Through the 1980s and 90s petrochemical companies were at the forefront of technological innovation, but they’ve found themselves trailing behind in the 21st century, with disruptive technologies like Artificial Intelligence (AI), Machine Learning (ML) and the Internet of Things (IoT) largely left unexplored.
The problem has been exacerbated by the COVID-19 pandemic. Last year was one of the most uncertain in the industry’s history, with fuel usage down because of people staying home during lockdown.
Now that lockdown restrictions are easing, the industry can find its competitive footing again, but the impetus should be on improvement, not stabilisation. Gartner’s report, Top 10 Trends Driving the Oil and Gas Industry in 2021, suggests that petrochemical industry CIOs will have to focus on three strategic business imperatives: optimising business performance; creating new business capabilities; and strengthening their technology foundation.
Catching up to global changes
Meanwhile, the South African Petroleum Industry Association (SAPIA) has warned that the country’s refinery capacity could become obsolete within two years. This is due to the Petroleum Products Specifications and Standards, gazetted in August 2021, which mandate the use of ultra-low-sulphur petrol and diesel products from 1 September 2023.
In January 2021, SAPIA warned that the financial impact of COVID-19 lockdowns made it unlikely that South African petrochemical companies would be able to afford refinery upgrades (which carry an estimated cost of $3.9 billion), unless the government allowed them to pass those costs on to consumers or offered some degree of financial support.
This stands in stark contrast to global industry buzz; Gartner’s report shows that 85% of oil and gas CIOs want to create a change-enabling technology platform and 79% want to enhance the culture of IT. This is a crucial element, as petrochemical companies largely continue to struggle with non-integrated data and substantial unresolved technology debt – obsolete technologies and solutions, in other words – which keep operating costs high and the rate of change too slow.
According to McKinsey, investing in digital technologies could save petrochemical companies as much as 20% on capital expenditure and 5% on upstream operating costs.
Artificial Intelligence plays a much larger role in daily life than many people realise, and its increased pervasiveness makes it a must-adopt for any enterprise. The petrochemical industry is no different and could benefit from the increasingly wide variety of extended computing capabilities AI offers.
AI can deliver massive additional value for businesses in areas such as knowledge extraction, exploitation and automation plus asset and business optimisation. Gartner’s survey showed that deployment of AI and ML had more than doubled (up from 13% to 32%) between 2018 and 2020, with 50% of companies planning to increase their investment in AI/ML in 2021.
Global bank Barclays estimates that the oil-focused, digital-services industry worldwide will grow 500% annually – from less than $5 billion today to more than $30 billion over the next five years in the upstream market alone. This could lead to $150 billion in annual savings for oil producers.
If South African petrochemical companies do not find a solution for the conversion conundrum, they will be forced to direct their spend towards meeting the new standards, while international companies put their money into state-of-the-art tech.
Bottom line? South Africa’s petrochemicals companies risk being left short in terms of global competitiveness if they cannot find a balance between keeping up with global technological advances and toeing the regulatory line back home.
The opinions and views expressed by the industry experts are their own and do not necessarily reflect those of Old Mutual.