CISCO STUDY: Adoption of Internet of Everything by Oil and Gas Industry Could Fuel GDP Increase of Up to 0.8 Percent, or $816 Billion, over 10 Years Industry Must Address Falling Prices and Traditional Responses - Technology and Intelligence from Data Will Drive Growth, Improve Operational Efficiencies for Survival The Future Must Be Business Driven
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For a $50 billion O&G firm, increased IoE adoption translates into an 11 percent bottom-line (EBIT) improvement. For the entire industry, increased IoE adoption generates $600 billion in Value at Stake.
14-country survey reveals that oil and gas professionals believe operational efficiency of existing projects and maintenance of assets and infrastructure are their top two areas of increased investment over the next 24 months.
Worldwide oil production is outpacing demand, and oil prices have fallen by more than 50 percent since June 2014. Many factors including soft demand, increasing U.S. production and diminishing storage for crude oil suggest that the days of $100-a-barrel oil may not return. This scenario presents potentially disastrous consequences for oil and gas (O&G) firms that are not prepared to accelerate their digital transformation. Innovative oil and gas firms, however, believe today's turbulent market landscape provides an opportunity to grab competitive advantage by harnessing new technologies.
Cisco Consulting Services conducted a survey that uncovers the urgency for the oil and gas industry to adopt digital technologies powered by the Internet of Everything (IoE) the networked connection of people, process, data, and things to stay competitive. The survey identified intelligence from data as the key area needed to improve operational efficiency, and data analytics as the No. 1 IoE driver for faster, better decision-making.
Industry Adoption of IoE Could Increase Global GDP by Up to 0.8% or $816 billion
To calculate this number, Oxford Economics began by incorporating into its Global Economic Model Cisco's $600 billion IoE Value at Stake estimate for the oil and gas industry over the next decade (including productivity gains, reduced OpEx and CapEx, and IoE adoption cost of $180 billion).
This estimate is based on both increased supply and greater demand, resulting in a positive supply shock for the global economy. Lower oil prices stimulate more spending on goods and services, with most of the gains being realized through the consumer sector. Oxford also projects that global consumer spending could be up to 1.5% higher than the base-case forecast by 2025. This aggregate increase includes a second round impact of higher economic activity, raising overall employment (and decreasing unemployment) around the globe.
Digital Transformation: $538 Million Annual Profit Increase for a $50 Billion O&G Company
Cisco Consulting Services estimates that this IoE-driven value will come from improvements in asset utilization, process or supply chain efficiency, employee productivity, CapEx savings, and market innovations. For a midsize oil and gas company with $50 billion in annual revenue, IoE can generate a $538 million annual profit increase and an 11% bottom-line (EBIT) improvement. 72% of these benefits are derived from cost reduction, while the remaining 28% are from increased revenues.
Key Findings
Cisco's survey respondents named operational efficiency of existing projects or reserves and maintenance of assets and infrastructure as their top two areas of increased investment over the next 24 months. Leaders must improve operational efficiencies and asset life to stay competitive without cutting costs through layoffs and project cancellations.
While survey respondents understand that connecting things is a necessity, true value lies in the intelligence of extracted and analyzed data from the things . This intelligence allows oil and gas firms to drive business and operational transformation.
48% of respondents named data as the area of IoE they need to improve most to make the most effective use of connected technologies (IoE).
Effective data management and analytics can generate operational and business benefits: Offshore oil platforms generate between 1TB and 2TB of time-sensitive data per day.1 Slow satellite communication is the most common link to transmit this data, requiring over 12 days to move one day's worth of oil-platform data to a central repository such as the cloud. An effective data strategy involves being able to automatically detect whether the data needs to be sent to the cloud for analysis, or whether it should be analyzed at the edge of the network, where the data is collected (e.g., from sensors on drilling equipment). Edge analytics allow O&G companies to gain greater real-time insight, thus providing specific business and operational advantages.
Survey respondents ranked faster problem resolution as the No. 1 business benefit of connected technologies (IoE), while improved production efficiency was the top operational benefit.
Respondents believe IoE will boost operational efficiencies primarily in the upstream segment of the value chain, naming production as the No. 1 beneficiary.
Automation and Business Process: Analytics-driven insights will drive the opportunity for process change and optimization.
More than half of respondents believe IoE has the potential to automate anywhere from 25 percent to nearly 50 percent of manual processes. .
Production optimization was identified by 56% of respondents as the process with most IoE-driven automation benefits, ahead of
