THE decline in the price of oil has dramatically changed the nature of the industry. As the focus of many analyst reports highlight, the surplus in production (spurred on by Saudi Arabia and OPEC fighting to regain their place as dominant producers) has swamped the market with cheap oil.
Although it was expected that the increase in production would be consumed by a corresponding increase in consumer demand, the world economy is flat. Saudi Arabia’s strategy in itself is causing pain for fellow OPEC members who lack the fiscal buffers to ride out the storm. Moreover, the oil price is unlikely to improve as sanctions against Iran are lifted, and they are able to add 700,000 bbl/d to the global market.
As oil prices tumble below US$40/bbl, the upstream sector finds itself with significant challenges in terms of managing exploration and production costs. At the other end of the supply chain, the downstream petrochemical industry is leveraging the low oil price as feedstocks are cheaper, but are also seeking greater efficiencies to remain competitive.
Ultimately, all parts of the supply chain are feeling the pinch. Companies find themselves with tighter profit margins as the price of oil edges closer to the cost of production. In order to adapt to the different quality of feedstock inputs, downstream companies may need to repurpose refineries – for ‘sweet light’ crude oil from the US versus ‘heavy’ crude oil from Saudi Arabia, for example. But downtime to repurpose plants, along with process and plant energy inefficiency, costs both time and money.
Often, process efficiency is crucial. Knowing the prerequisites for an intended outcome and being able to leverage prior knowledge enables researchers to form a more targeted approach in order to achieve a result with fewer undesired byproducts and less waste. If organisations can design a catalyst or process that is even 0.5% more efficient than a competitor process, it is extremely valuable.
Today’s oil and gas market paints a familiar picture. Around 15 years ago, the management of data and IP within the pharma industry was in a similar state to the oil and gas industry. Research and technology development was paper- or Excel-based, meaning that data was captured and stored in notebooks or spreadsheets. IP protection was also a big challenge, often with data silos, making it tricky and time-consuming to find. Additionally, key process information, knowledge and practical experience would often leave an organisation when a researcher moved on or retired.
Moving data capture and storage to an electronic system – such as those we have seen transform the pharma sector – does away with paper. Researchers can share and access information across the organisation or with external contract partners. Data becomes searchable in real time rather than locked in notebooks, also preventing duplication of work. Moreover, electronic systems help to eliminate manual transcription of data from experimental records, technical run sheets and reports. Managing the data in a more structured manner allows for intuitive searching and reporting, and means there is a steady information flow between the process engineers and the technicians.
For many organisations, it is the design and engineering of the catalyst, process and refinery itself which is seen as strategically key. This knowledge must also be captured and stored safely as it is a vital asset for patent purposes – mirroring the pharma industry’s need for IP data management, where key metadata must be captured alongside the context of the experiment in which it was created to show proof of invention.
With the industry restructuring because of the decline in oil price, there is a significant and tangible risk of valuable IP and knowledge being lost as organisations downsize. In addition, an ageing employee base means that a large number of skilled workers will retire within the next decade. If the low oil price is sustained, it is inevitable that M&A and joint ventures will become commonplace, as companies adapt to survive. A survey of senior oil and gas industry professionals carried out by DNV GL earlier this year found that around 20% of companies plan to increase collaboration in response to the decline. Being able to integrate and share expertise electronically will become a key requirement for the transfer of industry knowledge.
Amidst the upheaval, the oil and gas industry needs to proactively address its inefficiency and to protect its IP and knowledge, by doing away with paper-based records. The pharmaceutical industry has realised the benefit of improvements in efficiency by streamlining workflows and information exchange. Simply put, those companies that adopt an “innovate-to-compete” attitude, and who use available technology to modernise their processes will be the ones that emerge from the crisis as market leaders.
- Ian Peirson is head of Product Planning at IDBS
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