What is digitalization in oil and gas?

Digitalization is a term that is becoming increasingly prevalent in the global economy. As technology continues to reshape how businesses and individuals operate, its benefits in relation to sustainability and efficiency are growing. But what does digitalization mean? And more specifically, what does it mean to the oil and gas industry?

We are currently experiencing what is widely known as the fourth industrial revolution, also known as Industry 4.0. The groundbreaking technologies involved in this revolution include the Internet of Things (IoT), blockchain, and artificial intelligence (AI). Digitalization is the way that these technologies are being employed across the global economy.

These advancements are playing an important role in how oil and gas companies are addressing two of the most widespread challenges for businesses of today: sustainability and efficiency. By utilizing the cutting-edge technology of Industry 4.0, these companies can make rapid progress across the supply chain. Increased automation can improve safety and productivity, allowing the redistribution of workforce resources and creating more scope for upskilling. Data tracking can provide more detailed insights on operational performance, alerting when equipment needs to be repaired before it breaks down or predicting future demand and supply patterns. And companies like Saudi Aramco already have dedicated innovation centers that seek out further ways of harnessing the digital tools of Industry 4.0 to future-proof its business and work towards a more sustainable world.  

Why should the oil and gas industry be digitalized?

An industry that once was so reliant on basic logistics such as trucking and warehousing or oil and gas is now far more complex. Operations are much larger in scale, and as they continue to grow, operators will continue tirelessly seeking out new efficiencies. But the upheaval caused by the global pandemic has caused delays and impacted crucial areas of the supply chain. Transport links, material handling, and operational sites have all suffered, and as oil and gas looks to rebound, companies are turning to digitalization.

On a broader scale, the global economy is increasingly turning to digital solutions, with the Internet of Things alone predicted to add between $5.5 trillion and $12.6 trillion to the global economy by 2030. New technologies were a necessity to front up to the pandemic, and transition to a new, post-Covid world. Now, they are helping to transform the oil and gas industry as it faces up to the collective global challenge of climate change. A greener, cleaner, and more efficient future is possible for the oil and gas industry – and digitalization is key to the industry’s success.

What are the challenges of digitalization in oil and gas?

As macroeconomic issues rumble on, the future is unlikely to grow any less complex, and the economic volatility of oil and gas is unlikely to just taper off. The unique combination of challenges spanning economics, geopolitics, finance, and policymaking have seen the reshaping of the wider energy market. This reshaping has, in the short term, prompted record profits for oil and gas companies. But the future of the industry is heavily reliant on their responsible and well-placed investment. If they get it wrong, the consequences could be damning.

Digitalization itself can bring its challenges too. More than 2.7 billion people remained offline in 2022, so the transition to new technologies will require significant investment to upskill workers – not least in Saudi Arabia. Within the Middle East and North Africa region, an estimated 70 percent of young people fail to reach the minimum skill levels required to compete in the international economy, according to the International Monetary Fund. Changing this doesn’t happen overnight. Locally, 58 percent of employees believe the Kingdom has a specialized skills shortage. For digitalization to have the desired impact – on oil and gas, and for the wider global economy – investors must have the foresight to take a people-first approach: investing in education now to meet the demands of the future.

Digital transformation requires more than just education though. It requires an entirely new outlook and the setting of new cultural norms. From top to bottom, everyone has to be on board with progress. When employees don’t engage adequately, or management support is ineffective, the intended reshaping of working culture can fail. Research in 2016 found that 70 percent of ‘complex, large-scale change programs’ did not reach their stated goals, citing these barriers as some of the primary reasons for failure. If the digitalization of oil and gas is to truly succeed, it will need everyone on side – a challenge that cannot be underestimated by investors and senior leaders.

Why are companies like Aramco making significant investments to digitalize oil and gas?

While there remains an air of uncertainty about the future of oil and gas, energy companies are upping their investment in digital innovations. Why? Because the future demands it.

These companies are developing new solutions that are cutting costs and reducing emissions for a more sustainable, more profitable future. Efficiency and sustainability have become primary considerations at all stages of the oil and gas supply chain, and in digitalization, the industry has the tools to optimize both.

Situated in Saudi Arabia, energy companies like Aramco are in an optimal position to benefit. As the Kingdom becomes a true global force in emerging technologies, its energy companies will be positioned to further develop innovative improvements to the supply chain. This is evident in Aramco’s digital innovation centers, three of which have been recognized by the World Economic Forum as ‘Manufacturing Lighthouses’ for their large-scale use of Industry 4.0 solutions.

Looking forward, Aramco is now set to raise $1.9 billion over a three-year period to further develop its digital technologies – the company’s largest investment in the field to date. It also recently announced the signing of more than 100 agreements and memorandums of understanding worth around $2.6 billion, in a bid to speed up its digital transformation. The firm’s confidence in pursuing innovative technologies will likely encourage others to follow suit.

But what will Aramco’s investment, and others like it, achieve? Simply put, it will drive the oil and gas industry toward a more sustainable and profitable future. The investment will be vital in upskilling workers, which in turn will facilitate economic growth. And within the energy industry, technological innovations will help cut costs, improve output, and boost efficiency at every stage of the value chain.

But more than this, these investments will help companies embed tech-enabled operations within all areas of their business. They will build technological infrastructure for the future: more secure, more data-led, and more climate conscious. Rather than following the pack, companies that are taking this approach are paving the way for the future of the oil and gas industry.