Oil industry in decline – what about IT?

Industry is in the doldrums and the next oil boom may never happen. What is an industry accustomed to profligate IT spend do? Focus!

First some important information from Rystad whose research has found that claims of underinvestment in the global oil and gas industry are ‘overblown amid efficiency gains’. While upstream investment has ‘tumbled’ since 2014 (down 35%), efficiencies in the upstream industry more than compensate. Rystad’s Espen Erlingsen said, ‘Contrary to popular opinion, the world is investing appropriate amounts of money in fossil fuel production to satisfy demand. Cost savings mean operators can produce the same amount of oil at a lower cost, and we don’t foresee an oil supply crisis due to underinvestment on the immediate horizon’. In other words, don’t hold your breath waiting for the next oil boom.

Another Rysted report highlights the other squeeze on the oil and gas industry. Today’s recoverable oil reserves (1,600 billion barrels) are enough to warm the planet to 1.9°C if consumed by 2100. Conversely, according to Jarand Rystad, if global warming is to be 1.6°C, only half of the world’s recoverable reserves would be required. ‘It’s not unreasonable to conclude that policies and technological advances can reduce oil consumption and boost the energy transition, bringing us closer to a 1.6°C scenario’.

I guess that this is stating the obvious in that if the world does get around to electrifying transport and other sectors, then the oil and gas industry will decline. Of course this is a politically charged question but whatever your point of view, it is well worth reflecting on what a declining oil and gas industry will mean, particularly for its IT sector.

There are two sides to this question. First the argument that IT is a key enabler of efficiencies and that in a declining industry, more IT will help keep things going, replacing all those expensive knowledge workers. The SPE sees ‘digital transformation’ as one of the ‘grand challenges’ the oil and gas industry faces for the next decade. But it’s almost 20 years since the same SPE kicked off its version of the digital oilfield meme. The digital efficiency argument has reached a peak with the advent of ChatGPT (for my opinion of that read my last editorial). Having heard this kind of efficiency talk ever since we started tracking the oil and gas IT sector (in 1996) I am more than skeptical.

The move to the cloud continues to be touted as a cost-saving and efficiency-generating paradigm shift. It is not. The move to the cloud has channeled earlier outsourcing ventures – like document management – which look cheap at first – then get uncomfortably expensive as the service provider leverages its lock-in. CloudZero’s 2022 report found that the cloud spend issue has now ‘surged front and center’, with 73% of respondents saying it’s a C-suite issue.

The IT industry in general has been far too successful in creating a kind of Brownian motion to keep investment flowing. To date oil and gas, particularly the majors with their huge cash-generating capability, have been enthusiastic buyers of everything that IT has to offer. IT spend, like the carbon footprint of the cloud data centers (see this edition’s Going Green section), has just continued to rise and rise.

Such profligacy in a declining industry is, to use a popular word, unsustainable. On the other hand, the potential for cost savings is immense. IT spend needs refocusing. There is too much time and money spent on nebulous IT tropes such as digital transformation. Areas like the cloud, interoperability or IT/OT convergence need more focus. Exactly what is meant by these overarching terms, what are folks trying to achieve? IT needs to cool down, get closer to the business and, as my Splunk T-shirt says,‘ Planter moins, jardiner plus*’.

* Losely – Quit going to the nursery and get on with some gardening!

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