The price of oil has sent the industry into crisis. From more than $100 a barrel in 2014 to $30 in 2016, oil is cheaper now than at any point since 2003. Nearly 100 million barrels of oil are being pumped from the Earth every day, but with supply continuing to outstrip demand the price is only going one way. Against this backdrop of record losses and huge layoffs, more than 800 industry executives gathered in oversized models of oil pipes to try and work out what to do next.
“This is the burning platform,” Ashley Haynes-Gaspar, general manager of General Electric’s software and services business told WIRED. And the fire is spreading. Oil and gas remains one of GE’s biggest money-spinners; it provides the pumps and pipes that keep the oil flowing. The company has a $22.9bn backlog of orders for equipment and other works, with its drilling equipment currently used in 85 percent of offshore rigs.
Earlier this week GE, which remains America’s largest industrial group, gathered together the industry for the 17th GE Oil & Gas Annual Meeting. And all the talk was about cost. Held over two days at an opera house in Florence, Italy, the event is advertised as a chance for the industry to share ideas and do business. Alongside presentations and panel discussions, attendees networked in giant replica oil pipes embellished with touchscreens showing the latest in drilling and pipeline technology.
While the likes of GE attempt to woo the industry with the promise of a technological revolution, there’s only one word on the lips of the overwhelming white, male, middle-aged attendees: crisis. “This is the worst crisis our industry has faced in a generation, maybe more,” said Thierry Pilenko, chairman and CEO of industrial engineering firm Technip. Through a series of carefully prepared remarks and slideshow presentations, oil and gas executives gave a glimpse into the growing panic.
“Where’s the price of oil going to be? Shit, I don’t know,” GE chairman and CEO Jeff Immelt told attendees. His company, founded by Thomas Edison 123 years ago, now employs 305,000 people and operates in markets as diverse as aviation and healthcare. GE might not pump any oil, but its business supplying those who do is considerable. Despite a 14 percent year-on-year slip, annual revenue for the division stands at $16.45bn, down 16 percent, with profits also down 19 percent.
Immelt’s advice for attendees paying too much attention to the oil price? “Don’t read papers or watch TV much during a cycle like this,” he said. “It can only make you confused.” The message was clear: knuckle down, focus on accurate data and ignore the noise.
Presenters from Shell, Statoil and Total spoke about the need for greater collaboration, digitisation and standardisation to cut costs. Harry Brekelmans, director of projects and technology at Shell, called on the industry to ignite its own “renaissance”. “Let’s think bold, let’s work together, let’s create our own renaissance,” he enthused, drawing half-hearted applause from the audience.
Outside the walls of the opera house, BP was axing nearly 7,000 jobs and reporting an annual loss of $6.5bn, the worst in its history. Similar results have been announced across the industry: Exxon Mobil’s annual profit for 2015 fell to $16.2bn, down from $32.5bn in 2014; profits at Shell fell 56 percent year-on-year in the fourth quarter of 2015. Capital spending and operating expenses are being cut, but with the barrel price showing little sign of recovery things could get worse still.
“When oil is at $100 a barrel the upstream guys want to get as many new developments going, they want to get to oil as fast as they can,” said Haynes-Gaspar. “It’s not necessarily about being good from an uptime and reliability perspective, it’s about getting the oil to the surface.”
Haynes-Gaspar and others from GE were keen to push the company’s big data, smart industry credentials. The conglomerate has noticed what is happening in other industries and sees an opportunity for oil and gas. Take aviation: sensors and monitors integrated into some Boeing 787 aircraft can produce more than half a terabyte of data from a single flight. In healthcare, tiny, sensor-packed wearables can collect more than 400,000 vital sign measurements per person per day. This data can help detect cardiovascular disease before it becomes a major health issue, making treatment predictive rather than reactive. From aviation to automotive and logistics to healthcare, the intelligent collection and processing of data is helping to spot faults and improve efficiency. So why has the oil industry been so slow to pick up new technology?
“I don’t know that oil and gas has necessarily been slow,” said Haynes-Gaspar, before pausing and narrowing her eyes. “Okay, oil and gas has been slow. When you look at what’s at stake, risk plays a huge part of the equation. And trying new things in an industry that is risk averse, and doing very hard technical things, can sometimes be a bit of a question: why change if what I’m doing today is working?”
The grumblings of skepticism remain. While those on stage called for greater adoption of data analytics and “digitising the rock”, one audience member said his more senior colleague remained unconvinced. “He still thinks this is all BS. There’s got to be a nut or a bolt involved somewhere.” But the economic case for the industry’s “fourth industrial revolution” is compelling. The global oil recovery rate is stuck at around 35 percent; draw oil too quickly, from the wrong location or use the wrong kind of well and huge quantities can be left behind.
“If you can make that 36 percent you’re talking about 80 billion barrels of oil,” said Haynes-Gaspar. “That’s three years of global supply. Even at $40 a barrel that’s an incredibly compelling economic opportunity for these oil operators, especially when you consider the cost of punching a new hole in the Earth every time. Productivity, I believe right now, is the name of the game.”
But the industry is finding itself increasingly squeezed, both economically and politically. Its impact on our planet, from Deepwater Horizon to the Canadian oil sands and the fracking boom, remains an unspoken issue within the industry. Executives still talk of “going deeper and colder”, a reference to more deep sea and Arctic drilling.
At the end of an hour-long panel discussion about the industry’s future the moderator noted that it would be remiss not to talk about our warming planet. Asked if he wanted to say anything about climate change, Jeff Reilly from consultancy and engineering firm Amec Foster Wheeler had a succinct answer: “No”. Executives at GE described the company’s climate change initiatives with the portmanteau “ecomagination”.
But less than two months after the climate change deal at COP21 in Paris, was it wrong to organise an event that widely ignored the issue? “I think what you’re feeling in the agenda isn’t that climate change is an afterthought, I think what you’re feeling is an industry that frankly is in a moment of crisis with oil at $30,” said Haynes-Gaspar. “My sense is if we had a lot of climate conversations a lot of the customers that are here would’ve felt like it would’ve been a miss. Because right now, everybody is focussed on how they’re going to survive.”
During the two day event just one presentation focussed on climate change. “We have to be willing to make radical changes,” said Elisabeth Birkeland Kvalheim, chief technology officer at Norwegian oil and gas firm Statoil, referring both to tackling global warming and coping with the low cost of oil. “The solution must be low cost and low carbon”.
“When you get that message through the organisation, something happens further down,” she told WIRED shortly after stepping off stage. “The commitment from top management is crucial for changing direction in an industry like this. At the same time, we will be dependant on fossil for quite a long time. So it’s about taking the necessary steps to actually contribute to reducing the CO2 emissions as far as we can.”
The big challenge, according to Kvalheim, was not to diversify from fossil fuels (Statoil, she said, would continue to hunt and drill for oil), but to get better at capturing the carbon before it enters the atmosphere. “How do we figure out the bright new ideas related to carbon capture storage that is actually economical? What we are struggling with now is we have some potential technology but they are just too expensive. And that’s the challenge.”
Big data and analytics are not new to the oil and gas industry. So-called smart oilfields have been around for nearly a decade, but adoption has been slow. “What is new is how you connect that data,” Haynes-Gaspar argued. To that end GE has developed Predix, a cloud-based platform that attempts to make sense of the reams of machine data collected by industrial companies. Lorenzo Simonelli, president and CEO of GE Oil & Gas, was also keen to talk up technology’s role in making the oil and gas industry less wasteful.
“Making use of the data and making it provide better outcomes for our customers is what we’re driving towards,” Simonelli said, arguing that a one percent reduction in downtime on oilfields would mean big returns. “If you look at the industry, unplanned downtime and outages, you’ve got about eight to ten percent, which is two to three times the industrial average. If we can bring that down that’s going to be a huge advantage.”
Yet more troubles loom. It has been estimated that 50 percent oil and gas employees will retire in the next five years. With more job cuts likely, the industry faces a significant skills gap. But everyone here is very clear of one thing: oil isn’t going anywhere.
“The world needs energy,” said Simonelli. “When you look at the oil and gas industry it’s one of the key resources that will provide the energy for the world in the future and the growing population.” But inside the opera house there’s little talk of the future — everyone here just wants to survive.