Is Digitalization the Next Hydraulic Fracturing?

by Bob Shively, Enerdynamics President and Lead Facilitator

In the U.S., development of hydraulic fracturing coupled with horizontal drilling radically changed the natural gas supply picture. In a matter of a few years, the market went from a perception of shortage to a perception of long-term plentiful supply. We are now seeing these techniques provide new production in other countries like Argentina, Canada, and China, but it is uncertain whether the U.S. boom will translate well throughout most of the world.

Source: U.S. Energy Information Administration (EIA)

So, what’s the next technology boom that could transform the industry on a global scale? Digitalization.

According to Ed Crooks, the Financial Times U.S. Industry and Energy Editor, digitalization “might be as big a change for the industry as the advances in hydraulic fracking and horizontal drilling that enabled the shale oil and gas revolution.”[1]

What is digitalization?

According to the Gartner IT glossary, digitalization is “the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.” In the gas industry, we are talking about using communication networks and low-cost sensors to transmit large amounts of data from the field, remote control capabilities to reduce costs and improve safety, and software platforms to process the data and apply advanced analytical tools to draw useful conclusions. 

Image of a digital gas and oil field:

Source: Technology Partners

What will digitalization do?

Digitalization will boost the ability of gas producers to reduce costs through optimization and to safely find and produce more gas. Energy consultants DNV.GL recently surveyed key stakeholders in the oil and gas sector and got the following responses concerning the biggest potential for value creation from digitalization:

Note: HSSE stands for Health, Safety, Security, and Environment

Source: DNV.GL, Industry Perspective: Digitalization in the Oil and Gas Sector

By applying new digital tools for sensing, monitoring, controlling, and analyzing drilling prospects and active wells, producers will attain higher drilling success rates and will be able to produce more and more gas per well. In its paper Age of Gas and the Power of Networks, GE describes how existing knowledge of sub-surface geology attained through over 50 years of accumulated well data in U.S. shale regions was a major contributor to the success of shale plays. Such historic data does not exist in many other regions. However, new digital tools in advanced imaging and well data cataloging combined with advancing techniques in data analytics will allow producers to rapidly build knowledgebases and apply them to new situations.  

The results of digitalization

Speaking in the above-mentioned FT-McKinsey video series, McKinsey & Company Senior Partner Matt Rogers described how the Permian Basin in the U.S. required digital tools to unlock shale production. Now, volumes of oil per drilling rig have tripled and gas volumes per drilling rig have more than doubled in the last three years due to benefits of digitalization:

As legendary oilman T. Boone Pickens recently asked in amazement: “How can we have been drilling in the Permian Basin for 100 years and then find out it has twice as much as we thought?”[2]

Those who have witnessed hydraulic fracturing's stunning impact on gas production in the U.S. but not so much elsewhere may wonder if the same will be true of digitalization. Unlike the shale resource base, there is no inherent reason digital tools used in the U.S. won’t prove just as useful elsewhere. In fact, most industry insiders believe that companies who embrace digitalization will gain unique competitive advantages as they optimize their operations and drive down costs. The most likely result is increased production wherever the companies apply the new tools.