How the UK water industry could learn from oil and gas as it reinvents itself

Efficiency and sustainability targets will drive change in the water sector over next four years. 

It is an exciting time for the UK water industry as it approaches the completion of the first year of the PR 19 regulatory period. The sector is undergoing massive transformation amid a market redesign called for by regulator Ofwat to improve performance, lower customer costs, enhance environmental stewardship, and build in resiliency to future-proof itself against disruption. The next four years of this regulatory period will play an integral role in shaping the future of water in the UK, say EY’s Mark Deighton and Raj Malayathil.

In the coming months, we will be coming together with Microsoft to present a series of articles that take a deeper dive into several key priorities for the UK water sector, including driving efficiencies cultural transformation, creating a business model to prepare for increased societal debt while delivering strong customer experience. In this article, we examine how the water industry could learn from oil and gas companies to drive operational efficiencies through adoption of technology and cultural transformation.

The two sectors make for easy comparison because of their asset intensive business and an execution environment that is highly process- and task-centric. They also take a natural resource and refine it to provide a product for which the environmental responsibilities are paramount.

The transition to a low-carbon future has pushed oil and gas companies to reinvent themselves, and to use technology to improve operational efficiency and sustainability. Similarly, the targets set by Ofwat in PR 19 – to cut leakage rates by at least 15%, reduce mains bursts by 12%, and lower consumers’ water and wastewater bills – are expected to drive transformation in the water industry. Water companies have a great opportunity to take some lessons from oil and gas sector’s history of bold structural moves, adoption of innovation, and operational transformation.

Digital twins

A close examination of the oil and gas sector’s uptake of digital technologies and data is a good place to start. BP, for instance, has built APEX, a highly sophisticated digital twin that recreates every element of a real-world plant in digital form. This digital twin leverages an integrated asset data model and advanced analytics algorithms to spot issues in a plant before they have major effects on production. For system optimisations, what would normally take 24–30 hours of engineering time can now be completed in 20 minutes with APEX. 

Water companies are now beginning to get their feet wet with the use of digital twins too. Pioneer Anglian Water has started building a digital representation of the region’s water treatment and distribution infrastructure and embedded an AI system to incorporate predictive capabilities and intuitive decision support into operations. 

Water companies can learn from how oil and gas companies started small and rapidly scaled these advanced technology platforms – and the opportunity exists now to apply these learnings to their industry’s value chain for multiple assets, such as pumping stations, pipe networks, and treatment works. For instance, digital twins could also be used to optimise pump transitions in a pumping station, to reduce power demands and save water.

In another example, Shell introduced predictive maintenance and machine learning at its Pernis refinery, where data is collected from 50,000 sensors. Through use of AI, its model can predict failures in control valves and limit costly unplanned downtime. Shell estimates the technology provided cost savings of US$2 million in its first two weeks, and the company has now scaled it across its refineries. By taking a big-picture outlook, rather than adopting an incremental plan, oil companies’ use of technological advances is bringing transformational outcomes.

Recognising the enormous role big data can play in asset optimisation, oil companies have invested in cloud computing, thereby putting the tools in the toolkit for their engineers. For instance, XTO Energy, a subsidiary of ExxonMobil, uses Microsoft Azure as a unifying platform for all its data, allowing both office and field workers to make sense of vast quantities of information, empowering them to make better decisions and better troubleshoot mechanical failures to limit downtime.

Certainly, the opportunity for water utilities to deploy big data and analytics platforms is there for the taking. Applying machine learning to pressure and flow data sets could help detect leakages and sewerage obstruction in advance, to avoid flooding and interruptions to supply. Using geospatial analytics could also help locate leaks more efficiently – and at a significantly lower cost – than legacy techniques such as acoustics.

Test and learn

Technology alone cannot unlock the value from these innovations. The right talent needs to be recruited and the right organisational culture needs to be in place for innovation to flourish. Because of high fixed costs and a ‘failure is unacceptable’ mentality, the oil and gas and water industries both have a task-centric culture. To transform themselves through innovation, oil and gas companies have rewired their innovation culture and introduced a ‘test and learn’ approach, helping to attract new talent with the digital skills to enable transformation.

Companies such as BP have taken proactive steps to build a start-up culture, which is appealing to new talent because it is less hierarchical, allows for more participation, and offers exposure to more ideas without being restricted to working as a specialist.  

Water companies are beginning to follow suit. Severn Trent Water has started deploying digital solutions by introducing agile ways of working similar to digital native companies to fast track value delivery to business and customers. These models foster an environment that supports innovation and shift employees’ mindsets towards collaboration and out of the box thinking to boost innovation.

Water companies could embrace transformations like this and reimagine the way they operate and make decisions by building a culture of experimentation. This could help them avoid the stereotypical ‘heavy engineering’ image by telling a story of new technology adoption and a rapid, experimentation-led innovation culture to attract new talent and drive transformation. Promoting a test-and-learn culture could help water companies shed the legacy of dogmatic and asset-centric thinking that has historically been a barrier to experimentation, and instead instil a belief in the art of the possible.

Innovation ecosystems

Oil and gas companies, to adapt to new challenges and demands – such as increasingly complex oil fields, volatile crude oil prices, and the need to cut emissions – have wholeheartedly embraced innovation ecosystems. One company leading in this field is Total, which has committed to R&D through the creation of a digital innovation centre known as Refinery 4.0. Through the centre’s use of big data, AI, automation, and the internet of things (IoT), a diverse set of technologies is being harnessed to find ways in which refineries’ operations can be made more efficient and safer, while also reducing the maintenance costs of assets and prolonging their lifespans.

To solve complex challenges, sophisticated technology is needed that meshes well together and provides interoperability. That is why Shell, C3 AI, Baker Hughes, and Microsoft launched the Open AI Energy Initiative. The first-of-its-kind open ecosystem offers a framework for energy operators, service providers, equipment providers, and independent software vendors for energy services to provide interoperable solutions powered by the BHC3 AI Suite and Microsoft Azure.

Water companies could follow the example of the oil and gas sector by creating innovation labs to enhance insights on usage patterns and network conditions, and to build smarter water networks, deploying intelligent sensors and exploiting the data from these using machine-learning techniques. They must not be afraid to go beyond the industry’s comfort zone and transfer-in the benefits of innovations in similar industries.

One utility taking this approach is Thames Water, which will invest up to £1bn in technology such as a new command centre to increase trunk mains monitoring by 25% and take live readings from up to 200,000 sewer depth monitoring points to prevent pollution.

Climate goals

The transition to a low-carbon economy to meet the Paris Agreement goals will put enormous pressure on energy-intensive sectors. Here, too, water companies have much they can learn from their counterparts in the oil and gas sector.

Facing a colossal task, many oil and gas companies are stepping up to the plate. BP has rebranded itself from an oil major to an environmentally aware energy company. The company is now focusing on making operations more efficient, while improving production capacity from existing wells and refineries.

Nevertheless, the low carbon transition will require a Herculean effort and BP is wisely seeking collaborators. The company has signed an MoU with Microsoft to identify synergies to harness the power of data and digitalisation on its journey to net zero.

For water companies, a shift to more efficient abstraction must be at the top of their agenda, particularly as demand – and a growing population – will put pressure on a limited water supply. Given the fact that the UK water industry is the country’s fourth-most energy-intensive sector, concerns around sustainability and resource conservation provide further impetus to embrace a digital transformation to drive operational efficiencies and improve resilience in the shift to a low-carbon future.

As a limited resource, improving water conservation awareness and usage behaviour is imperative. Microsoft is making waves here with its use of cloud technology in smart metering. By giving customers a way to monitor and control their usage in real time, water utilities can achieve usage targets and strengthen customer satisfaction. “In addition to efficiency improvements, reduced maintenance, and better operational insights, significant inroads can be made to reduce carbon and energy consumption in operations through digital technology adoption. This can be achieved whilst better servicing customers and communities, and minimising environmental impact,” adds Rik Irons-Mclean.

The increased demands on water companies in PR 19 mean that they must improve operational efficiency while also stepping up sustainability. This will require water utilities to reinvent and transform their business similar to how oil and gas majors have done – not only in adopting emerging technologies, but also in changing their culture and ways of working and thinking to form a water company of the future. Putting AI and analytics at the core of its business will add a ‘digital attractiveness’ to a traditional industry, increasing its appeal to attract top tech talent that can create an impact that is felt by society, the environment and shareholders.