U.S. Shale oil boom and the rise of data analytics startups

United States is the world's biggest consumer of oil. In 2016, the daily consumption was approximately 19 million barrels of oil, or 6.9 billion barrels for the entire year. This consumption rate is almost double that of the next highest consumer of oil (China), and is more than the next three consumers combined. United States is also one of the biggest importers of oil. In 2016, Unites States imported approximately 10.2 million barrels of oil per day from multiple countries. The top five petroleum import sources for the U.S. in 2016 were Canada, Saudi Arabia, Venezuela, Mexico, and Colombia. It is important to note that America's import of petroleum products has been declining over the years. The imports have fallen by nearly 40% from their peak in 2005. The major reason for this decline is an increase in domestic oil and gas production. So how did the US achieve this?

As the U.S. economy grew, the demand for energy increased exponentially. In 2014, U.S. primary energy consumption was about 18% of the total world energy consumption. Majority of this energy demand is fulfilled by fossil fuels. In 2016, 33% of the U.S. energy production was accounted by natural gas, 28% was accounted by petroleum, and remaining by other sources (coal, renewable, nuclear). It is clear from this data that oil and gas plays a very important role in meeting energy demand of the U.S. Between 1970 and late 1990s, America's need for crude oil soared and domestic oil production failed to meet the rising demand. Things have changed quite a lot since then. Beginning in early 2000s, America's dependence on foreign oil began to decline. To achieve the goal of self-dependency, scientists and engineers worked round the clock to find means of increasing domestic production. Finally, advances were made in two breakthrough technologies, which resulted in explosion of oil production growth in the United States also known as the shale revolution. These two technologies were hydraulic fracturing and horizontal drilling. Hydraulic fracturing involves injecting a mixture of water, sand and chemicals underground at high pressure that cracks the rock to release oil. Horizontal drilling involves drilling a well straight down, and then sideways which made it possible to expose a much greater area of oil bearing rock. Neither of the practices was absolutely new but refining the techniques and combining them transformed the commercial viability of oil. The oil companies are now able to extract oil and gas from layers deep down the earth which were previously inaccessible. This situation led to increased drilling activities like never before. Hundreds of new drilling operators have emerged who are keen to capitalize on this oil boom made possible by the engineering breakthrough.

Increased drilling activity has also led to increased data generation and thus an influx of data analytics companies. On a daily basis, hundreds of oil wells are drilled and terabytes of data is generated. This data is raw and disorganized, but holds immensely valuable information. With increased production and falling oil prices, there is huge pressure on oil companies to reduce the cost of exploration and production. Oil companies are slowly realizing that by leveraging smart data analytics, they can reduce their costs and increase profit margins. The goal of data analytics is mainly to allow oil companies to make better decisions through high-quality, reliable data based on complete, accurate, and easily available information. Though oil companies can manage their own teams to analyze the raw data, it is quite costly and inefficient to divert their resources away from their core business of oil exploration and drilling. This has led to birth of large number of data analytics startups that are collecting the oil and gas data, analyzing it, and creating powerful and user-friendly software to serve oil companies who are desperate to exploit information derived from this massive volume of data.

Technology analytics startups have to deal with different types of data. Some of these are:

  • Seismic data
  • Data from drilling and logging activity
  • Data collected during production
  • Data in the form of images and videos from well activities
  • Data coming from miscellaneous public filings

By analyzing these huge data sets, data analytics companies are coming out with some incredible results. For instance, data generated from pumps and other machinery can predict failures of electric submersible pumps. By analyzing video data from cameras along with data from robotic devices, corrosion development of pipes can be predicted. Data from weather and soil can be analyzed to predict operational success of drilling which can have a huge impact on cost and revenues. Similarly, extensive study of various public filings can help locate fields with richest concentration of oil and gas. All such information can help oil companies save millions of dollars. With so much money depending on every output derived from the data, analytic companies are working hard to create the best possible tools that help visualize, predict and discover. The startups that are able to run lean operations, innovate quickly and partner with other players where it makes sense will thrive in the long run.

Oil and gas analytics companies are here to stay, and they surely have turned out to be the most powerful game changer in this industry.