Fast-Track To Productivity Improvement: Industrial Internet offers efficiency gains at all levels of value chain


The oil and gas industry could save billions of dollars by shifting all of its upstream, midstream and down- stream operations to the Industrial Internet, say energy and technology executives with two of the world’s largest corporations, both of which have embraced the technology.

“I believe there’s the potential for a 25–50 per cent reduction in costs on the operational side; that’s the opportunity that exists,” says Brad Bechtold, the Calgary-based director of oil and gas industry transformation with technology giant Cisco Canada (a division of Cisco Systems).


Bechtold, who spent 25 years as a manager in the energy services sector, 18 of which were with Halliburton, and most of those spent heading the global operations for its GeoGraphix software product line, before joining Cisco three years ago, says he was astounded to see the potential efficiencies that could be brought to the energy industry after joining Cisco, which has been touting its Internet of Things strategy for several years. He also refers to the technology as the machine-to-machine (M2M) approach.

While lower oil and gas prices present
a challenge for the entire energy industry, Bechtold, who holds a diploma in business management from SAIT Polytechnic, says the Canadian energy sector faces added pressures.

“The problem for the Canadian industry isn’t the price [of the commodity], it’s their costs,” he says. “It is the most expensive [oil and gas] resource in the world. If they don’t resolve that, they don’t grow.”

Bechtold, who emphasizes that he “is not an IT person,” is convinced Industrial Internet technology holds the key to helping the energy sector manage its costs.

While emphasizing that the one per cent productivity improvement General Electric (see related story, below) and other advocates have touted as likely for firms embracing the Industrial Internet is readily achievable, he says he’s convinced there is even more potential than that.

The Cisco executive argues that there are more inefficiencies in the oil and gas industry than in many other sectors, likening it to the days when the utility sector dispatched meter readers to remote sites rather than relying on readings from sensors.

“If you think about it today, we have many workers [doing the equivalent of] reading meters, driving to remote work sites to monitor equipment,” he says. “That could all be done with centralized monitoring.”

There is also a worker safety issue. “Anytime you send someone to a remote work site you compromise his safety,” he says.

That M2M technology approach would also allow operators to take a predictive approach toward equipment failures.

Bechtold says the automobile industry and many other sectors have fully embraced the technology, while the oil and gas industry “is barely in the third inning” of the game.

He says the biggest potential beneficiaries of the technology are oilsands producers, who could reduce their field staff substantially using M2M technology. The Cisco executive believes three people in a control room could do the work of dozens of workers in the field of an oilsands site.

He says oilsands players are now eagerly embracing the potential of the technology, and his office has been very busy of late. That doesn’t surprise the oil industry veteran.

“The oilsands is a technology-driven sector,” he says. “The reality is it’s a more economic resource because we have found ways to make it economic.”

And now Industrial Internet technology can make it even more so.

He sees the potential for the M2M approach to solve multiple problems in the oilsands sector, from ensuring steam is more accurately injected into a reservoir to advancing the use of autonomous trucks at oilsands mines.

The technology can also make fracking more efficient by providing more accurate monitoring to limit water use.

Cisco has worked with Royal Dutch Shell, Marathon Oil and others to implement its M2M technology, he says.

The company retained consulting firm Accenture to measure the results of that implementation, and it reported up to a 15 per cent increase in productivity.

Cisco recently produced a case study
of the implementation of its M2M technology at the site of the $8-billion North West Redwater Partnership refinery being built northeast of Edmonton. Data, video and voice technology were provided by partner Redline Communications, which specializes in wireless communications. Cisco provided the M2M tracking technology.

All construction workers and equipment at the site have been continuously monitored, leading to what might eventually be millions of dollars in productivity improvements.

Bechtold believes the oilsands sector’s biggest potential for improvement is in “time on tools,” both in ongoing operations and in plant turnarounds and shutdowns. Industrial Internet technology can help the industry more accurately gauge how much wear and tear there has been on an asset, limiting the time a facility is off-line.

The mantra of the oil and gas industry for years has been around the approach of continuous improvement, which he thinks is perfectly aligned with the M2M approach. “There is no single problem with a single solution,” he says.

Dan Brennan, the California-based director of the Industrial Internet for GE’s $20-billion oil and gas division, says he believes the upstream, downstream and midstream sectors can all realize cost savings of 10–15 per cent by shifting to the widespread use of the technology.

Like Bechtold, he thinks it’s early days in the implementation of the technology.

While he agrees that large oilsands and offshore oil and gas projects are the most logical places to look for big cost savings, he says GE is finding the greatest interest among small and intermediate-sized oil and gas producers, which have faced the greatest financial stress as a result of lower oil and gas prices.

“We think they’ll be the first to move because they don’t have their own [M2M] resources,” says Brennan, who has an engineering degree and an MBA and has been with GE for 12 years.

He also believes the biggest potential gain in the implementation of the Industrial Internet is in reducing or even eliminating downtime at worksites. “For example, at an average LNG plant, there’s 10 days of downtime a year, at a cost of $100 [million] to $150 million,” he says.

Similarly, downtime during turnarounds and shutdowns at large industrial sites could be virtually eliminated, leading to billions of dollars in savings.

Because manufacturers of equipment would be involved in the process, thanks to the implementation of the Industrial Internet, they would provide needed parts just in time, he says.

“The Industrial Internet allows for connectivity all along the value chain,” he says. “The upstream oil and gas industry spends $800 billion a year. Just a one per cent improvement a year in cost savings could lead to many billions of dollars in cumulative savings.”

There are logical efficiencies that could be realized in the midstream sector as well.

For instance, about 60 per cent of oil and gas pipelines in North America were put into operation prior to 1970 and are therefore “un-piggable” (not accessible by devices placed inside pipelines for inspection), requiring a great deal of human monitoring. Brennan believes Industrial Internet technology would virtually eliminate the need for manual inspections.

Refineries are another area where the technology could play a significant role since process optimization and gauging demand and supply play a large role in making refineries operate efficiently.

GE is working with a SAGD operator in the oilsands, where he sees the potential of the technology to make water handling and use more efficient, playing a vital role in reducing costs. “We think we can accelerate the process,” he says.

The technology can also lead to more efficient waterflooding and other enhanced oil operation approaches, he says.

The only thing standing in the way of faster and greater implementation of the technology in the energy industry is a “knowledge barrier,” he says.

There’s a widespread misunderstanding about how the technology works, as well as concerns about cyber security. The latter concern would be non-existent if more in the industry knew about the level of security that is possible with today’s cloud technology options, he says.

“The industry needs to see that the marginal value of the technology far exceeds the marginal risks,” he says.

Connectivity For Industry: Internet of Things the social media of industrial applications

Just as the Internet transformed the way people communicate with one another, in a world dominated by emails, social media, smartphones and digital information, the Industrial Internet, which allows machine-to-machine dialogue, will change the way the world works in the future, according to a Chicago-based manager with General Electric’s (GE’s) software division.

“The way social media has changed the way people interact, machine-to-machine communication will change the way industry works. GE is [at] the forefront of that change,” says Kristy Lundgren, marketing leader of the company’s Rail Connect 360 program, which is implementing the technology in the railway sector.

That implementation revolves around the company’s new industrial software strategy that saw it invest $1 billion in a new lab in San Ramon, Calif., where a software team has built a new Industrial Internet platform, called Predix, similar to an operating system like Android but aimed exclusively at machine-to-machine communication.

Jessica Taylor, Chicago-based head of external communications for GE Transportation, says the company’s Industrial Internet strategy is aimed at helping it “move beyond being a heavy hardware manufacturer.”

There are about 4,500 GE gas turbines around the world, 22,000 GE wind turbines and 20,000 GE locomotives all outfitted with multiple sensors. Jeff Immelt, GE chairman and chief executive officer, and other executives realized about three years ago the industrial behemoth, with about 300,000 employees worldwide and annual revenue of about $146 billion, needed a strategy to manage all the data coming from
its sensors, which dwarfs data sets generated by consumers using the conventional Internet.

That is what led to the creation of the San Ramon centre, which employs 1,000 software engineers, IT experts and others from Silicon Valley. Lundgren says the intelligence gathering and parsing potential of the Industrial Internet, also called the Internet of Things, is mind-boggling. “As 50 billion machines become connected, it will change everything,” she says. “Just as my thermostat talks to me and I can manipulate it from a distance, the Industrial Internet allows a locomotive to ‘talk’ to a service dispatcher and say ‘I’m sick.’”

In GE’s case—and the same can be said for all other manufacturers deploying Internet of Things technology—it is about moving beyond the old way of servicing machines. In GE’s case, the company earns $180 billion a year servicing the machines it sells.

In the past, the approach was “it breaks, we fix it,” according to Immelt and other executives. The next wave saw the development of service agreements that assured customers a GE-built engine or turbine would achieve a certain level of performance and would have regularly scheduled maintenance based on GE’s experience with its equipment.

The third wave, the one made possible by the Internet of Things, strikes an agreement between GE and customers for certain kinds of outcomes: an assurance of ongoing performance.

The rail segment was a logical area for GE to utilize its Industrial Internet strategy, says Lundgren, since it is an area where the company has a huge market share. On any given day Class 1 freight haulers in North America move about 24,000 locomotives and almost 500,000 freight cars (there are an additional 800,000 privately owned cars, most reliant on thousands of additional locomotives). GE calculates that even a one per cent gain in efficiency of the system could result in savings of over $2.8 billion a year for the rail companies.

This can be accomplished utilizing a suite of tools made possible by the Industrial Internet. These include Trip Optimizer, a type of cruise control that analyzes data and allows train engineers to maintain the most efficient speeds and reduce fuel burn, and the use of remote diagnostics that transmit the warning signs if there are impending problems, averting breakdowns. A tool called Yard Planner limits 
the amount of time trains are inactive, and a tool called Movement Planner allows for the tracking of a train’s present and future location, which increases its velocity by 15–20 per cent.

“The amount of freight moving on North American railroads is expected to double between now and 2020,” says Lundgren. “You can’t just lay more track, which is why this technology is so important.”

As all the world’s machines become more interconnected and “smart” thanks to the advent of the Industrial Internet, GE’s executives believe cost savings from the management of big data, thanks to its Industrial Internet technology, could reach the double digits for each industry adopting it.


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