Get ready, Alberta, a Tsunami of new technology is transforming the oil/gas business model…and killing jobs

Suncor oilsands hauler

Suncor Energy Inc. has entered into a multi-year agreement with Komatsu Ltd to purchase autonomous heavy haulers for its oil sands operations north of Fort McMurray, Alberta.

Canada will regain only 17,000 jobs to 2021 even though oil production will increase by up to 800,000 b/d

The Canadian oil and gas industry lost 52,000 direct jobs – mostly in Alberta – after the price crash that started in 2014. Most of them are not coming back. Is the jobless recovery underway now the fault of provincial and federal policies, as critics from industry and the opposition political parties claim? Or is technology transforming the way oil and gas companies conduct their business, allowing them to produce more oil with fewer employees?

The second question is rhetorical: it’s mostly technology.

Prof. David Victor.

David Victor is a professor of international relations at the School of Global Policy and Strategy and director of the Laboratory on International Law and Regulation, University of California, San Diego. In a recent Brookings Institution article entitled Tsunamis of innovation are shaking the energy industry, he described how digital and control technologies, as well as advanced materials, are transforming business models across the energy sector.

“…the information technology revolution is playing out with its most profound effects in the most unlikeliest of industries – the traditional business of oil and gas and electricity,” he wrote.

“And what we are now observing is probably just the beginning – the first shock waves as even bigger tsunamis force disruption and change.”

Victor said in an interview that the next big wave will be artificial intelligence taking advantage of the tremendous amount of data now generated from oilfield operations (Cenovus Energy estimates it generates 3 million to 5 million data points very second), including predictive maintenance, which lends itself to oil sands operations that are operated more like a factory than traditional extraction.

“A lot of activities that used to be routinized but still had a  large labour component, you’re going to remove labour from that,” he said. “It’s part of this drumbeat of progression towards higher value-added human labour inputs.”

Mark Mills, Manhattan Institute.

Mark Mills is a fellow with the Manhattan Institute whose 2015 study, Shale 2.0 – Technology and the Coming Big-Data Revolution in America’s Shale Oil Fields, anticipated the technology Tsunamis now flooding the oil and gas industry.

He says the idea of the digital oil field is hardly new. Using computers, seismic images, and software to improve exploration and operations has been around for decades.

What’s new is that oil and gas businesses are finally catching up to the manufacturing sector, which began adopting digital technologies and re-engineering business models in a big way over 20 years ago.

“Modern access to remote cloud super-computing, the Internet of Things, the use of artificial intelligence with machine learning, the advent of low-cost high-performance sensors, all those things which are deeply relevant to industrial processes are now also very relevant to the oil and gas sector,” Mills said in an interview.

When he wrote his influential paper, energy companies were just awakening to the potential of the new technologies. Now, every producer has a division responsible for implementing them as quickly as possible.

That process has been aided by hundreds of startups designing new software and hardware for energy companies, especially in the American shale basins, which are populated by more small companies that are quick and nimble, looking for any competitive advantage they can get against their behemoth super-major competitors, like ExxonMobil or Shell.

“The Amazons and Googles advance their technology by buying start up companies founded by entrepreneurs who may have left the big companies a few years earlier and decided they could do it a better way,” he said. 

“It’s the classic way that we see business and technology advance across all ecosystems. It’s now happening in oil and gas technology.”

Ed Hirs, energy economist and professor, University of Houston.

The bottom line for producers will be more black on the bottom line, says Ed Hirs, an energy economist with the University of Houston and the managing director of Hillhouse Resources, an oil and gas producer in the Niobrara basin in Colorado.

“It’s going to lower cost of getting barrels and MCF (million cubic feet of natural gas) to the market,” he said in an interview, pointing to blockchain, the virtual ledger system used for cypto-currency Bitcoin, as a practical example of the new technologies’ benefits.

“That’s going to lower the back office costs for oil producers and traders and midstream gatherers simply because of the paperwork and accounting and tracking of transactions will become more uniform and more transparent.”

What affect might that have on oil and gas jobs in Alberta?

If Texas is any guide, it won’t be pretty, says Karr Ingham, an economist based in Lubbock, Texas.

Direct oilfield employment in the Lonestar State declined by 231,500 from its peak in early 2015 to the bottom of the trough in Q1 of 2017.

Only 50,000 came back as of Q1 of 2018.

Karr Ingham, economist.

Keep in mind that American oil production declined very little after the price collapse and has since risen to record levels, over 10 million b/d, and is predicted by the US Energy Information Administration to climb to a breath-taking 15 million b/d by 2030.

Ingham says the Texas industry will certainly add some new jobs as production continues to grow, but not anything close to previous levels.

“Does it take as many employees as we once had in the upstream oil and gas business to produce amounts of crude oil that are presently in demand by the marketplace?” he said in an interview.

“I’m not sure the answer to that question is yes.”

Calgary-based PetroLMI, a division of Energysafety Canada, estimates that only 17,000 Canadian direct oil and gas jobs will return by 2021, a period during which oil output could rise by as much as 800,000 b/d thanks to new oil sands projects coming online.

Many of those jobs will require new skills and more technical expertise and training.

David Victor’s Tsunami of innovation has already begun to affect Alberta oil and gas employment, e.g. Suncor’s adoption of 400 automated oil sands mine trucks.

Alberta may want to begin planning now for a more or less jobless oil and gas recovery. If it can happen in Texas, it can happen here, too.

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