A world of widgets
Innovative services companies want to inject smart technologies everywhere in the oil patch
BAY CITY — A battle of digital widgets is being fought in U.S. oil fields, along pipelines and throughout refineries across the country. A new cadre of services companies, trying to sell the energy industry on the promise of a more efficient digital age, is fighting to get smart technology onto pipes, tanks, platforms and drills, in some cases deeply discounting prices to gain market share.
Some, like St. Louis-based Emerson Electric Co., have long been making digital products, and working to hang onto clients by extending contracts, focusing on service and emphasizing long-term relationships. Others, like the German conglomerate Siemens, are taking a blunter approach to building market share by slashing some retail prices by more than 10 percent.
As the fledgling oil and gas recovery gains traction, and efficiency becomes the industry maxim, these and other manufacturers are betting that demand will explode for digital software, services and components — those devices than connect fist-sized temperature gauges and room-sized turbines to a central computer system, or even the internet.
“The companies that have the technology available are going to be the winners and gain market share,” Siemens U.S. CEO Judy Marks said. “That’s what we’ve been getting ready for.”
Technology has already transformed
“The companies that have the technolog y available are going to be the winners.” Judy Marks, Siemens U.S. CEO
the industry. Just a decade ago, wildcatters discovered that horizontal drilling and hydraulic fracturing together could unlock oil and gas from shale rock previously thought unreachable. The shale revolution turned the trajectory of U.S. oil production, but also created a bubble that went bust. As oil prices crashed from more than $100 a barrel to $26, oil and gas companies dramatically cut labor, exploration and drilling costs to stay afloat.
Now, as the industry rebounds and prices hover around $50 a barrel, they’re seeking ways to keep costs down. And, again, they’re looking to technology. Energy companies like the German chemical maker OXEA, with a plant on 500 acres along the Gulf Coast here, are slowly buying into a digital future. OXEA spent less than $500,000 to purchase and install about 60 wireless sensors on storage tanks a few months ago.
OXEA, among others, hopes by going digital it can hang on to operating efficiencies hard-won during the two-year oil recession.
The wireless sensors themselves were more expensive than hard-wired versions, said Sherri Law, an electrical engineer in charge of the installation. But some of the sensor sites were a half-mile from the control room, requiring more wire, more people and more time to install them.
“When you take into account what you don’t have to buy — it just makes sense,” Law said. “Labor is not cheap.” Promises of a new age
OXEA, owned by the national oil company of Oman, makes chemicals for everyday items like house paint and perfume. The Bay City plant is 55 years old and has used hard-wired Emerson gear for years. The company didn’t start installing wireless until about five years ago, replacing older sensors as needed. Even now, it only has a few wireless devices among the many sensors at the plant.
Still, the promise of the digital age isn’t in isolated cost savings. It’s in collecting terabytes of data and analyzing it to streamline operations, just as farming companies, for example, revolutionized crop production and maximized output by collating data on temperature, rainfall, humidity, soil conditions, fertilizer use and irrigation.
The new hope in the energy industry is the same: In uploading all of this data to one place, analysts should see trends and make predictions that save money. Perhaps pumps start vibrating before they break down. If the new tools can sense those vibrations, they can tell a company that it needs to replace a machine, saving days or even weeks of downtime.
Emerson, a leader in the field, has long pushed digital strategies. Oil and gas is its largest market, about one-third of the company’s automation business. Now the industry is waking up to the potential of digital operations, said Peter Zornio, chief strategic officer for the company’s automation solutions division.
“We kind of feel like, well, we’ve been telling you that for 30 years,” he said. “Where have you been?” Not in communication
Oil and gas companies began installing sensors decades ago. But those sensors didn’t talk to each other. Moreover, while they each measured something — the pressure or level of an oil tank, for instance — they didn’t track data over time and almost never sent data to a central hub for analysis. Often, a person in a truck had to drive out to the well, pipeline or tank to read the gauge.
GE Oil & Gas estimates that no more than 5 percent of all oil and gas assets are connected, and 97 percent
“It’s very clear, when the market comes back, the opportunity comes back. And we’ll be there.” Ulrich Spiesshofer, chief executive ABB
of the data collected isn’t used.
That means the potential market for digital products is huge. Nate Clark, a partner at the London consulting firm Price water-house Coopers, estimates that the industry will spend as much as $10 billion a year on digital technology and services, a figure projected to grow by double digits each year.
That potential is attracting a long list of companies into the digital products market. The leading oil field services companies, the multinational giant Schlumberger and Halliburton of Houston, have traditionally provided equipment and staff to drill for oil, frac wells and prepare for pumping, but now are expanding offerings in sensors, software and other technology.
Software companies such as Silicon Valley’s Hewlett Packard Enterprise and New York-based IBM are getting into hardware and data analysis in the sector. Equipment manufacturers such as GE and Siemens are now selling software and services.
The drive to digital also has spurred mergers as services companies look to become one-stop shops. A year ago, for example, Schlumberger closed on the purchase of Houston oil field services firm Cameron International Corp., a deal Schlumberger said would allow it to offer a full spectrum of technology services, from “pore to pipeline.” ‘Cracking the surface’
In October, Bostonbased General Electric said it was merging its oil and gas division with Houston oil field services provider Baker Hughes, creating a $50 billion publicly traded company that will keep the name Baker Hughes. GE executives said the merger, still awaiting regulatory approval, would create a “full stream digital industrial services company.”
“We see the potential here being huge,” said Binu Mathew, head of digital products at GE Oil & Gas and a former executive at the California tech firm Oracle Corp. “We’re just cracking the surface of what’s possible.”
Meanwhile, GE’s international competitors, including Siemens and the Swiss manufacturer ABB, are expanding their product lines for the energy industry. ABB has focused research and development on oil and gas, recently releasing several new technologies.
It also has boosted its marketing budget and partnered with companies like Microsoft Corp. to build cloud-computing muscle.
ABB provides more central computing systems to plants and refineries than any company in the world, said Brandon Spencer, North American vice president for oil, gas and chemicals.
“But not in North America,” Spencer said. “That’s what ABB is going for.”
ABB’s chief executive, Ulrich Spiesshofer, said the company worked with oil and gas customers through the downturn to save money, sometimes cutting prices, and other times extending equipment life. “It’s very clear, when the market comes back, the opportunity comes back,” Spiesshofer said. “And we’ll be there.” Is the industry ready?
For oil and gas, the digital world isn’t yet plug-and-play. Sometimes sensors and systems built by one company don’t talk to those built by another. It’s also not yet clear such technology universally reduces costs and improves efficiency. And cyberattacks are an ongoing concern.
And that makes it a difficult decision to invest in digital, energy executives say. Every dollar spent on widgets means less for oil drilling or refining.
But manufacturers of industrial equipment see a boom coming. Costs are dropping, for some sensors, into the tens of dollars. They will soon be ubiquitous. Oil and gas companies are discussing, for instance, injecting thousands of sand-sized sensors into wells while drilling.
The energy industry, however, is not there, yet, said Vivek Chidambaram, managing director of energy strategy at the global consulting firm Accenture.
“We’re still in the fight,” he said.