Brazil
Analysis

Digitization to become crucial for O&G opex reduction

Bnamericas Published: Monday, April 06, 2020
Digitization to become crucial for O&G opex reduction

Digitization and automation, both in-house and at E&P operations, are becoming more important for cost reductions and profits in Latin America's oil and gas industry during this critical moment of oil demand and price collapse.

Fitch Ratings said in a recent report that demand will fall dramatically this year. And jet fuel and gasoline, which represent 35% of global oil consumption, will be most affected by the national lockdowns, the ratings agency said.

Although offshore platforms already have thousands of data generating sensors, experts see more digitization potential to help reduce opex.

“The oil and gas sector must invest in better supervision of their routines as a whole, with the adoption of specific digital solutions for the management in three dimensions: assets, risks and operations,” according to João Vicente Ribeiro Ferreira, LatAm solution consultant at technology provider Dassault Systèmes.

READ OUR LATEST ICT INTELLIGENCE SERIES REPORT: The Great South American Oil & Gas Digitization

Industry consultancies estimate that digitization could reduce operational costs by 20-30%, depending on its reach and area covered.

In exploration, for example, benefits range from faster seismic processing and data interpretation to increased operations uptime. And AI tools coupled with IoT sensors help with predictive maintenance and failure anticipation.

Internally, the adoption of remote work in non-essential areas would become standard when the coronavirus storm passes. This would also apply to other industry verticals, leading to lower personnel costs.

André Miceli, from Braziling think tank FGV, estimated that home office adoption will grow by 30% after the pandemic ends.

Additionally, contract management platforms, which have already been used by pre-salt state company PPSA, among others, have already benefited productivity.

Martin Kelly, head of corporate analysis at Wood Mackenzie, estimated that AI, big data, analytics, sensors and other digital technologies could result in cost savings of up to US$75bn for the global oil and gas industry, if widely implemented.

Likewise, Anderson Dutra, an associate at consultancy KPMG told BNamericas that “a focus on process digitization is relevant” to control costs and elevate margins.

A 2019 study by consultancy Lloyds and Brazilian oil industry association IBP, conducted with 56 oil and gas companies with local operations, found that a third of these companies invest in innovation mainly to reduce costs.

As more than one answer was possible, operational efficiency - which also leads to opex reduction - was cited as main driver by 54%, followed by gaining a competitive advantage (34%).

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