Pumping More With Lower Cost: The Benefit of Automation
Technology has already transformed labor needs in most of the worlds manufacturing. Nowadays, artificial Intelligence and automation are replacing workers in the energy sector, ending the last sector in America where blue-collar workers are generously paid.
The energy sector has been shielded from pressure to innovate by high oil prices. When prices fell 75% over 20 months beginning in 2014, oil and gas companies were forced to modernize to create profit.
Realizing that they could use new technologies to do the work better and cheaper with fewer people, energy companies are starting to pick up the concept of “digital oil fields,” which embraces artificial intelligence, automation and other technologies.
After oil’s dramatic crash this week due to Saudi Arabia and Russia’s decision to pump more crude and not participate in OPEC-led cuts, even the smallest operators will need to reevaluate their expenses.
Despite the downward trajectory of the energy industry over the past 6 years, the US shale producers have been pumping away, continually topping record levels. U.S. crude oil output first hit 10 million barrels per day in November 2017.
Production grew to 12.9 million barrels per day by November 2019. The U.S. Energy Information Administration expects hydraulic fracking output to edge up to 13.2 million barrels per day in 2020. However, energy employment is down 21% overall since 2014 due to automation in the industry.
According to David Rontal, Managing Director & General Counsel of Overland Oil, “Upstream operators will use the recent price crash to double further down on automation and Ai to drive down costs not only at the wellhead, but across the entire corporate structure.”
Automated control systems can send commands to underground tools that capture data on a well’s geologic formations, flow rate and other variables, sending real time data and monitoring possible leakages. Smaller teams of technical specialists located in remote operations centers are replacing laborers on the ground, who in the past made adjustments manually.
The most significant returns have come from centralizing and organizing data. In the past the company had to scan millions of pieces of paper just to get a handle on what it had. Now, everyone has access to real - time drilling software company wide.
The three most important factors that influence the operations of companies in the energy sector are capex, operating lease and commodity prices. The capital expenditure of energy companies could be largely decreased with the help of automation.
Technological changes were meant to deal with labor shortage and thus are critical at a time of tightening labor markets. However, It is unclear whether in the future artificial intelligence would go to the other extreme of causing high unemployment in the industry.
One thing is certain: as AI and automation would definitely take away some occupations, they would create new roles such as drilling engineers etc. Besides, It could be observed from other industry that sometimes new technology replaces no one’s job, but instead just made people in the correspondent field experience a steep learning curve.
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