Insight | Research Programme 2017: The future of energy
Enterprise
Reports about the death of oil and gas have, at times, been greatly exaggerated, and predictions about the terminal decline of fossil fuels vary widely. While some talk in decades, others more optimistically talk in centuries.
This variance owes much to advances in technology. Globally-available and reliable connectivity, IoT, and robotics, among other technologies, are making it possible for energy companies to extract oil and gas from locations that until only recently were deemed too inhospitable.
Equally, refining techniques have made it possible to improve the quality of crude; and whereas the economics of shale challenged its viability, technological advancements have recently seen production costs slashed, opening up yet further resources for energy-hungry businesses. Elsewhere, the continued growth and increasing competitiveness of solar photovoltaics (PV), wind, hydro and geothermal energy make anticipating future demand for fossil fuels near impossible to accurately predict.
The expiration date of fossil fuels may be in dispute, but their impact on the environment is not and it is incumbent on fossil fuel-dependent energy producers to clean up their acts and bring new efficiencies to their operations. IoT and other next generation technologies hold much potential here; a fact that has not escaped respondents in this research project. While just one in five (22 per cent) energy respondents have IoT solutions in place today, a further 62 per cent have plans to do so within the next two years, and respondents are exploring a whole host of other complementary technologies, from automation and robotics to augmented and virtual reality.
of energy sector respondents in our research expect to have deployed IoT-based solutions by 2019
“With prices stabilising at 50 per cent of previous levels and forcing efforts towards efficient operations, oil and gas producers today are focusing not on volume, but on profitable volume. Profitable volume is achievable through automation and optimisation.”
At a time when oil prices are hovering at around $50/barrel and are expected to stay there for the foreseeable future, these technologies offer the chance to transform previously manual, expensive and precarious processes into cheaper and safer digital ones. Inspecting difficult-to-access offshore oil rigs, for example, used to require an engineer and, in some cases, could see production shut down for days.
Today such tasks can be carried out by drones. Similarly, active oil and gas pipelines used to be monitored manually, which made identifying and responding to accidents or issues quickly a challenge. Sensors, however, can be deployed to monitor these pipelines in real time. As the downswing in the oil market rolls on, these smart technologies will continue to take hold in the industry.
Longer term, all eyes are on renewables to meet the planet’s burgeoning energy demands and it is arguably solar that holds the most obvious and immediate promise. Plummeting panel production costs and increasing energy generating capacity saw the unit cost of solar PV-generated energy drop below that generated by fossil fuels in 2017. The economics of solar PV are set to become more attractive still in the coming years as grids get smarter and batteries for residential and commercial solar installations become more affordable. While battery technology exists today, it is, for many, prohibitively expensive.
As prices drop as manufacturers achieve greater economies of scale and PV cells improve we will see a fundamental rebalancing of the energy market, with households selling energy back to the grid through smart grid and IoT technology.
However, all of these advances are contingent on the energy industry overcoming two distinct challenges: security and connectivity, and it is clear that respondents in this research are yet to master these elements. A more connected, technology-dependent energy industry is a more vulnerable one and, being of strategic importance, energy producers are a prime target for cyber criminals.
Although it is a different industry, the 2014 attack on a German steel mill demonstrates the damage that a well-targeted attack can have. The attack, which saw a virus enter the mill’s network via an admin system and write off the steel presses, couldn’t have happened years ago because the connection didn’t exist. A similarly successful attack on a power plant would be catastrophic.
What’s clear, however, is that the energy company of the future will need to be increasingly digitised in order to meet energy consumption demands in a cost-effective and environmentally-friendly way. To accommodate the transition, hard engineering and software skills will be required. Fresh faces will arise in the C-suite; in particular, those who have a firm grip of the digital imperative and the opportunities and challenges this presents. As utilities in general look to replace ageing infrastructure for better reliability and for regulatory purposes, there is an opportunity to introduce new technological elements to optimise performance.
The global energy landscape is continuing to evolve as it moves further ahead in its adoption of digital technologies. The IoT in particular has emerged as a crucial rallying point for energy companies who are looking to boost their efforts in cost reduction, improve productivity and safety. This support for IoT technology can largely be attributed to the benefits that stand to be derived from the remote monitoring of equipment and production sites. From a technical standpoint, by combining different components in energy systems with sophisticated sensors, companies are able to collect important data remotely and act on the information rapidly, ushering in previously untapped efficiencies. This capability can provide organisations with essential insights to the overall health of their operations, highlighting areas that need improvement – ultimately saving companies valuable manpower and countless hours.
Primary examples of this in action include the continuous monitoring of operations and production sites, such as oil rigs, solar panels and wind turbines, to ensure these systems work at the maximum possible efficiency, as well as the ability to gain real-time insights to ensure equipment is reacting appropriately to environmental conditions.
As much as there is to say about the potential IoT holds for the energy sector, concerns around connectivity threaten to hamstring these advances, leaving a significant portion of the energy market unable to capitalise on the transformational capabilities of this technology.
This assertion has not escaped the energy respondents in our research either; connectivity issues came in as the top concern when deploying IoT solutions for over half. Moreover, around a quarter believe that connectivity issues have the potential to derail the success of their IoT deployments before they’ve even got off the ground.
Connectivity must be sufficient enough to collect and transmit data between multiple devices, as without consistent data insights companies are unable to suitably monitor their assets.
Effective connectivity is not just necessary for the efficient monitoring of equipment, but also to protect the most important asset of all – people. Cellular networks may be sufficient for daily operations on some sites, but in more remote locations or where safety or environmental hazards might be an issue, high-speed connectivity becomes more mission critical. To this end, major faults that occur when there’s an absence of effective connectivity can actually cause significant dangers and put lives at risk.
The critical value of connectivity for IoT adoptees is reinforced even further by the fact that 36 per cent of energy respondents believe this attribute to be the most valuable capability from there outsource partners, when looking to deploy IoT solutions.
While IoT is great for remote monitoring as well as identifying and pre-empting faults, to make deployments a success, effective connectivity is a must. This is where satellite connectivity comes into its own, beyond providing connectivity for remote locations, satellite technology provides a highly reliable and resilient service on a global scale.
“Beyond being merely convenient or making life easier, satellite technology in particular can actually save lives by keeping people connected.”
Times were good when oil traded hands for ~$100/barrel and companies only needed to produce more oil to make more profit, but those days of plenty have since drawn to a close. The dual forces of overproduction from the Organisation of the Petroleum Exporting Countries (OPEC) and increasing competition from shale and renewable energy sources, have seen prices nosedive, currently hovering at around $50 per barrel. At this price, being profitable relies not on volume but on optimising operations to maximise returns.
Oil producers are no doubt feeling the bite from this downturn and, as all market indicators suggest that the industry will remain uncertain for some time to come, they are left with two options: tighten their belts and wait out the storm, or innovate. While there is little they can do to influence the price of oil, there’s ample opportunity for cutting waste from production and the supply chain. Encouragingly, many appear to be striving for the latter and innovating their way out of the downturn.
These pressures are not confined to oil and energy producers across the board are feeling the pinch in some way. A number of governments have begun to withdraw subsidies in the renewable sector, creating new imperatives to cut costs from unit production and maximise efficiencies in transmission and distribution; shale has encountered health and safety and environmental challenges; and although coal still dominates the industry, its dominance is being challenged by newer, cleaner alternatives. Technology will not be the answer to all of these ills, but it can at the very least get energy producers fighting fit to counter the challenges that lie ahead.
This fact has not escaped the energy respondents in this research, a significant proportion of whom are experimenting with new technologies in a bid to find efficiencies, maximise returns and achieve a competitive edge. Today, roughly a quarter (24 per cent) have partially or fully deployed IoT-based solutions, though it’s expected that 84 per cent will have done so to some extent within the next two years. Similarly, overall spend on IoT is set to increase significantly, from an average of 2.4 per cent today, to around 8 per cent by 2022 (second only to agritech), demonstrating the confidence and faith that energy companies are placing in IoT.
Moreover, the scope for improvement, enabled by new technologies such as IoT, is considerable. One of the primary benefits is the ability to digitalise previously mechanical processes, which enables energy producers to derive greater intelligence from their operations, become smarter about how they deploy their Capex, improve safety and streamline production costs. This is clearly an area of focus for our respondents. Almost four in ten are exploring machine learning capabilities and 32 per cent are pursuing robotics initiatives.
The oil and gas sector in particular remains very mechanical and there’s a lot of scope for digital integration. This is important on several levels. Extracting oil from the ground can be risky business, for the staff manning oil rigs, the environment, and, indeed, the financial backers, and mistakes can have grave consequences. Digitalising processes removes much of this risk. Moreover, regulatory pressures are increasingly driving operators to seek full visibility across the entire length of the pipeline as well as the ability to remotely manage the pipelines.
However, for IoT initiatives to be useful and effective, the right skills need to be in place to manage deployments and exploit the data that they generate. Like companies in every sector, future success hinges on the ability to attract the best possible talent, and increasingly-technology dependent energy companies are finding themselves competing with the likes of Silicon Valley for skilled staff.
Transitioning away from the more hands on mechanical work at productions sites to programming work at centralised locations is seen by many as a way to engage with Millennials entering the workforce.
Yet despite these efforts, the data indicate that large capability gaps remain. Fewer than three in ten respondents are confident that they have all of the skills they need to manage IoT strategy, management and delivery. If they are to be successful in their innovation efforts, a heavy recruitment drive will be in order.
However, in recent years a new and potentially more insidious threat category has come to the fore: cyber security. While cyber attacks are not new, the core operations of energy companies have been relatively well insulated from them as they were not connected to the internet. However, as energy companies turn to IoT meet growing demands for power, evermore parts of their operations are being connected, creating new vulnerabilities and risks.
Today’s cyber threats are persistent, well organised and constantly evolving. Considering the energy sector underpins the operation of every country’s society and economy; these organisations are prime targets for malicious hackers who may be looking to exploit and bring down an industry that billions of people depend on. The effects of a breach or service disruption could have disastrous consequences, potentially leaving entire regions without power. This is no idle concern – consider the Ukrainian power grid cyber-attack of December 2015, where hackers successfully left 230,000 citizens in the dark by compromising information systems of three energy distribution systems.
Moreover, motivations might not be confined to those looking to cause havoc for citizens – there is also the potential for cyber-attackers to use connected devices for corporate espionage purposes, gaining access to confidential data and utilising it for competitive advantage, blackmail, or any other nefarious purpose.
Consequently, for energy companies to thrive amidst these increasing concerns, IoT security must remain at the top of the agenda for any company that’s looking to exploit this technology. But whereas traditional risk management models have their origins focused on data flowing through systems that they own, the growing use of internet connectivity is leading to the erosion of the traditional enterprise perimeter, as more data flows outside of an organisation’s immediate defensive layer. This presents hackers with a larger surface area to try and compromise.
Positively, our research discovered that many energy companies are well aware of the security challenges that accompany IoT deployments, with over half (53 per cent) of organisations stating that that they will need to rethink their approach to data security and make heavy investments to meet IoT security requirements.
Business leaders must be adept in IoT and the security requirements that accompany this technology. This knowledge must then run through the entire organisation.
Our research uncovered that 59 per cent of respondents believe that their organisation could be doing more in terms of their security practices. Additionally, 22 per cent believe that the board does not understand IoT. Without a solid understanding of IoT it’s almost impossible to enforce the appropriate security measures. This highlights that there are still strides to be made if energy suppliers who wish to adequately insulate themselves from the growing risks in today’s cyber environment.
of respondents believe that their organisations could be doing more for security
Our research suggests a clear gap in the board’s understanding of IoT and this needs to be quickly addressed in order to effectively counter security threats. As is the case with any technology, nothing is static, energy companies will therefore need to continuously learn and evolve through a recurrent cycle of improvement to ensure security risks are constantly mitigated.
Organisations must remain alert and diligent; this might involve monitoring networks more closely and ensuring the right questions are asked to ensure IoT connections are secure: How much data is being gathered? Who has access to this information? Where is it being stored?
