Executive viewpoint

The availability of Cloud services is one of the most important macro-trends in information technology infrastructure today. Cloud computing has all the makings of a transformational driver for oil and gas operators of all sizes.

The oil and gas industry has a rich tradition of embracing new computing models. The industry has responded to, and in many cases driven, every major IT trend of the past 30 years. New platforms, from mainframe computers and super-computers to workstations and distributed systems, were adopted rapidly by oil and gas companies. More recently, high-performance computing, virtualization, advanced visualization and GPU processing are being driven, and adopted, by the upstream sector.

The clear benefits of the virtually unlimited computing and storage capacities; ease of deployment; and small, upfront capital costs that public Clouds offer; are too compelling for a processing-hungry, data-rich industry to ignore. Cloud infrastructure, for example, takes the storage processing load off the shoulders of operators, who must manage vast amounts of data—from seismic acquisition, SCADA systems, well logs, surface and subsurface sensors, production meters, contracts, etc.—to derive value. In addition, Cloud technology is a natural fit for an industry that has a globally dispersed workforce, and where joint ventures by multiple companies are a common business model.

Challenges to wider usage. Despite these clear benefits, there are significant factual and perceived challenges that have slowed the adoption of Cloud computing in the oil and gas industry. Concerns exist regarding security of data from internal and external breaches, disaster recovery, access management and change management difficulties, and the need for integration with on-site applications. These are known concerns, however, and sophisticated new technologies continue to be developed, and rolled out, by Cloud service companies to address them. Cloud providers increasingly provide security controls and counter-measures that rival and, in many cases, are superior to those of any internal IT data center.

More significant hurdles in the path of fast and broad adoption of Cloud technology by energy companies are not technical, but regulatory and geopolitical. Energy security is on most countries’ national security agendas. This translates into countries regarding their energy asset-related information as national security secrets. The increase in cyber espionage linked to national spy agencies has accentuated these concerns, leading national governments to craft tough regulations regarding where their energy data resides, and how it is accessed. The ramifications of running afoul of these regulations, and potential punitive sanctions resulting from even a single breach, are so severe that most IOCs and NOCs view the adoption of Cloud computing as a high-risk venture.

Operators are proceeding cautiously in their adoption. Given the constraints described above, some of the core advantages of Cloud computing, including ubiquitous access points irrespective of national boundaries, turn from positive value propositions to risk-enhancing factors. Thus, operators are being very cautious and pragmatic in their approach to Cloud adoption.

They are looking first at private/regional Cloud capabilities that allow them to comply with national regulatory requirements, keep data within an individual country’s boundaries, and exert more direct control over the Cloud infrastructure, itself. They are also likely to take a step-by-step approach toward adoption. They are working in less-sensitive areas first, before moving to more sensitive applications, as they prove to themselves, their joint venture partners and national governments, that they can gain the benefits of Cloud computing while managing risks at acceptable levels.

Until now, the well-developed model of IT innovation and adoption by the oil and gas industry has been—for a handful of large independent oil and gas companies to work closely with select IT hardware and software vendors. Using this model over the past several decades, they have shaped innovation and led the adoption of high technology in their industry.

In a switch from the model described above, the engagement of large operators in shaping and modifying Cloud technology to their needs has been very limited, and is only now beginning to take shape. In this case, it is the small operators who are leading the adoption. They have recognized the opportunity to dramatically shift the cost curve down for their computing needs by adopting Cloud technologies. They have correctly identified Cloud technology as a market discontinuity, creating technology that allows them to compete better with much larger players.

The slow, steady march of Cloud computing adoption in the oil and gas industry goes on. According to the IDC Energy Insights 2014 Predictions: Worldwide Oil & Gas, Cloud will see an uptick in adoption this year and beyond, mainly for its ability to offer oil and gas companies with quick deployment and flexibility. Yet, at the current rate and pace, large operators are likely to play catch-up with new, smaller innovators, unless there is more active engagement between large independent operators, national oil companies, and IT hardware and software vendors, to address the technological and regulatory concerns that are holding them back.