Challenges of the Upstream and Downstream Sector
This is why the costs of other commodities increase with increase in the cost of oil and gas. This makes it very important to regulate the cost of oil and gas in order to ensure that the costs of other goods and services are reduced or kept optimal.
No modern society can run smoothly without oil and gas. This is why these products are very important today. Essentially, the demand of oil and gas exceed their production. This also explains the reason why countries with huge deposit of crude oil are among the richest nations of the world. Since the functionality of a modern society relies to a huge extent on crude oil, it is then very important to employ high tech and cutting edge technological processes towards this important field in order to ensure effectiveness in the process.
Oil and gas are highly demanded in industries as well as for commercial and domestic purposes. The products are used for lots of purposes ranging from the driving of machineries to the production of plastics and fertilizers. Indeed, the world would lose its taste if oil and gas are removed from existence.
An Overview of the Upstream and Downstream Sector of the Industry
To really understand the processes involved in the oil and gas industry, it makes sense to consider its subdivisions.
The oil and gas industry is essentially subdivided into three phases and these include:
Before examining these phases, it is important to note that the midstream sector is also included in the downstream sector.
The upstream sector of the oil and gas industry involves processes including the searching for and the recovery of crude oil as well as its production. In the upstream sector, discovery or exploration of crude oil takes place. This involves intensive and extensive efforts towards ascertaining the actual places where crude oil is located.
Exploration is a very difficult process and therefore requires the service of experts in the field. More so, information technology plays active roles in the exploration or searching of crude oil in order to easily discover new grounds where oil is located and therefore take advantage of them.
The upstream sector includes different operations such as the searching for prospective underwater oil and gas fields, drilling of exploratory wells and also making requisite operations on the well so as to bring the crude oil or natural gas to the ground surface.
The downstream sector of the oil and gas industry involves the refining of the crude oil and/or raw natural gases obtained in the upstream sector as well as selling or distributing the products obtained. Many products are derived from the refining of crude oil and these may include diesel oil, liquefied petroleum gas (LPG), asphalt, petroleum coke, gasoline, fertilizers, antifreeze, plastics, rubbers, pesticides, synthetic rubber, jet fuel and many more.
The downstream sector of the industry is the sector that relates with the consumers. Facilities involved in this sector include petrochemical plants, oil refineries, natural gas distribution companies, retail outlets and so forth.
The main processes involved in the upstream and downstream oil and gas operation include the following:
Information Technology and the Oil and Gas Industry
Information technology has become very relevant in different fields of life, industrial and commercial activities over the past few decades. Today, no industry can exist or became fully operative without information technology. As much as information technology is very relevant in other industrial fields, it is highly essential in the oil and gas industry. Different operations in the oil and gas industry depend solely on information technology and can only achieve efficiency thereof.
This simply implies that advance in information technology would simply result to the betterment of the oil and gas industry as well as every other field of life. This is why lots of intensive researches are being done on information technology in the recent time and these have resulted to unimaginable impact in the oil and gas industry.
One of the most striking developments in the IT industry which has helped information dissemination in the oil and gas industry was developed by the World Wide Web Consortium (W3C) about a decade ago. This technology known as XML (Extensible Markup Language) uses tags and unstructured patterns in developing requisite data (referred to as well-formed and valid data) for information dissemination. The most wonderful thing with XML is that it is structured in such a way that the information would be readable by both machines and humans. Other technologies such as SGML and HTML for transferring data were also developed by the W3C; however XML is the most beneficial of them all in information dissemination.
We will look at the challenges and opportunities in the upstream oil and gas industry facing in current information technology era.
1) Management and Information
Global forces such as geopolitical pressures are troubling the industry. We therefore need the knowledge, contacts and skills to effectively adapt to these troubles and geopolitical insecurity in the industry. It is also very important that we make appropriate efforts towards anticipating and reacting to the radical changes on the global sphere.
Some challenges in the upstream oil and gas industry can be effectively resolved if we lay emphasis on the new interdependencies between senior management information, operational effectiveness and decision making. We also need to appraise and understand their impact on our overall profit margins. This can go a long way in solving our problem.
The management involvement in information system (IS) and MSI advancement is really crucial like MIS Quart. 9. Originally, management may feel it difficult to come to be engaged much beyond the front end of IS advancement as a result of the extreme distinction in between the methods and languages of the data processing (DP).One more essential development that have actually made it possible for administration to take part additionaltoday. IS development has actually been the information analysis methods. These have actually made it possible for the data and processes of company systems to be assessed in totally logical terms, generating a logical information model independent of any type of DP terminology or hardware considerations
2) Increasing the production of liquid fuels
Oil and Gas has facing a real challenge of shortage of liquid fuel in this era. There is great need to increase the production of liquid fuel in the upstream sector. The output from Canada’s oil sand can be increased by threefold by 2035 which is equivalent to 4.5 billion barrels per day has the capacity to extract more oil and made effective. Not only that, but also there should be efficient avenues in place to bring the extracted products to the market. The American Petroleum Institute pointed out that oil sand production can be limited in 2014 because of shortage or inadequacy of pipelines leading from refineries to the market.
To make the Canada’s oil sand to become more beneficial and efficient, there is need to put the right upgraders and pipelines in place. Shell has achieved substantial success by increasing capacity at the Athabasca Oil Sands Project in Alberta by 100000 barrels per day. It has also opened a second mine in which it expanded the upgrader which converts bitumen to crude.
Again, the rising demand for oil and gas can be met by diversifying the transport fuel mix with hi-tech technologies. This can be achieved by increasing the contribution of biofuels. Biofuels are highly beneficial as they are very compatible with existing infrastructures and therefore can be sold and distributed in ordinary filling stations.
3) Sources of Crude Oil
If we take a close look at the sources of oil and gas, we will realize that they are not renewable natural resources. The intensive use of oil and gas today places the fate of the world’s crude oil supply at risk. In some countries like Brazil, China, and India, crude oil is used in alarming rate on a daily basis. Thus, this is a big challenge to the oil and gas industry. However, it is quite obvious that the challenge cannot be solved by preventing people from using oil and gas or their products. Oil and gas are very pivotal to the modern society and without them the modern society will not run smoothly or effectively. Thus, an alternative means should be sought in order to solve this challenge.
The primary way of dealing with this problem is by devising alternative means and avenues for oil exploration. Alternative sources of oil can be devised in order to save the world’s oil and gas. More so, we can employ the state of the art technologies available today in order to convert various natural resources to petroleum products. A good example of this is agricultural products and biofuel. Shale oil can also be employed as an alternative source of oil or energy.
Information technology is needed to achieve these aims. It can be employed in discovering and analyzing the alternative sources of energy. Data can be effectively collected and organized in a useful form so as to create a basis for decision making. This forms decision support systems (DSS) used in various companies for decision making and drawing inferences. With the presence of much intelligence software today, this can be achieved with ease.
4) Operational Challenges
The models used by the oil industry in the 20th century are becoming rather antique. The models are now seriously facing challenges and of course new models are being invented. The integrated model has an original digital logic aimed at providing a natural hedge, market access and balanced funding. With the help of integration, the operation and value chain can be optimized. The downstream sector can finance the upstream sector in order to achieve greater operation. By ensuring better integration, the oil and gas industry can balance its upstream and downstream operation and hence reduce volatility and risks.
Oil industries such as ExxonMobil, Royal Dutch Shell, and ConocoPhilips oftentimes employ vertical integration model which involve the entire value chains. Anxiety in investment has also increased since capital market does not realize the value of integration. Economies of scale and access to technology are not enough to solve the problems faced in the upstream sector of the oil industry. Some of the challenges faced in the upstream sectors today are caused by the structure of the downstream sector and investors.
Exploration automation seeks to do simply that through process renovations, enhanced rate of penetration, constant smooth quality drilling and overall exploration efficiency. Norway's Robotic Drilling Systems AS, previously Seabed Rig, developed an innovative autonomous robotic exploration gear for unmanned exploration operations. The business asserts that the new device, Robotic Drilling System (RDS), establishes brand-new criteria with raised security and cost-effective preparation and drilling and could be applied on existing, in addition to new exploration structures, both offshore and on land. Presently, the RDS utilizes autonomous robot working procedures that could be controlled by remote control system with an interactive 3D user interface
5) Energy Demand and Supply
There is intense problem of demand and supply in the upstream sector of the oil and gas industry. It is quite obvious that the demand for crude oil is greater than its supply. Ongoing tensions in the Middle East and economic uncertainty were pointed out in the 13th international Oil Summit but this points towards improved outlook of course the risks cannot be denied.
Due to population and economic growth, the global energy demand may double in the first half of the century. IEA stated that the global fuel demand could rise by 26 percent in the next 25 years; that is over 110 million barrels per day. Asian emerging economies will experience the most of the growth. Vehicle fleet in China could triple to 600 million vehicles in 20 years time. Global oil supply will struggle to keep pace with the demand due to decreasing output in mature fields by about 80 percent in 2035.
The high end data management and analytics available today can be wielded towards solving these challenges. The requisite data can be analyzed, archived, digitized and defined appropriately. This will depend heavily on the new XML technology while deals with unstructured data format. Different kinds of data can be parsed with it to ensure high efficiency in the process. Structured data analysis should also play a part in this game. The text based XML can be transformed into datasets with the use of data adapters so as to connect it to required structured databases such as SQL Server, Oracle DB, Access DB and so forth. This can be channeled towards revolutionizing the oil and gas industry.
6) Environmental Pollution
Environmental pollution is a major issue in the upstream oil and gas sector. There is lots of oil and corroded pipelines still used today resulting to oil spill which degrades the environment.
For example: Shell has led to lots of environmental pollution in the Niger Delta. Lots of their pipelines in the region are old and corroded, resulting to oil spillage and pollution. However, the oil company has denied responsibility for pollution. Thus, Niger Delta residents and citizens have protested greatly against Shell and similar oil ventures. In a case in January 2013, a Dutch court rejected four out of five allegations posed on Shell on pollution in the Niger Delta but a subsidiary firm was found guilty and asked to pay compensation to Nigerian farmers. Same issue was experienced in Magdalena, Argentina. Here Shell was also responsible for environmental pollution. On 15 January 1999, a shell tank in the region collided with another oil tank and polluted to fresh water.
Storyboards can be geared towards solving this problem. It deals with the simulation of industrial accidents (gas leakages) and condensate.
Storyboard is a term borrowed from the filmmaking industry; it involves narrating series of complex tasks. It can store hundreds of events. These can involve sensitive information. This can be employed towards building a framework involving “knowledge base” with the use of NKRL (Narrative Knowledge Representation Language) which involves the collection of formal statement with negligible loss of information.
7) Fluctuating Crude Prices
Political instability and problems in various regions of the world has led to the fluctuation in fuel prices. Crude price went from a high value of $150 per barrel in the middle of 2008 to less than $40 per barrel at the beginning of 2009.
The political issues resulting to the fluctuation in crude prices include slow approval of new capital projects, the squeezing of talents as a result of early retirements and acquisition activity. It is very important to maintain effective operation as well as ensure that the margin is maintained in the environment. Atomization of drilling mechanism and robotic technology can play a pivotal role to overcome this challenge.
8) Economic Uncertainty
This is another risk faced in the oil and gas sector which has led to the slow movement of some firms in the upstream sector. Most people will not classify economic uncertainty as a challenge or risk but on carefully analyzing, it will become very obvious that this is a challenge.
It is simply the uncertainty in economics. It can be defined as the unknown prospect or possibility of gain or loss. Whether this factor is quantified as a risk or not, it has a direct impact on employment, income aspects and communication among the various companies and firms in the value chains of the oil industry.
Information technology has great influence on business activities and economics. Changes take place in every part of the business; development of goods and technology, procurement, production, sales, distribution, and post-sale services. Due to CAD and CASE, enterprises lay great importance on rapid development of diverse goods and technology in order to satisfy customers. Companies can change production system from mass production under economy of scale into production on demand by CAM and ERP.
9) The People Shortage
The lack of skilled personnel and manpower or main operations requiring high tech processes in the oil and gas industry is a challenge in most parts of the world especially in the upstream sector of the industry. Processes in the upstream sector such as exploration and production requires high technicality and therefore there is need for skilled manpower. This has limited many operations in different parts of the world such as in Nigeria.
This problem can however be solved by attracting and encouraging more talented young men and women into the science and engineering discipline and hence into the oil and gas industry. Trainings have to be made highly efficient in various parts of the world especially in the information technology aspect to help young people understand how to manage the operations?
Marketing is another heavy issue in the oil and gas industry. China produces far less crude oil and has less than half the refining power than the United States of America but research states that the oil demands of China will exceed that of the US by 2035. To have these problems solved or adapted to, the IEA made estimation that there is need for $10 trillion new oil infrastructures by 2035. This involves $3 million investment per second for up to 25 years, adding to the huge challenge. Therefore the available resources have to be channeled towards making better investments to improve marketing and pricing in the upstream oil and gas operations.
In upstream and especially in downstream, the most engaging modification of the strategy to the marketing feature because the millennium has actually been changing from Outbound Marketing to Inbound Marketing. Building from the experiences picked up from doing business in the new Web 2.0 era, businesses have actually pertained to acknowledge the overwhelming benefits of drawing consumers towards their item, as opposed to driving their products towards their customers.