It’s not often that you get the chance to look back at where you were a decade ago and compare it to where you are today, but when you do, there’s a good chance that you will be amazed at the different a decade makes. There are three questions you need to ask yourself: Has the world changed? Is it a new epoch that deserves a fancy name? And finally, does it actually matter asks Kay Rieck, an experienced market observer and investor.

In between all the other things that have been going on, the last few years has been full of technological evangelists talking about society entering the fourth industrial revolution, also known for the Twitter generation as Industry 4.0 or the even more pithy 4IR. There have been breathless proclamations that the Internet of Things (IoT) would herald of an exciting new environment where businesses, consumers, societies and governments could interact in fundamentally altered ways. This dawning of a new age would supercharge businesses, making it faster, more efficient, better for the environment and presumably shinier and better looking.

Steam, mechanisation, supercomputers and automation

The theory is that the first industrial revolution saw the arrival of steam and waterpower, which completely changed several industries (including coal mining) by making it possible to achieve far more with fewer people. The second industrial revolution arrived half a century later at the dawn of the twentieth century with the improvements in communications delivered by inventions such as the telegraph and also increased mechanisation of industry. The third industrial revolution arrived with super computers and the digital age towards the end of the twentieth century.

Now, as the twenty first century hits its stride, automation, big data, cloud computing and a bewildering array of freshly minted acronyms announce the arrival of the fourth industrial revolution.

This is, as they say, all good. It makes for snappy headlines in newspapers and eye-catching titles for conference speeches and fascinating PowerPoint presentations for consultants, but in reality it doesn’t mean a lot to the majority of businesses on a day to day basis. It’s worth noting that none of these revolutions happened overnight, and while they might be becoming quicker to complete their revolution, it may also mean that their long-term impact is also getting less.

Meanwhile, with a head out of the clouds

What’s important from a business perspective is how things are changing at a day-to-day level.

Because in reality, while it’s easy to be sniffy about catchphrases and consultants, there is little doubt that the world is changing, possibly more rapidly than we really notice.

From the point of view of the oil and gas sector, at the exploration and production end of the scale, form a distance it might look like little has changed over the last hundred years: you drill for oil, you find oil, you extract it, and ship it off to a refinery while trying to work out what to do with the associated natural gas.

In reality though, a lot has changed. Most of it is the result of many small things evolving at specific points, but when you take a step back and look at the entirety of the process, they add up to a profound overall change. These changes are enhancing the industry in terms of safety, emissions, and the efficiency of output as a whole.

At the same time there are several big things that have also changed. For example, the seismic surveys that started to be introduced in the 1920s have given way to 3D surveys that collect large amounts of data. One of the benefits that (go on, let’s say it) IR4 is delivering is the ability to analyse the data that’s being collected from these more intensive surveys. And that data analysis is being used to enhance future exploration projects so that the industry can chose better places to drill and make better use of the natural resources that they are drawing out.

Changing how people see the world

Training and repairing is also likely to be enhanced over the next few years. Some people are talking about how the metaverse is going to make a massive difference to the ways that people interact, and perhaps it will, but from the oil and gas perspective, it will be augmented reality (AR) rather than virtual reality that is most likely to change the way we go about our day-to-day business.

To take a simple example, imagine having a machine breakdown but your site is too remote for an engineer to get to in a reasonable timeframe. This is a very hands-on industry and there is a reasonable chance that someone can have a go at fixing the problem because make do and mend has always been the reality of working in extreme environments. But even with a depth of knowledge and experience, sooner or later a minor issue becomes a problem and production delays and missed targets are the most likely outcome.

Using AR and connected via robust 5G internet, the engineer can talk you through the repair process remotely, watching your progress through the same glasses that you are using to compare how the broken machinery currently looks to how it should look on the schematic. It might not cure every problem on site, but it would potentially reduce production delays, even if it’s simply the foreman being able to tell you exactly the right spot to tap the unit with a mallet even though they’re 300 miles away.

No technology, no breakdown

There’s an element of chicken and egg to all this, because back in the day, engineers knew their way around all of the hardware on their sites like they knew the backs of their hands. Enhanced technology has made this significantly more difficult. In the end though, thirty years ago, most people could fix the basics on their cars, and most engineers significantly more, but the enhanced speed, safety, efficiency and comfort you get with a modern car means that it’s more difficult to tinker with. The same is true at the well-head.

Meanwhile, the oil industry is facing a skills shortage, with fewer and fewer people willing to commit to an industry that faces significant short- and medium-term challenges. It is worth noting that AR is also the kind of technology that would change the speed with which you can both train people up and leave them in charge of aspects of a site.

Using AR, you could be confident that they had worked their way through real world scenarios rather than simply on paper, and if there was a problem when you were offsite, you could look through their eyes and talk them through the realities on the ground. The risk and insurance aspects of this would need to be managed carefully, but the potential to change the way that the industry works is there.

Count the change, see the change

Ultimately, it would be easy to find and discuss a string of use-cases for different types of emerging technology and tie it all back to the fourth industrial revolution, but in many ways suggestions of how technology will end up being used when it hits the harsh reality of being onsite at an oil and gas project are little more than guesses.

The size of the potential prize though, that’s where guesses become estimates and where hard-headed businesses people tend to start to take note. So according to an estimate from October 2020 by global management consultant McKinsey & Company, using advanced connectivity to optimize drilling and production throughput and improve maintenance and field operations could add up to US$250 billion to the value to the industry’s upstream operations by 2030. The report suggests that more than half of this value could be achieved with existing infrastructure, with the rest unlocked by low-Earth orbit (LEO) satellites and 5G technologies. Offshore operators could reduce costs, including operational and capital expenditures, by up to 25% per barrel by relying on connectivity to deploy digital tools and analytics.

Even if those figures are at the optimistic end of the scale, they make for interesting reading and have the potential to radically change the economics of the oil and gas industry at a time when it could really do with a little more long-term certainty.

In the end, whether we are at the dawn of the fourth industrial revolution or simply doing another day at work, while catch-phrases are useful, it is the economics that will define the future.


About the Author

Kay Rieck has been an investor in the US oil and gas sector for more than two decades. He was a financial advisor and stockbroker on the New York Stock Exchange (NYSE) for many years.

He quickly developed his interest in the oil and gas sector and related assets, building his expertise in investment banking and asset management at the New York Board of Trade and the Chicago Board of Trade.

Leveraging his exceptional network of global contacts, he founded his first oil and gas development company in the U.S. in 2008, selecting investments in the Haynesville Shale, Permian Basin, Eagle Ford Shale, Dimmit County, and anywhere else that offered and continues to offer exceptional return prospects.