15 May How cloud computing will transform oil and gas
I was asked recently about the likely impacts of cloud computing on the oil and gas industry. They’ll be rather transformative. Here’s why.
What is cloud computing?
Cloud computing is one of those exponential technologies that typify what we mean when we say “digital”. As chips (for computing and memory) and bandwidth (for networks) have fallen to near zero in cost while dramatically improving their capacity, companies like Amazon, Microsoft and Google have built huge data centres that house racks and racks of computers, acres of data storage units, huge power supplies, redundant telecommunications access. This shareable computer horsepower is available to rent on a variety of commercial models (long term, short term) and needs (data storage, compute cycles, video streaming, analytics and more).
Shared computer services offer a set of benefits that appeals to an increasingly large range of companies who would normally have relied on their own internal computer services.
- Cloud computing scales up and down quickly, which is advantageous for things that go viral. The Pokemon Go craze resulted in 7m users in its first week alone. Only cloud computing could allow that service to run globally with high performance on a viral time line.
- Cloud computing works well for event computing needs such as the Olympics and other occasional sports spectacles like the Tour de France, where both streaming audiences and compute users are large and hard to predict in advance. Events in oil and gas include standing up response centres to deal with adverse incidents.
- Cloud computing solves for new software development needs where fast-moving lean, iterative and innovative developers may need lots of computer horsepower on short notice for workspace, trials and production systems. Oil and gas companies often build bespoke solutions for their businesses which could benefit from cloud computing.
- Cloud computing enables a fail fast culture which accelerates innovation, by eliminating the need for a large capital outlay and long delivery timelines for in-house computer services.
- Many companies report that they can now run multiple large development projects in parallel because of the effectively unlimited availability of computer capacity.
- Cloud providers can offer best in class services in areas such as cyber security, physical security, redundancy, backups and recovery, telecommunications support, identity management, performance analysis. It’s harder for an internal IT organisation to keep up with all the changes happening in these various disciplines.
Cloud computing is not going away. Some newer application solutions are inherently cloud-based, such as blockchain applications. The latest software solutions even assume cloud computing environments – indeed, developers are concluding that to reach the largest possible user base as quickly as possible, and to make the most amount of money, they are far better off to build for the cloud rather than for specific environments.
As the IEA has reported, the trend line looks clear – data volumes will continue to grow at an exponential rate, enabled by the exponential growth in cloud computing, which will inevitably attract outsized investment, talent and become the focus for innovation.
Why not oil and gas?
Oil and gas companies have traditionally resisted using cloud computing for any number of reasons, but many of these barriers are tumbling with time:
- The data volumes in oil and gas (such as seismic data) are enormous, and data transmission speeds have been too slow to move the data around. That was true when storage and compute were separated, but now they are combined in the same cloud data center.
- Oil and gas companies have historically been compute intense, and the economic benefits of cloud computing have not been that relevant. But banks are similarly data rich, and they have begun moving to the cloud.
- Oil and gas companies have traditionally viewed all of their data as highly proprietary and deeply competitive. The tendency has been to keep that data in a company owned data center where it’s under lock and key. However, open data companies demonstrate faster growth and better valuations than those who hold their data proprietary.
- The industry has long avoided creating monopolies in its business model, and putting data into a third party data center (outsourcing), or into a cloud computing environment, allows the cloud provider to extract rents. However, the level of competition in cloud computing offerings suggests ample competitive dynamic to minimise this risk.
- Oil and gas equipment in the field, connected to SCADA monitoring, generates a torrent of data, much of it of low value, and storing it makes little sense. Indeed, much brownfield equipment is not set up to talk to the cloud. But solutions developers are finding ways to send summarised or time series SCADA data to the cloud.
Risks of not moving to the cloud
As time marches on, the status quo position of building and operating a proprietary data center inside an oil and gas company is beginning to look outdated. If the trend lines continue, we can logically conclude the following outcomes:
Cost disadvantages grow
If there is a cost disadvantage today to owning and operating a proprietary data center, it will grow over time. There’s no way an industrial company can possibly keep up with these new cloud environments in size, scale, services, and reach.
The sharpest skills in compute will blossom in the embrace of the cloud compute operators. Oil and gas has always been able to attract its share of computer science grads, but the new digital economy is looking more appealing. The career ladder in oil and gas for computer people has fewer rungs (I learned this personally, when my first employer told me I couldn’t amount to much in their company because I wasn’t an engineer). Top talent will be lured by the digital economy.
Stranded software investment
As the world’s software products migrate to the cloud, companies with a legacy investment in proprietary non-cloud software will increasingly find themselves with a growing stockpile of dated, unmaintained software. Business risks will start to rise.
The most innovative new business models, the fastest growing companies, and the firms with the juiciest valuations are those in the new data economy. Innovation is flourishing among these firms, while in oil and gas innovation is overly concentrated in product and process areas.
A startling case example
At a recent cross-industry workshop I was fortunate to attend, one of the presenters shared some insights into his company’s experiences with cloud computing. The workshop was under Chatham House rules, so the presenter’s identity and his organisation cannot be revealed.
A global oil and gas company has been experimenting with using cloud computing to test out the current state of big data, computing and analytics, and the results have been stunning.
The company loaded a sizeable volume of seismic and other subsurface data to a cloud computing environment and invited a cadre of data scientists and algorithm specialists to analyse the data using whatever maths and tools they had at their disposal. The data scientists were able to match the company’s own geologists and petroleum engineers at interpreting the data and identifying the most prospective locations in the resource.
Interpretation of seismic is supposed to be a core competence solely of oil and gas professionals. They get paid outsized sums for their knowledge, and they maintain that what they do cannot be bettered by computers. Perhaps for now, but not for much longer.
This development raises several important implications:
- Once data scientists and algorithm specialists figure out how to interpret data, they typically codify what they have learned into software. Artificial intelligence (AI) comes to seismic. Apps are then not far behind.
- As more oil and gas companies open up their data to cloud based AI engines, AI gets better, simply because AI can chew through more data more quickly than can humans, and can learn faster. As with many other fields, AI may race ahead of the geologists. The future of geologic interpretation may belong to a cloud service.
- Geologists may need to find new things to do to justify their high pay.
- School curriculums that teach geology may need to supplement geologic course work with new content on data science and artificial intelligence.
- Cloud computing doesn’t stop at geologic interpretation. Imagine smart drill bits with sensors behind the cutting wheel that shoots real time data to the cloud for comparison and interpretation against enormous seismic datasets, and against all prior drilling jobs, to help direct drilling operations. Drilling is just another infrequent event, like a sporting encounter, that needs high levels of compute, analytics and storage just in time.
In my view, the real key to cloud computing is that it unlocks entirely new business models, even in oil and gas.
The next oil and gas company
It’s not a stretch to anticipate that cloud computing companies may be able to assemble the compute environments, big data, artificial intelligence and analytics to outperform oil and gas companies at their own game. They’re already taking aim at the automotive industry. The next oil and gas company could be Google.
Thank you, cloud computing.