Jason Durst tells us what it takes for a successful digital transformation. Article courtesy of Baker Hughes.
Why is digital transformation on the CEO's agenda at KBC?
The answer is easy: digital transformation is on our agenda because it is still on top of our customers’ agendas. We consistently see that it remains the number one topic of conversation for future growth, despite some of the challenges presented by COVID-19.
Digital transformation was here well before the pandemic as were the challenges we are adapting to at a rapid pace today. The dual challenge of energy security and sustainability, how the world must learn to adapt to growth in energy demand, or how to deal with unforeseen events, are still today’s priorities in the energy sector.
Digital transformation involves a huge amount of technology for sure, yet it is also about the process which we are all going through of transforming. How we adapt our business models and our interactions with customers are paramount to its success. The customer experience has to change for it to be a true transformation.
We have heard KBC CEO Andrew Howell explain the difference between digitalization and digitization. Why is that an important distinction?
We have been going through a digitization of sorts for quite some time. That is simply about taking what we would normally consider ‘non-digital’/paper based or systems which were not connected, or even sometimes not integrated onto the same platform; digitizing is basically the simple act of taking all this data and information and putting it into a digital format.
Digitalization on the other hand, is the process of actually changing the way we use, interact and enhance our abilities with digital technologies and interact with employees, customers and vendors.
For example, when vinyl records were replaced by CDs: there was a change of media, which led to a better format with quality enhancements on audio. But the customer experience stayed the same: you still went to the shop, bought CDs and listened to them on a player at home, in the car…etc.
When streaming came along however, it completely changed not just the format itself, but shifted the whole experience, the business model and the way we consume the content. This is the main difference between digitizing and digitalization. The holistic approach where both the interaction model with the user changes, as well as the whole underlying business model.
It is an important distinction to make, because the issue is when you simply digitize all processes, the good and the bad both goes into the new system, forever! With digitalization, it is about taking a step back, reviewing how systems and new ways of doing things will affect business and people processes. Companies really must look at how they can become more effective and more efficient and design this into Digital Transformation Projects.
This connects us back to the oil and gas industry’s dual challenge: how to produce more with less, whether we are looking at capital or sustainability.
Adoption rates linger across the oil and gas industry. What makes digital transformation difficult?
I have been in this industry for many years, and often heard jokes about how things can move either really slowly, or really fast in our field.
Let’s talk for example about the launch of a new piece of kit or equipment like the advances made a few years ago in horizontal drilling or fracking. Such large revolutionary jumps in technology had a massive impact. A very tangible ‘engineered’ technology has always been quite quick to adoption, because it had an immediate visible benefit on productivity, cost reduction and ultimately on the bottom line for oil and gas operators.
When it comes to new digital technology adoption, however, the sector is still woefully behind consumer markets. Other industries, such as banking, have truly transformed their whole value chain via digitalization. They faced real challenges that increasingly required digital solutions, such as declining in-branch traffic, surging competition from non-traditional players and ever rising regulatory pressures compressing margins. They had to adapt and change, quickly. The advent of the use of block chain is a key example in this area.
The energy industry lagging behind in adoption, in my experience, is both a combination of disbelief in the technology because it wasn’t home grown, and secondly, the natural inertia in this industry towards changing the business model.
In my opinion, there is no inherent issue that keeps new digital technology from being able to work. One of the biggest hurdles we face is around people and processes. ‘’Will the people adopt it? Will they change the way they work? Can you make it useful?’’ These are the questions we are being asked, because otherwise the digital platform turns into a very expensive nice-to-have tool without the anticipated returns. Of course, there has been a few failures, but this is to be expected when new technology comes into a new industry or a new marketplace.
At this point in time, we seem to be stuck in the endless proof of concept or proof of technology loop, where everybody wants it to prove that it works over and over again, while in other industries or B2C, adoption is happening at scale, and you can’t keep up with the pace of change.
KBC is working with BakerHughesC3.ai, on a project. Why AI, and can you tell us about the project?
First of all, we completed a successful early proof of technology concept with BHC3 applications at KBC.
Right now, there are several large-scale, full supply-chain, fully or semi-autonomous asset projects underway, either at bidding or early engagement stage around the world. In these projects, everything from the sensors, the data, the software, the maintenance, the automation of the asset, the design of new processes and systems are in scope; the full enterprise level.
We are also working with the different product companies of Baker Hughes. For example, we are teaming up with the chemicals group to look at crude compatibility. Downstream, refinery operators are buying different types of crudes on the market and wishing to run them through their system. They need the ability to predict what will happen if they buy a distressed cargo, or different grades; to know what will happen at the refinery effectively will help them make the right buying decision. Varied quality and grades of crude oil can have an impact on the refinery’s machinery units, in terms of uptime and availability.
We can do this, by using, Petro-SIM®, which is a KBC process simulator that can be applied across the full stream. Upstream, we can assess what would happen from the wellbore through to the flowlines, thermodynamically; midstream, we can review the separation process for gas processing or LNG; and downstream, it can work on the distillation and kinetic units in refineries. The chemicals part of Baker Hughes’ portfolio traditionally comes in to address mitigating asset operational issues: in this partnership, we are taking a step back and anticipating what might happen upon purchasing the cargo (for refineries for e.g.) and how the crude may behave: this can lead to upsides in the range of several hundreds of millions of dollars.
In simple terms, the technology is simulating what would occur if certain kinds or mixes of crudes ran through a system. And in turn, help the operator answer these questions: ‘’can it be processed? what would be the maintenance issues? is this the right unit configuration?‘’…etc.
In a second example of our collaboration, KBC, Yokogawa and Baker Hughes are looking at autonomous and semi-autonomous operations. Soon there will be less people in the industry, with more variability and flexibility to be managed, and generally less assets; with the need for these assets to be more complex and maintained well, and to run or be diagnosed for repairs rapidly. We have all heard it: what the industry is looking for is ‘to do more with less people’. Running remote rigs with less staff on site, operating multiple assets from a centralized control room, from the data collection to controls to the actual units themselves, across the whole value chain. This is a trend that many oilfield services and automation services companies are looking at.
The last example is around supply chain and how we are working to bring everything together seamlessly. There is no single vendor who has the ability to do this all themselves. Our customers are looking for us to come together, with an open collaboration work approach to projects and implementation, where each partner brings what they are really good at and applies it with the right digital platforms:
If you could give O&G company executives a single piece of advice regarding digital transformation, what would that be?
Well, I would perhaps consider 3 elements.
First, I’d say: ‘if you haven’t started, get started’. An operator should pick and focus on a business case, and not a piece of technology aimed at a problem. Once this particular case and its processes are addressed and the right digital solution identified and implemented, and returns on investment are coming in, this is when the transformation can continue on a rolling basis, to a much bigger scale.
For enterprise-wide digital strategies, it is advised to work with partners who understand both the technology and the business operations. Understanding how people work is paramount, as we are not just looking for capital allocation followed with immediate financial reward here. This is a long-term strategy for business transformation.
Secondly, what is unique with the KBC, Yokogawa and Baker Hughes partnership is that we are large technology and consulting companies, be it equipment or software, with a wealth of industry and engineering expertise. Our people have experience in the field, running the assets on or offshore, and have been continually engaged with operators, be it upstream, or on the midstream and downstream application with turbines and other equipment.
This knowledge, combined with the right digital application can help solve some of the toughest challenges in our industry today, whether it is emissions monitoring, or remote drilling. Digital tech is great, and it can do wonderful things, but it has to be applied, to be used and sustained.
And finally, operators must continue to sustain the benefits from each tech adoption. Tech ‘shines’ and is a lever for sustainability for sure. Identifying problems and enabling solutions as part of digitalization projects is great, yet it is important to keep building on those successes: to me, that is the path to real transformation.