In a landscape of subdued oil prices and forecasts predicting plateauing consumption within the next 30 years, oil and gas companies are under pressure to maintain profitability by controlling costs. The road ahead prioritizes efficiency, speed, and innovation. By leveraging advanced technologies like blockchain, wearables, predictive analytics, and 3D printing, companies can transform their supply chains to achieve long-term sustainability and competitive advantage in this evolving industry.
The Shift to a “Digital Oil and Gas” Paradigm
The oil and gas sector has historically been defined by its boom-and-bust cycles, with high volatility in prices, demand, and supply. Now, major economic, political, and technological shifts are reshaping the industry’s foundation. Optimism about resource abundance clashes with growing competition from renewable energy sources, geopolitical pressures, and electric vehicle adoption. Sustained lower oil prices reinforce the need to embrace a digital-first, cost-conscious strategy rather than relying on traditional cycles of rising prices.
Companies are driving cost control through technological advancements, creating a sustainable “digital oil and gas” ecosystem where efficiency becomes a strategic priority. After three years of depressed crude prices, with prices crawling back into the $50-$70/barrel range, a new operating model is essential for survival.
Future Energy Consumption Trends: Is Oil Demand Secure?
While some see threats to long-term oil demand, others forecast substantial continued use of traditional energy sources. With the global middle class predicted to double by 2035, access to vehicles, advanced healthcare, and modern technologies is set to spike. Consequently, energy consumption will rise, and oil and natural gas are expected to remain integral, supplying more than 50% of global energy needs through 2040. So, while renewable energy will play an essential role, oil remains an indispensable part of the world’s energy mix.
Current Challenges Facing Oil and Gas Companies
The industry is grappling with several pressing issues that underscore the need for operational transformation:
- Growing Supply Chain Complexity:
Companies face increasing consolidation, restructuring pressures, and heavier reliance on third-party vendors, making supply chain integration and coordination a priority. - Surging Costs Across the Supply Chain:
Inefficiencies in operations, hybrid back-office systems, and lagging logistics push up expenses, eroding profit margins. - Lack of Collaboration and Real-Time Insights:
Poor cross-functional planning, inflexible event-based processes, and limited real-time data usage further impede efficiency, slowing decision-making and inter-departmental coordination.
The combination of these issues has created an inflection point for the sector, where traditional operating models no longer suffice. To combat this, oil and gas firms must turn to technological advancements to pave the way forward.
Digitalizing the Supply Chain: What’s Changing?
As companies adapt to new challenges, collaborative models and digital technologies are transforming the traditional supply chain. Notably, oil-field service and equipment (OFSE) companies have borne the brunt of the industry’s consolidation during years of price drops. But this challenging environment has also created opportunities for partnerships, cost-sharing, and new revenue models that balance cost and innovation.
Some examples of collaborative and transformative strategies include:
- Sustainable Cost Cutting: Initial reactions to falling prices involved short-term measures like project postponements and workforce reductions. Today, operators and suppliers are adopting longer-term solutions, including supply chain optimization and operational collaborations, to achieve sustainable cost reductions.
- Vertical Integration: To unlock new value, many firms are combining engineering services, equipment manufacturing, and software offerings under one roof. Industry mergers like Schlumberger’s acquisition of Cameron or Technip’s merger with FMC Technologies illustrate this strategy.
- Performance-Based Contracts: Innovative revenue models, such as contracts tying supplier compensation to performance outcomes, are creating shared incentives. For instance, GE partnered with Diamond Offshore, taking ownership of blowout preventers while guaranteeing their performance—offering clients flexibility and fostering trust.
- Modular Equipment Designs: Redesigning equipment to reduce inefficiencies has yielded cost savings of 15–30%, proving that smart manufacturing is key to future competitiveness.
Are Cost Savings Here to Stay?
Cost control efforts vary in their potential to create lasting savings. For example:
- Temporary Savings: Postponing activities or taking advantage of temporary market conditions (like lower supplier prices) can save costs temporarily but are unsustainable.
- Sustainable Savings: Permanent cost reductions stem from redesigning equipment, revising contractual terms, or adopting technological efficiencies that improve operations over time.
Offshore production stands as a prime example. Despite pullbacks, McKinsey estimates that with best-in-class practices, deepwater break-even oil prices could reach as low as $40–50/barrel, a 30–40% reduction compared to 2014 levels. Early collaboration with engineering and procurement contractors is one key factor in achieving these results.
The Digital Future of Oil and Gas
The oil and gas industry is increasingly turning to digital tools to drive down costs and boost efficiency. Estimates from the World Economic Forum suggest that digital transformation could deliver $2.5 trillion in value to the industry, including $1 trillion for oil and gas firms and $640 billion in societal benefits like reduced emissions and enhanced customer savings.
Below are the key technology applications reshaping the industry:
1. Advanced Analytics
Harnessing high-powered computing to analyze vast datasets can improve decision-making by delivering real-time insights. Advanced analytics allow companies to make precise operational adjustments to drive profitability and avoid risks.
2. Predictive Maintenance
By using Internet of Things (IoT) devices and machine learning to forecast equipment failures, companies can reduce inspection and repair costs by up to 25%. Predictive maintenance also boosts safety and minimizes unplanned downtime.
3. Wearable Technology
Providing field workers with wearable devices offering real-time data enhances productivity and safety. For example, BP leverages biometric-tracking wearables to maintain worker health and performance during demanding tasks.
4. 3D Printing
The future of manufacturing lies in 3D printing technology, which compresses supply chains by decentralizing production and reducing inventory. It enables companies to quickly produce spare parts in remote areas, optimizing operations and reducing lead times.
5. Blockchain and Smart Contracts
Blockchain technology eliminates inefficiencies by enabling real-time tracking of transactions, reducing fraud, and streamlining payments across the supply chain. Oil and gas trading houses like Mercuria are piloting blockchain platforms to improve transparency and cut administrative costs.
Guiding Digital Transformation
Adopting digital technologies is no small task. It requires:
- Senior Leadership Buy-In: Strategic alignment from top executives is critical to integrating digital initiatives into decision-making processes.
- Cultural Shift: Companies must foster a culture of innovation, encouraging employees to embrace new tools and collaboration methods.
- Investment in Human Capital: Rigorous training programs will ensure the workforce is prepared to work with digitally enhanced systems.
Brazil’s Petrobras provides an example of successful digital transformation as part of its operational overhaul. Tools for remote operations, real-time data sharing, and increased automation allow the company to streamline processes and compete globally.
Final Thoughts
The future of oil and gas hinges on embracing a dynamic, digitally enabled supply chain. By integrating advanced technologies, fostering collaboration, and implementing innovative cost-control strategies, companies can position themselves to thrive in an era of uncertainty. While initial investments are required, the returns—both financial and societal—could far outweigh the costs. To remain competitive, industry players must adopt a bold, forward-thinking approach where digitalization becomes the foundation for long-term profitability and sustainability.