Automation is saving oil jobs. Can other industries learn?

By Nathanial Gronewold | 07/19/2017 07:38 AM EDT

The "Speedscan" robot will perform fully automated quality control inspections of oil field equipment at a new customer solutions center from Baker Hughes, a GE company, opening in Cincinnati this year. With machines taking over equipment inspections, safety inspections and facility monitoring, oil companies can free up workers to perform other duties, lowering costs and increasing productivity.

The "Speedscan" robot will perform fully automated quality control inspections of oil field equipment at a new customer solutions center from Baker Hughes, a GE company, opening in Cincinnati this year. With machines taking over equipment inspections, safety inspections and facility monitoring, oil companies can free up workers to perform other duties, lowering costs and increasing productivity. BHGE

In early 2016, the manufacturer Carrier Corp. announced 2,000 layoffs as the company shifted manufacturing to Mexico to take advantage of cheaper labor. The news made national headlines and prompted criticism from President Trump, who negotiated with the heating, ventilation and air conditioning company to retain domestic employment. Now, only about 1,200 jobs will be eliminated this year.

While all this was happening, Daikin Industries Ltd. opened a 4-million-square-foot facility outside Houston to manufacture advanced energy-efficient HVAC systems, in a bid to gain market share in North America. Some 2,000 net jobs will be created from the Japanese company’s investment, executives there said. Daikin’s grand opening received no major national media attention.

Daikin says its expansion was made possible thanks to innovation — a combination of advanced software, automation, robotics and continuous training of staff, the same formula that allowed it to retain manufacturing jobs in Japan. CEO Takeshi Ebisu told visiting Japanese reporters that his company doesn’t need to rely on cheaper labor offshore to be competitive in North America (Energywire, May 25).

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How two companies in the exact same industry can take two radically different investment paths speaks volumes to critics of policies regarding U.S. trade, research and development, as well as corporate policies.

For years, the U.S. government, Washington think tanks and business consultancies have encouraged U.S. industry to rely on offshoring to keep costs down. Overseas, companies in Germany, Japan, South Korea, Italy and elsewhere have faced pressure to find more creative means to maintain manufacturing in their home countries. They accomplished this through technology — automation, advanced systems software and in some instances industrial robotics.

Today, just 8 percent of the U.S. workforce is employed in higher-wage manufacturing jobs, compared with 16 to 19 percent in those other nations, according to data from the Bureau of Labor Statistics and the Federal Reserve Bank of St. Louis (the St. Louis Fed stopped tracking these figures in 2013).

Now, in the United States, the energy industry is showing other sectors how advanced technology and innovation are allowing companies to retain and even expand employment, despite pressure from low oil and gas prices and soft energy demand growth.

U.S. oil production is rising, and exports of oil and refined products have more than doubled, even at fuel prices once deemed impossible for companies to cope with. Technological tinkering in the early 2000s will now lead to the United States’ becoming one of the world’s largest exporters of liquefied natural gas by 2020. Energy employment and salaries are poised to rise.

Robert Atkinson, president of the Information Technology and Innovation Foundation (ITIF), said in an interview that this lesson is mostly falling on deaf ears at U.S. think tanks. Though the evidence is overwhelming that offshoring and uneven trade with China and other nations — and not technology — have hammered U.S. manufacturing employment, critics refuse to believe it, he said.

"It’s striking to me how the Washington bubble is immune to learning from what happened with Trump," Atkinson lamented. "You have this sort of weird psychosis of an artificial reality that’s impervious from evidence. So how could [Trump’s election] have happened? Well, [voters] lost all their jobs because of robots."

But that’s not true, as Atkinson and others routinely point out.

Technology and productivity enhancements have displaced workers, mostly in white-collar fields such as tax return preparation, real estate and legal services. But the process has been slower in blue-collar fields than has been perceived. Processed food manufacturing — such as peanut butter or jams and jellies — was automated decades ago, for cost savings and sanitation.

Yet stories such as Carrier’s are now commonplace. However, with technology and enhanced productivity now expanding employment opportunities in energy, oil and gas, some are hopeful that U.S. mindsets will change in the face of mounting evidence that, in the long run, technology creates jobs and does not destroy them.

In a recent study commissioned by Siemens Corp., Longitude Research Ltd. says some of the initial digital solutions being considered by leading companies include "connected sensors, virtual training, and artificial intelligence, with the motivation of embracing this approach being to increase uptime and efficiency and to keep their employees safe — in essence, to do what they do, but faster and cheaper."

It’s for those reasons outlined above that the oil and gas industry is now digitalizing.

Low prices forced industry to change

The "digital oil field" has been much discussed for years but is only now starting to become reality. When oil sold at $100 per barrel, companies had plenty of room to operate in ways they were comfortable with. Technology companies have been trying to get oil companies to become more digitalized since at least 2011, with limited success as the crude prices stayed high.

The picture is vastly different with oil prices continuously less than $50. Companies are still drilling and beginning to sanction new offshore mega-projects. Payrolls are increasing. Some oil field service companies are even starting to grumble of difficulties finding enough workers.

Rachel Everaard, a partner at the consultancy EY, said innovation and digitalization have played a key role in this reality. "The focus is on cost elimination, for sure," she said, especially "overhead costs per barrel of oil equivalent."

And it’s about time, Everaard added. "We haven’t seen that decline, honestly, in the past 10 years, even with all the cost-cutting," she said. "That cost has stayed relatively stagnant, so it’s really going to take … automation to really make a step change in what the overall cost structures at these companies look like."

Where is it happening? Experts at EY, Deloitte and beyond point to changes such as streamlined payroll management, financing, project life-cycle systems and other back office work. Procurement and change orders are being automated. Deloitte managing director Greg Mitchell notes that oil companies are increasingly investing in "digital twin" technology, whereby they develop a virtual copy of a real-world project, similarly to how some contractors model the construction of stadiums or skyscrapers.

"We’ve seen a big uptake in interest, and it’s getting to be beyond just talking about these things," said Mitchell. "We have pilots at work at many companies, or that are starting at major capital projects, to really digitize their capital projects work and get some tremendous advantages from doing some of this digital work."

Automation’s impact is being felt at the site of oil production, as well.

Geoff Wade, a petroleum industry specialist at the geographic information systems software firm Esri, described a project in which his firm assisted a smaller oil company with installing sensors linked to a GIS network to monitor water processes at wellheads. The work used to be done manually by a driver with a truck who visited each site weekly.

"Initially it was, ‘Well, what will Joe do if we replace him with all these sensors?’" Wade recalled. "Well, of course Joe doesn’t get replaced; Joe just swaps jobs, and now Joe is using an iPad to monitor the locations."

Wade believes oil field workers are getting the message that these technologies do not threaten their livelihoods. "Even in these smaller companies, simple automation with low-cost devices isn’t displacing Joe; it’s actually elevating him," he added. "He doesn’t use a dipstick anymore; he uses an iPad to do more interesting stimulation work."

With technological innovations and enhancements comes increased productivity, and greater productivity is felt in dollars and cents — either costs are reduced, or more can be produced without raising costs, increasing sales and income. The new wealth generates new demand in economies. Some jobs are lost, for sure: The automobile famously destroyed employment in horse carriage manufacturing. But over the longer run, many more jobs are gained: auto mechanics, driving schools, NASCAR, service stations, dealerships, car rental agencies, etc.

So it is with oil and gas technology.

The oil price crash decimated jobs. New jobs are now being created as companies embrace technology-driven productivity — not as many jobs are returning compared to the heyday of a more labor-intensive oil boom, but more jobs are being saved and created than if U.S.-based oil companies had simply given up and ceded market share to foreign oil producers. And the companies that do business with oil and gas are hiring, seeking talent that can engineer cost-saving tech solutions for oil producers and refineries.

Oil companies and their consultants say the nature of the work is also changing. Mitchell at Deloitte noted in a recent online presentation that oil companies are increasingly training crews to operate drones, to let the machines conduct routine but sometimes dangerous equipment inspections instead of people. Governments are now coming on board, moving to accept drone footage and data from sensors as meeting safety inspection requirements.

"These are all emerging, and they are at various levels of maturity," he said. "Certainly, there are some that are using drones. We’re doing it a lot in the industry now for inspections, safety inspections, even during the construction."

Digital solutions are increasingly on offer at major industry trade shows, including the annual Offshore Technology Conference (Energywire, May 3).

At a recent conference in Houston hosted by the International Association of Drilling Contractors, speakers from National Oilwell Varco described a recent pilot project testing onshore process automated drilling using a system that let the drill bit operator take his hand off the controls. They admitted that the worker first thought they intended to replace him with the software. Eventually, they said, his thinking changed: The system was there to help him do his work more efficiently, while freeing him up to focus his attention and talents on other critical areas.

Blame game

Yet the narrative remains that technology, not trade, has hit the United States’ blue-collar workforce the most, Atkinson complains. Part of the problem, he believes, is the misleading way U.S. government statisticians calculate manufacturing output, leading pundits to blame productivity improvements and machines for job losses.

In the majority of U.S. manufacturing sectors, output has been reported falling, except for one in particular: computer hardware. Rather than counting units produced or value added, the government calculates computer equipment production based on processing capacity. Imagine if a diesel engine manufacturer produces a unit that runs on 10 miles to the gallon one year, then a different model that gets 20 miles to the gallon the next year. If looking only at capacity, then government economists would count the new 20-mpg engine as two engines, when in reality just one unit was built.

Government statisticians don’t actually count engines this way, but they do so for computer equipment, fudging the numbers while maintaining the fiction that U.S. manufacturing output has been gaining, when in fact it has been in steep decline for quite some time, as Atkinson and other critics explain.

"They’ve overstated the growth of manufacturing output," he said. "Here’s a period where output went up 400 percent according to the government, four times more produced in 2010 than in 2000, and yet the number of boxes went down by half. But they say it couldn’t have been due to trade; it has to be the robots’ fault."

And as U.S. manufacturing output has contracted in the wave of offshoring, outsourcing and import competition, employment in manufacturing has contracted in tandem. ITIF estimates that 3 percent of manufacturing jobs were lost in the 1990s. Since 2000, the nation has hemorrhaged over 33 percent of its manufacturing employment, says the institute, above and beyond what’s been experienced in other developed nations. Manufacturing productivity gains actually slowed from 2000 compared to the 1990s.

There’s no overstating the increase in energy output, however.

Crude oil production will have doubled from 2007 levels by the end of this decade. Exports of U.S. crude could double again by then. PIRA Energy Group thinks the country will become one of the top 10 oil exporting nations in the world by 2020. Natural gas production has risen by about 60 percent. The United States is poised to become one of the top exporters of LNG as new export platforms are built.

Oil output slipped a bit as the crude price collapsed in 2014, but production is rising again, and more quickly than initially expected. That didn’t happen during the 1980s oil bust. It’s happening now because of innovation, digitalization and automation, companies report. And though robotics is nascent, it may have a role to play in this transformation, as well (Energywire, April 26). Either way, oil companies and their contractors are hiring again.

As described in several studies, trade with China alone has resulted in millions of U.S. manufacturing job losses. The trading relationship is unequal. As the U.S. market is mostly open, China’s is relatively closed, while Beijing engages in practices that violate World Trade Organization rules, including export subsidies, technology transfer rules as a condition of investment and forcing foreign companies into mandatory joint ventures with Chinese firms to facilitate more exports.

But these are, according to Atkinson, impolite truths that mustn’t be discussed at Washington cocktail parties attended by like-minded thinkers still wondering how Trump won the election.

"They don’t want that message to get out. It’s as simple as that," he argued. "That will destroy faith in free trade, and it will turn people into Trumpian nationalists, even though it’s true, and even though people have already turned into Trumpian nationalists because you denied that.

"If we can blame technology, then trade is off the hook."

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