Unlocking Efficiency Gains Through AI: Shell and Machine Learning

Machine Learning has the potential to create billions of dollars of efficiency gains for oil and gas companies. Shell is the first big company to take the plunge. Will they succeed?

Front-line workers arguably play the most important role in the global energy supply chain. The decisions they make day-to-day– whether opening a valve or shutting down a pump – has the potential to impact billions of dollars’ worth of trade flows and prevent fatal accidents.

Oil and gas companies spare no expense in monitoring key parameters to help their front-line staff make better decisions; a typical facility could have thousands of sensors monitoring several variables every second. [1] Hundreds of them are variables that can be manipulated to control its processes.

Put yourself in the shoes of a panel operator in a control room: how many of these parameters would you monitor before taking action?

According to McKinsey, no more than ten. [1]

The wealth of data available and the human limitations of processing it is only one example of how AI can augment human capabilities to further optimize processes. Royal Dutch Shell – the Anglo-Dutch energy giant – recognizes this trend, which is why it’s investing heavily in its machine learning (ML) capabilities to improve its operations.

These trends are important to Shell for three main reasons.

Unlike innovation in other manufacturing industries, innovation in oil and gas was historically driven by the need to expand resource bases, not reduce costs. Deepwater well development, horizontal drilling, and LNG shipping are prime examples of the herculean feats achieved by oil companies. However, as in any boom-bust market, the bull oil market up until 2014 made companies complacent and their costs ballooned accordingly. Secular headwinds – beginning with the 2014 price crash led by the boom in shale oil production – have eroded the high margins that buoyed the industry. Cost discipline became an existential priority, and ML solutions have the potential to significantly reduce costs. [2]

In addition, national oil companies are beginning to exert more control over the available resource base, leaving nothing for international oil companies (IOCs). IOCs can no longer compete on reserve size, but on their technological capabilities that add value to their commercial partners.

Finally, the predictive capabilities offered by AI applications have the potential to exponentially improve safety in operating sites and retail locations in a cost-effective way. [3]

Shell has identified three potential applications for AI in the short term: predictive maintenance, real time decision-making for horizontal drilling, and image recognition to detect safety risks in retail operations. [4]

Horizontal drilling is a time sensitive activity where decisions need to be made instantaneously based on many dynamic variables. By using the data already available from previous wells, AI can chart the course for an underground drill bit by optimizing its speed and direction, thereby boosting well productivity and reducing the need to replace drill bits. The data collected can further improve productivity in other wells, highlighting the network effects inherent to AI. The ultimate goal would be to have an automated horizontal drilling program without the need for human intervention, improving the productivity of geologists who can oversee more wells. [5]

Unplanned shutdowns due to equipment failure is an acute problem in downstream industries, contributing to low productivity and high maintenance costs. ML can be used to predict the likelihood of failures by processing the massive streams of real time data. By pre-emptively performing maintenance, brownfield assets could improve production efficiency by 10% and bottom line impact by up to $200mm. [6] Shell is rolling out two programs; one in Australia to monitor equipment for coal seam gas production, and another to detect anomalies in downstream valves. [5]

Finally, Shell is partnering with Microsoft and C3 IoT to create image recognition software that uses AI to detect safety threats at its retail gas station locations, such as smoking and theft. [3]

There is another major challenge in current oil and gas operations that Shell can leverage ML to solve – continuous process optimization.

While downstream process facilities – i.e. refineries and chemical plants – already have control systems in place, there is significant improvement potential that can be unlocked through AI. Machine learning can be integrated with existing process control schemes to provide finer control and even higher efficiency. In addition, in the same way ML enables predictive maintenance, it could also use real-time data to predict process upsets. Troubleshooting upsets – i.e. “firefighting” – distracts plant staff away from continuous improvement opportunities. Predicting them would significantly free up staff time to pursue productive activities, increasing their productivity.

While AI has the transformative potential to improve Shell’s operations, its use also raises significant questions for the company. AI is outside of Shell’s core competencies. should they develop that competency in-house? Or should they be dependent on third party companies and live with the associated risks?

(774 words)


[1] Brun, Anders et al.  “Why oil and gas companies must act on analytics”. McKinsey, October 2017, https://www.mckinsey.com/industries/oil-and-gas/our-insights/why-oil-and-gas-companies-must-act-on-analytics

[2] Hebert, Dan et al. “The Growing Role of Artificial Intelligence in Oil and Gas”. IEEE Global Spec Insights, June 9, 2016, https://insights.globalspec.com/article/2772/the-growing-role-of-artificial-intelligence-in-oil-and-gas

[3] Langston, Jennifer. “How AI is building better gas stations and transforming Shell’s global energy business”. Microsoft AI Blog, September 24, 2018, https://blogs.microsoft.com/ai/shell-iot-ai-safety-intelligent-tools/

[4] “Shell Selects C3 IoT as Strategic AI Software Platform”. BusinessWire, September 20, 2018, https://www.businesswire.com/news/home/20180920005470/en/Shell-Selects-C3-IoT-Strategic-AI-Software

[5] Norton, Steven. “Shell Announces Plans to Deploy AI Applications at Scale”. Wall Street Journal CIO Journal, September 20, 2018, https://blogs.wsj.com/cio/2018/09/20/shell-announces-plans-to-deploy-ai-applications-at-scale/

[6] “Predictive Maintenance using Hadoop for the Oil and Gas Industry”. MapR Technologies White Paper, May 2015,  https://mapr.com/resources/predictive-maintenance-using-hadoop-oil-and-gas-industry/assets/mapr_whitepaper_predictive_maintenance_oil_gas_051515.pdf


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Student comments on Unlocking Efficiency Gains Through AI: Shell and Machine Learning

  1. Great job! This article was very clear and concise. I hope to see more automated solutions using AI when drilling both the vertical and horizontal portions of a well. In oil wells in particular, ensuring the vertical portion is as straight as possible is critical as the well ages and artificial lift mechanisms such as sucker rod lift are employed. A straighter well minimizes wear and tear on the sucker rods and reduces failure frequency. However as the speed of drilling the well increases, the wells often become less straight in the vertical. On the directional aspect of shale wells, it is imperative to stay within the pay zone of the formation being targeted. As these formations can be very narrow (<100 ft.) the importance of precision while still drilling quickly becomes extremely important.

  2. The applications for AI in oil and gas operations seem very compelling, particularly with regards to predictive maintenance and the potential for a horizonatal drilling program to be fully automated. As Shell continues to automate its operations and free up staff time, I believe it will be important for the company to decide how it plans to deal with headcount. Specifically, how will the company measure the pros and cons of adding new productive activities to an employee versus simply letting them go?

  3.  Great job! Machine learning is transforming the energy industry, it is curious that it took this long to the sector to start leveraging the massive amount of data that they generate.

    Regarding your question, I don’t think that AI is a core competency in oil & gas industry. However, with declining costs in other sources of energy (especially renewables), I believe that the oil & gas sector will need to find new ways to become more efficient, and AI can be a great source.
    I think it is difficult to develop this capabilities with the current workforce though, I think that the sector will need to attract people with these skillsets and from that point start developing the knowledge in-house.

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