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Creating a Smarter Oil and Gas Industry, Part 2: Industry Trends Shaping the Digital Oilfield

- December 2, 2013 1:56 pm

In my last post, I discussed how the Internet of Everything (IoE) is transforming the energy sector and helping drive the momentum of the Digital Oilfield. Now, we’ll explore what the future holds for Canadian Oil and Gas companies and all of the possibilities enabled by a Digital Oilfield.

We are just beginning to leverage all the benefits of IoE to connect, collaborate, and compete. The question is not how to bring the IoE to the oil and gas industry, but instead, what trends in the next ten years will shape how the Digital Oilfield evolves.  First, let’s consider the some of the challenges facing the Canadian oil and gas industry:

  1. Price uncertainty – Limited control over commodity price and heavy oil differential.
  2.  Consumption constraints – Canada is a net exporter but only has one customer.
  3. High costs – Unconventional oil and gas have costs three to ten times that of Saudi Arabia.
  4. HSE – Canada ranks low among energy producing countries in safety.
  5. Expertise constraints – Workforce needs to out-strip supply by 2014.
  6. Massive Capital Costs – Oil sands projects have 20-30 year return on investment (ROI).

By no means is this a definitive list; the industry in Canada faces significant and unique challenges, yet is predicted to almost double production by 2025.

Consumption constraints and the commodity price risk are the two of the largest threats to sustainable oil and gas development in Canada, but the coming skill shortage is the most immediate challenge that operators, pipeline and service companies will face and it is coming in the next 12 to 24 months. The availability of skilled people will out-strip supply.  The next phase of the Digital Oilfield will need to address this shortage.

In a recent study by the Petroleum Human Resources Council of Canada more than half (54 %) of Canadian oil and gas employers cite skills shortages as a significant issue, and yet almost three-quarters (73%) expect to increase hiring in the next 12 months.

The study further confirms the true enormity of the coming skills shortage.  The industry will need to hire and develop 125,000 to 150,000 people in the next nine years.  What is more concerning is one-third, or 45,000, of those new hires will be replacing senior industry professionals who will retire.

As a result, we are now at a tipping point – a point in which medium term demand for qualified people will out strip the supply.

As shown above we are about to enter into a market shortage of skilled resources starting in 2014.  The result will be significant upside pressure on labor costs.  We have already seen the impact of this supply-side imbalance in 2007 when massive increases in labor cost and availability resulted in delays, cost overruns and, in some cases, cancellations of projects.

In my next post, I will discuss how Cisco is overcoming challenges associated with the Digital Oilfield through network collaboration as a platform to create a secure, converged IP infrastructure.

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