The Internet of Things (IoT) has been a quiet, but solid, storm sourcing new value across the industry for giants like Shell and Spain’s Repsol.
That is what case studies conducted by Florida-based financial services firm Raymond James showed in its industry brief on IoT released Jan. 22.
In the report “Energy Stat: When Thinking About Barrels, Don't Overlook Bytes—The Internet of Things Is Making Waves in the Energy Sector” analysts found that, surprisingly, the energy sector accounts for 10% of worldwide IoT deployments.
“I think because most of us don’t think about information technology through the same lens as the energy industry the intersection of IT and energy is something that tends to be below the radar from the standpoint of most investors,” Pavel Molchanov, senior vice president and equity research analyst at Raymond James, said.
Particularly, oil and gas leaders have seen the engine run smoother and the technological path appear brighter through the commencement of IoT. From hyper-efficient data collection in the upstream sector to predictive monitoring via sensors in midstream and refining—IoT has created a new value chain.
Best described by Deloitte Insights, IoT is a specific way of stitching together a suite of new and existing technologies to turn almost any object into a source of information.
For instance, in Raymond James’ first case study Shell seen an exponential return—10x to be exact—on its investment in random phase multiple access (RPMA) monitoring technology. The RPMA technology has allowed Shell to weather rough climate conditions at its wellheads and flow stations through alerts from its automated sensors.
According to the report, the technology awarded Shell an outsized return of $1 million in the first year of deployment with the initial investment being $87,000 of Shell’s annual $1 billion spending on research and development.
“If [management of energy companies] only think about the upfront costs, that would be a harmful hurdle to making that investment,” Molchanov said. “The costs are upfront, but the benefits show up overtime, so management needs to think about those long-term economic benefits.”
In another compelling case study from the report that concerns the midstream space is DCP Midstream’s DCP 2.0 initiative. The IoT program essentially gathers and links operational data like SCADA, key performance indicators from sensors and theoretical margins from the company’s processing plants to the system.
After breaking even in 2017 from an initial $20 million investment when the tech was first deployed, the report said DCP seen $40 million in margin enhancement from the $20 million partnered investment in 2018. From this success, Raymond James’ analysts predict DCP will uncover $35 million a year of incremental EBITDA.
While including IoT can source new revenue for a company, analysts warn there is protocol to follow in order to reap the benefits.
“The way to [incorporate IT] is by deploying it on a limited scale as a pilot project at first and if the small-scale deployment proves to be successful in the sense of increasing revenue, reducing costs or making operations more efficient, then what companies can do is scale up more broadly,” Molchanov said.
In Deloitte Insights’ “Transforming oil and gas strategies with the Internet of Things” report analysts said investing in the applications is just one aspect of IoT’s future in the industry. They added that IoT applications need to be linked with business priorities to extend its reach because just deploying it won’t create economic value.
“By reinforcing the importance of information for all aspects of the business and elevating information to the boardroom agenda, a company can fundamentally change how it does business rather than just optimizing what it has always done,” Deloitte analysts wrote in the report.
Both groups of analyst go on to insist that the survival of IoT catalyzes in the boardroom. For IoT to thrive long term, both analytics show that there has to be prioritization and support from higher level executives.
Only after that will companies gain insight into previously invisible aspects of operations where they can integrate IT, thus driving monetization.
“When oil prices are under pressure and energy companies have to learn to be more efficient, one of the ways in which they can manifest this greater efficiency is by learning to use IT in more comprehensive ways therefore becoming more efficient than the process,” Molchanov said.
Mary Holcomb can be reached at email@example.com.
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