzing millions of data points currently captured by oil and gas companies (Such as magnetic fields or topography), AI can predict and assist in deciding where to drill for new oil and gas reserves.
Clearly, AI and technology is having a profound effect on an antiquated industry. But as technology and AI continues to grow and as investments in the fields grow, I am interested to see the future of oil and gas. Yes, it will become more efficient but I am interested to see how the different functions of a company will become more effective. What are your thoughts?
Sources:
file:///Users/phpark/Downloads/understanding-the-competitive-advantage-of-low-cost-producers.pdf
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