Cheap Oil

We are witnessing the steepest decline ever in crude oil prices. For India, since oil is the biggest import item, the reduced oil prices would help in reducing the current account deficit, save on dollar reserves, and help manage inflation. There is as such no direct impact on the prospects of the domestic technology industry.

But India’s global IT services industry which counts on the oil and gas sector as one of the important verticals with growing demand will see a negative impact borne out of reduced IT spends by global oil companies Saudi Aramco, Gazprom, ExxonMobil, Royal Dutch Shell, BP, and Chevron amongst others. It is estimated that Indian IT services companies like TCS, Infosys, Wipro, TechMahindra and others earn more than a billion and half USD in revenues annually from the oil and gas sector. With steep fall in oil prices the oil companies would get severely impacted in terms of revenue and profits and would look at curbing IT spends.

The oil sector has been active in engaging professional services firms to innovate on the technology front. Against the backdrop of fall in oil prices, the demand is to cut costs in every area. An IDC MarketScape Report (Worldwide Oil and Gas Professional Services 2014 Vendor Assessment) states, “This new cost consciousness has oil and gas companies looking to professional services firms to help them reduce costs. BP led the way in reducing IT costs when it executed on a strategy to outsource 65% of its annual IT opex in 2009 to reduce costs and streamline operations. Most of these cost reductions came from reducing the number of providers in the stable and implementing cost reduction strategies in ‘generic’ IT. Now oil and gas–specific deployment of solutions and services are under consideration for streamlining the business as well as reducing IT and engineering support costs.” Interestingly, the report was written at the time oil prices were stable; if you consider the current context, the pressure on oil companies to cut costs is far more severe.

Besides professional service firms that deliver cost savings through process optimization, technology sourcing, and industry-specific solutions, there is a new technology called digital oilfield that promises much. It is defined to be a web-based visualization platform from which companies can manage, measure, and track all of the data coming from all over the oilfield. One oil company quantified its productivity based gain from using select digital oilfield technologies to be $20 million annually. Digital oilfield technology seems to be the next cutting edge differentiator in the oil and gas industry.