As the oil and gas industry faces changes from high operational costs, increasing sustainable investment movement, and the consistent low oil prices, companies are turning to tech companies for help. Some of the ways tech companies in Silicon Valley can help is by boosting efficiencies and streamlining operations.
The potential market for digital gas and oil could grow by over 500% in the next 5-6 six years. This could save up to 150 billion dollars for oil producers and create an everlasting market for tech service providers in the cloud computing business. The opportunities include helping oil producers save on general administrative and operational costs, transport costs, and cut capital expenditure and selling.
Microsoft announced its partnership with Chevron and Exxon in the last year. Alphabets, the parent company of Google also, renewed its partnership with Schlumberger. Additionally, BP and Shell receive digital services from Amazon web services.
Why are They Teaming Up?
Several factors are driving this transition, one being the years of lagging returns for the energy sector. Six years ago, when oil prices fetched more than 100 dollars per barrel, oil producers didn’t look closely at their cost. In 2014 West Texas Intermediate (WTI) began a downward trajectory, and while the prices have risen again, WTI remains down, forcing oil and gas producers to adopt.
Energy has continued to underperform, which only accounts for less than 4 percent of the S&P 500. There have been major advancements in the tech space, such as the rapid iterations in data processing and machine learning. This has led to a cost decline for things such as data storage due to wide-scale adaptations.
The Biggest Beneficiaries
As the big oil producers look for cloud computing and data services to help them in performance, companies that provide such services could benefit more. According to Barclays, the market for digital services could grow to an estimated value of $30 billion yearly in the next five years compared to the current less than $5 billion annually. The cloud computing market could potentially grow to $30 billion yearly. Given this potential, tech companies are already vying for this market share.
The Environmental, Social and Governance (ESG) Factor
With the ever-growing movement for ESG, energy companies are getting vulnerable. The environmental, social, and governance (ESG) factor is becoming a priority when making investment decisions. Because of this, energy giants are relying upon tech companies for solutions to make operations safer and cleaner.