INNOVATIONS AND TECHNOLOGY ARE KEY DRIVERS FOR THE NATURAL GAS INDUSTRY
RAKESH AGRAWAL, TRELLIS ENERGY, SAN FRANCISCO
TODAY, NATURAL GAS is the second-largest primary energy source consumed in the United States, providing 28% of our overall energy needs and heating more than half of American homes. According to the US Energy Information Administration's International Energy Outlook 2016, natural gas is the fastest-growing fossil fuel and its consumption is expected to increase by 1.9% annually until 2040.
Led by innovations in technology in the last few years, the natural gas sector in the US has fundamentally transformed. Horizontal drilling and hydraulic fracturing have led to more economical extraction of natural gas and unlocked new resources. The midstream and downstream industries have seen a surge in investment into building supporting infrastructure and a wave of new players have joined the market, creating higher volumes of data and new ways of doing business. To keep up with this rapidly evolving industry, companies are recognizing the need to modernize their IT systems and automate processes while keeping their operating costs low.
Gas well in the Marcellus. Range Resources photo
Today, several factors are driving the need for better software solutions in the natural gas industry, including:
1. An aging workforce
Millennials officially form the largest part of America's population and the largest generation in the workforce at 75.4 million in 2015, according to the Pew Research Center. These millennials expect to be able to work using the latest technologies, similar to how they use technology in their personal lives. Additionally, baby boomers are now retiring at the rate of approximately 10,000 per day from the workforce, and this trend is expected to continue until 2030.
With this, companies in the oil and gas industry need to start thinking about future-proofing their businesses. They need to find ways to capture and pass on the knowledge and expertise gathered over the years by the retiring baby boomers to the incoming millennials. Additionally, companies also need to be able to offer modern technologies to attract and retain today's tech savvy millennials.
As most business and operational processes supporting the oil and gas industry have been highly manual so far, companies need to invest in technologies that can automate these processes to create efficiencies and make it easier to train new employees while safeguarding themselves against future risks.
2. Rapidly evolving regulatory environment
The natural gas industry is governed by complex rules and regulations. Even a minor change can sometimes mean a complete overhaul of the IT systems for companies.
For example, the North American Energy Standards Board (NAESB) recently released the Wholesale Gas Quadrant Standards version 3.0. This standard includes a requirement that natural gas pipelines add an intraday nomination cycle to help synchronize all interstate gas pipelines. This means that pipelines will now have to confirm and schedule five times a day instead of four times previously. For companies running on legacy systems, this may mean making a significant monetary and time investment to make changes to their systems.
In contrast, companies that modernize their IT systems by adopting web-based software solutions hosted and maintained by service providers can benefit from the ease and convenience of automatically updating the rules governing the platform in the back-end. With web-based solutions, companies can more easily and affordably maintain regulatory compliance by simply upgrading to the latest version of the software platform.
3. Dynamic market conditions and shorter decision cycles
Today, the natural gas market is governed as much by external market conditions as by environmental conditions. This means that even in ideal environmental conditions at the point of extraction, the demand and supply of natural gas may fluctuate greatly due to changes in economic or environmental conditions elsewhere in the world. This can have a direct impact on midstream and downstream businesses.
For example, in the midstream business, shortage in supply from one wellhead may mean that the company needs to decide where to direct the limited supply of natural gas based on parameters most profitable for the business. Typically, this might take multiple days, leading to a significant loss in revenue due to delay in response time.
In today's fast paced market, companies need real-time data, anytime, anywhere. They need technology platforms that give them easy and fast access to information across devices including smartphones, tablets and laptops, enabling them to make the right decisions faster.
Another example where more modern transaction management technologies can help is in certain administrative functions. For example, we've seen that on average it takes about three days for a company to sign a contract and a deal. However, with a software platform that is web-based, automated, device agnostic, and security standards compliant, executives can view a contract and deal on their mobile device and sign it digitally, bringing down the time to a few minutes allowing them to capture additional revenue.
4. Need for optimizing costs
With the nation's high inventory of natural gas expected to keep applying downward pressure on prices, companies are increasingly looking for more efficient solutions to reduce costs, improve productivity and become nimbler.
Cloud-based platforms can deliver the scalability and flexibility that midstream and downstream businesses will need in order to stay ahead in these market conditions. With Software-as-a-Service (SaaS) models, companies can decide to deploy one or more functions on the platform depending on their size, need, and budget. They also have the choice to deploy in an on premise cloud environment or hosted by a third party. A hosted platform can enable companies to reduce their IT investments in resources, infrastructure and other overhead, thus helping optimize costs.
One thing to keep in mind though is, that such a solution offers the highest level of security and authentication measures to protect the company's proprietary information. It is also critical that based on levels of clearance within a company, employees can only access information they are authorized to view.
CONCLUSION
Investing in technologies that are agile, cloud-based, and secure will be critical for companies that want to stay ahead of the pack in a rapidly evolving industry that is facing a retirement boom, a complex regulatory environment, and dynamic market conditions. Forward-looking companies will not see this as a mere additional IT cost, but rather as a strategic investment to continue to be a viable market player both today and well into the future.
ABOUT THE AUTHOR
Rakesh Agrawal is co-founder and CEO of Trellis Energy, a wholly-owned subsidiary of Blackstone Technology Group. Trellis Energy is a natural gas transaction management software designed for energy companies of all sizes and complexity. A veteran IT professional, Agrawal began his career as a technology consultant with Merrill Lynch, creating several internal portfolio management applications, tools, and utilities. From there he joined a smaller start up IT services firm as senior technical architect and project manager, where he designed highly complex and flexible application architectures for large-scale system integration engagements. Agrawal holds an MBA from the University of Kentucky and a BS in material science engineering from the Regional Engineering College in India. He also holds numerous certificates in information systems integration and management.
