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Today’s global energy supply chain consists of $40 trillion dollars’ worth of oil and gas commodities. Despite its size and the billions in investment that have gone into managing it, a lack of transparency into commodity inventories still exists, trapping significant hidden value that has yet to be fully realized.

A Lack of Visibility Lead to Deadly Consequences

A 2013 rail disaster provides an unfortunate illustration. A massive freight train accident near the town of Lac-Meganitc in Quebec, Canada resulted in the fire and explosion of multiple tank cars carrying crude oil that killed 47 people. Multiple factors contributed to the accident, but investigators were surprised by the speed and ferocity of the fire. Eventually, the post-accident investigation revealed that dissolved gas content in crude oil transported by rail at the time varied widely and could sometimes be dangerously high for standard tank cars. The lack of visibility to the actual crude composition was a major contributing factor to the accident’s scale.

While regulatory and business practices were adopted to prevent a similar disaster, a residual lack of visibility into the volumes, quality, and composition of commodities still contributes to operational, commercial, and environmental inefficiencies.

Energy companies take numerous measurements of the quality and volume of the commodities at various points in the supply chain. The challenge is making the data accessible and usable.  The data has traditionally been siloed at remote production sites because of the cost of data transmission. The data is also “messy,” more so than with other industries. It usually contains errors because of fouled or uncalibrated sensors that result from measurements taken with sophisticated scientific equipment far from scientists. Lastly, while it may be technically possible to measure some inventory properties, it may not be practical. Either the equipment is too expensive to deploy widely or is not feasible because of the lack of qualified field personnel to maintain the equipment. The result is gaps in inventory data.

In a nutshell, no system of record for the inventory management of this complex supply chain exists that is complete, accurate, and auditable.

Big Data and Analytics Meets Modern Inventory Management

To modernize the inventory management of the energy supply chain, companies can leverage big data and analytic technologies that have transformed other industries. Oil and gas companies can utilize high-speed 5G broadband to inexpensively connect remote facilities that previously would have had to depend on expensive, slow satellite data connections. The data can then be cost-effectively consolidated into a single repository in the cloud for easier access, the first step to monetizing it.

Unlike other supply chains, however, oil and gas inventory quality and composition can change significantly from when it first emerges from a well to the point of final refinement. Commodities are mixed to form new blends or are processed into separate components of varying value.  Along the way, some of it evaporates. To understand the true state of the inventory, a digital fingerprint of the molecule must be created, and its genealogy tracked as it progresses through the supply chain.

Achieving this requires four steps to make the existing data useful.

  1. First, organizations should collect data directly from native data sources that include unstructured data in paper formats, spreadsheets, databases, and data formats from SCADA systems. Forcing energy companies to do the data engineering to convert their bespoke data into a standardized format introduces a significant friction point. 
  2. Second, they should validate the data using advanced analytics to address incorrect sensor reading or manual entry errors. 
  3. Third, the data likely needs to be augmented using digital models to address data gaps.  Users also can add third-party data like market pricing to enable the discovery of additional insights. 
  4. Lastly, the data structure needs to be auditable so external parties such as customers, partners, investors, and regulatory bodies can trust it.

Better Business at the Molecular Level

The creation of a universal data layer of the ever-changing inventory that is complete, accurate, and auditable yields commercial, operations, and environmental benefits. 

Commercial teams can now market the full value of their products’ attributes and transact transparently and efficiently. Producers that leverage analytics to identify ideal buyers for their crude oil and natural gas composition can receive higher prices. Based on market demand, buyers can now dynamically mix raw commodities to produce blends that yield the highest margins.

Operations teams can improve the efficiency and effectiveness of the processing and transporting of commodities to fulfill transactions. With greater clarity on the inventory volumes and attributes, facilities can run at higher throughputs and produce higher yields consistently. In addition, off-specification products, a traditional source of hidden margin loss, can now be rejected before a company takes custody.

Lastly, energy companies also can reduce their environmental impact during the production, transportation, and processing of oil and gas. By understanding the source and location of “product loss” in the form of greenhouse gas emissions (e.g., methane and carbon dioxide) along the supply chain, companies can mitigate those fugitive emissions. The demand for “green” energy commodities is growing so energy companies can capture new revenue for responsibly sourced products.

As they navigate the energy transition, oil and gas companies are being hard-pressed to maximize the value of their operations while reducing their environmental impact. By adopting the latest digital technologies, companies can modernize their inventory management and unlock new sources of financial and ESG value.

By Nouman Ahmad, co-founder, and CEO, Validere

About Validere

Validere is a leading data and analytics SaaS provider that is digitally transforming the world’s largest supply chain to be more sustainable and efficient. Our Product Data Cloud enables energy companies to aggregate all commodity inventory data into a complete, accurate, and auditable repository that allows them to create a real-time digital fingerprint of the molecule.  More than 40 of North America’s leading energy companies now realize the full value of their commodities through higher commercial margins, reduced operational costs and risks, and meaningful ESG progress.