The IoT and Big Data Will Transform Royal Dutch Shell
The Internet of Things and Big Data have already started to transform the operations and data collection practices of Royal Dutch Shell.
Why Data Matters in Oil & Gas
Whether drilling into a theoretical reservoir of oil, operating a massive oil logistics business, or running a refinery with a technical production process, the complexity and variability throughout the value chain of the oil and gas industry is staggering. Given this complexity, a recent survey of oil and gas companies found that ~90% of respondents said that increasing the data analytics and monitoring systems within their operations would lead to a direct increase in the value of their business. (1) Faced with daily manpower, logistics and capital allocation decisions, in addition to offshore drilling projects that can cost upwards of $100 million, Shell understands that poor data management can lead to massive expenses. (1) Below we will examine some ways that Shell is utilizing Big Data and the Internet of Things to enhance certain aspects of their operations and discuss opportunities and risks.
Surveying and Monitoring Oil Exploration Areas
Before acquiring the mineral rights to a particular area and deciding where to drill, Shell will typically survey the area using a combination of techniques rooted in seismic analysis. (1) These seismic readings often contain a wide variety of data outputs that can indicate whether or not a specific area contains oil and gas deposits. Previously, as a result of costs and capabilities, Shell would take several thousand seismic readings in a given area. Equipped with better technology, including sensors connected to fiber optic cables that feed data into massive servers, Shell now takes millions of seismic readings in a given area. (2) Since this data feeds directly into an Amazon Web Services server, Shell is able to run more sophisticated analyses on the data to understand the nuances of a particular drilling site before deciding to drill. (3)
Shell operates in over 70 countries, owns interests in 23 oil refineries and owns over $180 billion of capital assets and equipment. (4)(5) Shell’s enormous asset base means that any unexpected maintenance or equipment outage will result in operational headaches and increased expenses. With this in mind, Shell has deployed small sensors to collect data about the usage and performance of a variety of its assets. By analyzing this data Shell can better understand what equipment requires preventative maintenance before the equipment has a critical failure — greatly reducing equipment maintenance costs. (2) This cost reduction doesn’t take into account the opportunity cost avoided by keeping equipment online and in good condition.
In Nigeria, for instance, Shell has been able to save over $1 million by implementing Internet of Things monitoring devices on its wellhead equipment. The current system in place allows shell to monitor wellhead and pipeline pressure, temperature and flow speeds. Not only does this alert Shell of any potential safety problems, but it allows Shell to have a much better understanding the operating conditions of its equipment. (6)
Increased Logistics Efficiency
Energy logistics is a large component of the oil & gas value chain that goes unnoticed by most consumers yet is a massive subset of the industry; all oil and gas must move from the patch to the refinery to the consumer. Logistics is incredibly complex and moving energy products long distances can quickly add to variable costs. Shell is utilizing complex algorithms to analyze a number of factors, including transportation and production costs, economic factors that drive demand and even weather patterns. Once this data is analyzed Shell can determine where to move refined product (gasoline and diesel) and how to set the prices at the pump. (2)
What Else Can Shell Do?
Shell seems to be at the very beginning of implementing Big Data and Internet of Things capabilities within its business and has only captured the lowest of the low-hanging fruit. While Shell has made impressive strides with their initial implementation of this technology, their data collection is still limited in relation to its potential. Over the next decade technology will improve and implementation costs will decrease, allowing Shell to place sensors on virtually all aspects of their oil exploration equipment, including constant data monitoring inside the well itself. (7)
With this abundance of data comes many challenges, however, that Shell must manage carefully going forward. Data must be interpreted and analyzed properly for it to have significance. With this in mind, Shell must invest in systems to synchronize all of its data so that it can be analyzed in its entirety and in relation to other pockets of data. Only analyzing one portion of the Shell ecosystem could lead management to make a decision that favors a certain aspect of the value chain, leading to losses or costs elsewhere. (1)
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- “Big Data in Big Oil: How Shell Uses Analytics to Drive Business Success.” Bernard Marr, May 26, 2015. <http://www.forbes.com/sites/bernardmarr/2015/05/26/big-data-in-big-oil-how-shell-uses-analytics-to-drive-business-success/#819c66b74b97>
- “Three Innovative Ways Shell is Using Big Data.” Thomas H. Lucero, May 27, 2015. <http://www.businessreviewusa.com/technology/4934/Three-innovative-ways-Shell-is-using-big-data>
- “Shell Drills into Big Data Analytics.” Accessed November 15, 2016. <http://www.oilandgasbigdata.com/news/shell-drills-into-big-data-analytics>
- “Who We Are.” Accessed November 15, 2016. <http://www.shell.com/about-us/who-we-are.html>
- “Shell Annual Report 2015”. Accessed November 16, 2016. <http://reports.shell.com/annual-report/2015/consolidated-financial-statements/balance-sheet.php>
- “Shell Saves $1 Million Using IoT.” Rene Millman, March 31, 2016. <https://internetofbusiness.com/shell-reportedly-saves-1m-using-iot/>
- “Internet of Things and the Oilfield.” Frank Braswell, July 14, 2015. <http://www.controleng.com/single-article/internet-of-things-and-the-oilfield/96407368110bc998458f6903141f92e9.html>
Student comments on The IoT and Big Data Will Transform Royal Dutch Shell
Thought-provoking analysis from start to finish. It makes me wonder how Shell have remained profitable for so long without the use of data analytics to drive decision-making. Perhaps they are anticipating the threats from renewable energy sources and are attempting to squeeze more out of their existing assets. Do you think the operational savings that Shell make, along with other major Oil & Gas companies, will see their way down to the consumer? Obviously oil prices do not effect upper-middle class areas such as Greenwich, Connecticut, but in less prosperous areas, these savings could be of major benefit to the general public.
Congratulations again on a succinct and informative blog post.
Great post, Phil. Many companies have survived the current downturn due the costs savings provided by the digitization of the oilfield. This subject has widespread implications for the future of the oil and gas industry and climate change. In regards to Shell, I think that the company should focus on improving its upstream operations (which operated at a $5.6Bn loss in 2015), rather than spreading resources across the entire business during the current downturn . Bain found that big data produces the most value for oil companies in optimizing unconventional wells . In the medium-term, I do agree that the entire oil supply chain should be synchronized to reduce costs and provide management with the most accurate information.