3 Ways the Oil & Gas Industry is Applying IoT to Cut Costs

By Tony Velcich, Jan 23, 2023

This article is the fourth in a series exploring use cases and innovative approaches to edge computing and IoT across a range of industries where these technologies are expected to deliver outsized business value.

The global oil and gas (O&G) industry is expected to invest $43.48 billion in the Internet of Things (IoT) by 2024, with a CAGR of 21.86%. What kind of cost savings will this produce? About $930 billion by 2025.

Such a huge savings is critical to an industry facing a near-term future of volatile energy prices, unpredictable events, and the transition away from fossil fuels to both renewable, clean energy and battery-powered options. The inability to analyze operational data in real time can be costly — you find the problems _after _they happen. Take a liquified natural gas plant, for example. A shutdown can cost up to $25 million per day, and this event typically occurs about five times per year. O&G companies can’t control this future, but they can use IoT to offset these risks and manage change.

Managing this change requires greater investment in IoT to cut costs from existing operations, and in turn using that available cash to finance the migration to new forms of energy, according to a recent Deloitte report, “From bytes to barrels: The digital transformation in upstream oil and gas”.

IoT cuts costs, generates cash

All businesses want to cut expenses and operate more efficiently, but this goal is more urgent in the oil and gas industry. Peak demand for oil is expected to pass sometime between 2024 and 2027, according to a McKinsey & Co. report detailing the state of the global oil and gas industry. Global demand for natural gas is expected to rise 10% to 20% per year, hitting a peak in 2035. During that time, demand will shift from the developed to the developing world, then decline. And that will mean diminished revenues for a capital-intensive industry.

IoT can help energy producers increase revenue and, in some cases, find new revenue streams, in a number of ways. By using sensors, for example, to monitor valves, pipelines, and machinery structures, IoT can provide a complete operational picture that data leaders can use to deliver innovative changes to their business processes and operations.

It is no surprise that only 1% of data ever gets analyzed. Every facility becomes a data jail, as valuable information is locked up, beyond the reach of timely decision-making.

But, the use of IoT will also generate a lot of data, so energy producers will also have to develop capabilities to move terabytes of information from the edge to the cloud to enable analysis and action. Do this right, and companies can cut costs, freeing up lots of cash.

Here are three real-world examples of how the O&G industry is investing in IoT for business impact.

1. Taming the seas with IoT

Offshore oil platforms in the Gulf of Mexico must face the cruel sea. Hurricanes are an occasional menace, but it’s the mundane that is the real slow killer: salt. Corrosion must be monitored. That meant oil rig workers climbing out on the structure, which is dangerous work.

A joint effort between Ericsson and Tampnet developed an IoT network to replace human inspection. Beams and pipes are under constant surveillance. IoT reduces the need for human workers to do the inspection and monitoring. Only on an offshore platform this could mean performing risky work at great heights, in confined spaces, or “over the side” above the water.

The same sensors can also monitor vibrations caused by the raising and lowering of the oil rig. This data can then be fed into analytics software, which can calculate when preventive maintenance is needed, again cutting costs.

All this is linked to a 4G LTE wireless network to transmit data from the IoT sensor network on each rig back to its control center. This is an upgrade from an older 2G network spread out among 50 offshore oil rigs spread out around a roughly 311,000 square mile area.

Running a single offshore oil rig can cost $200,000 a day. Implementing an IoT solution can cut 30% to 40% of that expense.

2. Upgrading a legacy facility with IoT

Natural gas gets to the customer eventually, after going through a maze of pipes, pumps, and valves. Texas-based Atlas Partners L.P. was making a large investment in a new gas processing plant to replace an older facility that was too expensive to upgrade.

It took operators two hours to make the necessary rounds to log information from the 75 gauges located throughout the plant. And, this had to be done five times a day. Data lagged current time conditions, making it impossible to spot problems before they occured. Compressor failures and inlet-level control issues would sometimes cause the plant to shut down, thus robbing the owners of revenue and saddling them with troubleshooting costs.

Taking an IoT approach, the pipeline operator decided to integrate existing equipment with a new control room. All 75 gauges became measurement points for a sensor network that would log the data in real time and transmit it via a wireless network back to the control room.

Operators could see problems as they arose and could take immediate action to fix these issues without triggering a plant shutdown. Operators gained a time savings of 42% — now applied to more useful tasks. Pre-emptive problem solving also added to the plant’s productivity, as downtime was less of an issue.

3. The triad approach to a homegrown solution

BPX Energy had a “perfect solution” for its IT mess back in 2017: The company that handles BP’s North American operations had a central office and four business units, each operating its own supervisory control and data acquisition system, with equipment amounting to 27 different combinations and myriad service contracts. The goal was to turn this into a single system, with the field offices feeding data to headquarters, as soon as the home office was moved from Houston to Denver.

That was the plan, until BPX purchased BHP Mining Company’s North American oil fields for $10.5 billion, adding 190,000 barrels of daily oil and gas production to existing assets. Now the “perfect solution” became an immediate necessity. BPX opted for a homegrown “infrastructure as a service” solution. New IoT sensors would replace remote terminal units in existing facilities, then feed data to the cloud. Going from the edge to cloud would also enable IoT data to feed a machine-learning solution that would allow for real-time monitoring and the ability for an automated system to take action, like a remote-controlled shutdown, if need be.

Now that BPX has a better handle on its operations, it can accelerate a company effort to eliminate methane emissions. BPX wants to achieve zero methane flaring by 2025. It is also switching to electrically operated equipment in its oil and gas fields, replacing older gas-operated gear and the need to flare excess methane. IoT will also allow BPX to measure for methane leakage throughout its pipeline system. Overall, BPX was planning to cut operational emissions 30% to 35% by 2035, but now may be able to achieve a 50% reduction in the same timeframe, aiming for zero emissions by 2050.

Cutting costs to milk the cash cow

IoT generates a lot of data very quickly. A single oil rig can yield 1 terabyte of data per day, and it can take up to 12 days to transmit that data to a central repository for later analysis. It is no surprise that only 1% of data ever gets analyzed. Every facility becomes a data jail, as valuable information is locked up, beyond the reach of timely decision-making.

Being able to combine IoT, edge computing, and cloud storage enables all this data to be freed-up for analysis. Operators can spot the symptoms of component failure and make needed repairs before problems manifest themselves. Or, they can use the data to simulate more efficient methods of operation and production.

In short, oil and gas operators can use situational awareness to cut production costs at a time when the industry faces short-term volatility and long-term decline. That should yield the cash necessary to finance the migration of oil and gas toward “greener” pastures, be they hydrogen-based fuels or renewables.

Learn more about how to activate edge and IoT data at scale for use in any cloud environment.


Tony Velcich
Sr. Director, Product Marketing

Tony is an accomplished product management and marketing leader with over 25 years of experience in the software industry. Tony is currently responsible for product marketing at WANdisco, helping to drive go-to-market strategy, content and activities. Tony has a strong background in data management having worked at leading database companies including Oracle, Informix and TimesTen where he led strategy for areas such as big data analytics for the telecommunications industry, sales force automation, as well as sales and customer experience analytics.

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