On The Same Wavelength, Business-wise

Standart magazine

Konstantin Kravchenko

Information technology (IT) has been front of mind at Gazprom Neft for several years now — something the company’s senior management share in and support, raising the importance of IT ever more often in public presentations. In this interview with Standart’s Editor in Chief Leonid KONIK, Konstantin Kravchenko, Gazprom Neft’s Head of IT, Automation and Telecommunications, talks about the company’s achievements in IT last year, and where attention will be focussed in 2017.

Standart magazine

— All through 2015 Russia’s most important oil and gas companies were citing import substitution, including in IT, as a core strategic objective. A concept we heard about far less often in 2016. Was the problem overstated?

— Every issue has its own cycle — something leading IT research company Gartner has named the “hype cycle”. Whenever a new technology — or, by way of analogy, a new market challenge — emerges, everybody starts talking and writing about it, the issue becomes "fashionable, then people start working things out and the hype starts to die down, moving on to a new problem. The original problem, meanwhile, starts getting solved, real results start to emerge, and talking about it is no longer interesting. Which is exactly what’s happened with import substitution. An issue nobody knew how to approach has, ultimately, translated into two practical areas of focus.

The first of these concerns support for domestic solutions and developments which can replace existing software. For example, we have Russian alternatives to approximately 47 percent of automated process control systems (APCS). We’ve tested these domestic solutions in technological facilities (“technoparks”) together with developers, and have been able to meet our requirements. Some of these have fallen by the wayside, preferring to remain niche players, but others, conversely, have gone on to fine-tune products.

The second concerns projects to ensure business continuity. And import substitution is just one specific aspect of this focus area. It has to be addressed properly and systematically, and 2017 is going to be all about business continuity: we’re putting together a list of critical processes and systems and, subsequently, a business continuity plan (BCP) and disaster recovery plan (DRP). So the issue of the possible inaccessibility of western software and technologies has become, for us, a professional challenge. We’ve come out of this situation smarter, and with a clear understanding of what we need to do. Although, of course, we would prefer to be in the open global technological space, utilising the best technologies, without having to be on the defensive.

— And how do things stand with regard to various kinds of IT systems — for example, office software?

— As part of our business continuity planning we assessed all the systems and products we use against two criteria: first — their criticality to the business (in terms of the damage that would result from losing control over one system or product, or another) and secondly the time scale over which this might happen — from minutes, to hours, to days. We then worked out a plan for every situation. In the “red” zone, where everything can happen quickly, and decisions and solutions are critical, we found alternatives. We haven’t addressed all issues, of course, but business continuity is guaranteed. In less critical areas we assessed what preventative initiatives would cost: where the cost of these turned out to be in line with the potential harm, we took no action, but where preventative initiatives were significantly cheaper, we took action, and continue to implement them. In a word — you don’t fight risk, you manage it: we have identified and exposed all critical areas, and are moving forward with confidence.

Getting back to office software: of course, I would prefer Russian products’ functionality to be significantly extended, particularly with regard to spreadsheets and presentation software.

— Does Gazprom Neft use information from the Domestic Software Register, administered by the Russian Ministry of Communications and Mass Communications?

— We view this register as a reference point, but we are not limited by it. We look at the situation more broadly, including in terms of stimulating and supporting software development within Russia, by local specialists. And we are prepared to give such specialists preferential treatment, or to help them in other ways — for example, by arranging pilot testing at our own facilities. To that end, we’ve rolled out two “Technoparks”: one for system automation (Ed — within the Avtomatika-Servis LLC subsidiary in Omsk) and an IT technopark (Ed — opened in St Petersburg in late 2016 within another subsidiary, ITSC LLC). We are prepared to provide feedback to any interested developers, and to share our insights and suggestions.

So, for example, in December 2016 Gazprom Neft signed a memorandum of cooperation with 1C Company. We already use the 1C product line, but wanted to use this more widely. We are currently testing a range of products under real load, and are, already, developing plans to transfer various production systems to 1C solutions.

Ideally we’d like to create a prototype for the entire Gazprom Neft IT architecture at the St Petersburg technopark, to formulate equipment requirements and review innovative solutions — both Russian and localisation-ready foreign solutions — on that basis.

— Can you give a recent example of localising a foreign product?

Yes — one outstanding example concerns a German automated system for managing filling stations. A Russian enterprise was set up in 2016 in order to localise this system, which is leading follow-on development and fine-tuning (including in line with our requirements), through domestic developers. And we have joint plans for the further development of this software. The solution developed has already been entered in the Domestic Software Register under the name “Namos Rus” (Ed — registered 24 December 2016, developed by Wincor Nixdorf Oil and Gas IT Ltd). Colleagues will probably want to supply this solution to other oil and gas companies in Russia — something we can only endorse.

— Supported by its ITSC LLC and the Science and Research Centre subsidiaries, Gazprom Neft, has developed the Mechfond, Field Data and Well Control, and Mobile Oil and Gas Operator information systems, as well as the company’s integrated Electronic Asset Development (ERA) programme. Is the company able to provide support and updates for these solutions through its own resources, and is there any intention to offer its own self-engineered products to colleagues in the market?

— We’re closely watching that group of currently-under-development solutions that got such good results in 2016: we’ve secured more than 10 patents for these. Of course, Gazprom Neft’s core business is the production, refining and sale of oil and petroleum products. Software development is undertaken through subsidiaries, and we are willing to engage with external partners. We appreciate that products have to meet market needs, and several of the products you mention have commercial applications for companies outside of the Gazprom Neft group. We are not at all against our peers deploying our products viewing this as an opportunity for taking product development further and supporting these at market level. In 2016 we established a Gazprom Neft council for innovation in IT, and in 2017 laid out a programme for the development of innovative projects; we are now putting together a list of those we plan to test out. We’ve also put in place a designated fund for research and development (R&D), as well as a Research and Development Council. We also work with ITSC LLC, who have a partnership with the Skolkovo Foundation (we co-finance developments) and, as I have already said, we are interested in collaborating with all market players.

— You’ve often referred to the concept of “Industry 4.0 (Industrie 4.0)” recently. Which, meanwhile, is what the German government’s high-technology programme is called. Is this ideology fully applicable to the oil and gas industry and to Russia, or does it need to be “localised”?

— We call the concept we have developed “Industry 4.0”, although we could have found another name for it. The “Industry 4.0” concept arose, initially, from its application to discrete production — of products being assembled from components (primarily in the automotive industry) and, more generally, to mass production. We operate on the basis of continuous production; industrial safety is of critical importance for us here, as is the optimum use of natural resources and continuous improvement in production efficiency. The principles that underpin Industry 4.0 can help us achieve these goals. Ultimately, we’re talking about the creation of a “smart product” that can provide field information, literally down to the last drop of oil. Thus far, that sounds like fantasy, but the possibilities of “big data” systems, of artificial intelligence (AI), and of cognitive technologies, will soon make such things commonplace.

— Many foreign companies across all sectors of the economy are, already, actively implementing various IoT (Internet-of-Things) technologies (including LoRa, SigFox, Ingenu, NB-IoT), without waiting for these to be standardised. Is Gazprom Neft prepared to go down that road?

— I repeat — industrial safety is one of our priorities. So the establishment of a national IoT standard and the certification of equipment, including for the purpose of industrial safety — these questions are fundamental. But there are not, as yet, any established IoT standards, and we are engaged in discussions with a range of companies, including Rostelecom, on the issue of introducing Russian standards. Government is likely to play the most important role in this matter.

At the same time though, we can’t say that we’re just waiting. Gazprom Neft already collects hundreds of thousands of findings and signals at its refineries, in real time. But as well as developing a data communication protocol, and creating an environment for data acquisition, a multitude of questions have to be addressed: security in transmission, and mass data storage. It’s no accident that the issue of Data Lake s / Data Oceans is being discussed all over the world. It might be the case that not all data needs to be stored. It strikes us as useful to share information with other oil and gas companies: there might be some point in creating a collective Data Ocean, perhaps in partnership with federal governmental companies from the technology sector. Questions also arise regarding the quality of source data, and its processing — so IoT is a multidimensional problem, whose resolution has to be approached holistically.

Regarding the creation of a centre for performance management, into which the production control centre will be transferred, the volume of extractable parameters will grow exponentially, from the current level of hundreds of thousands. And our job will be to utilise big data and AI systems to create predictive (forecasting) models. We are no longer interested in analysing what happened in the past — we see the impact in forecasting.

This is what creates added value for the company’s business, as a whole — and IT, and the Industry 4.0 ideology, above all, play an important role here.

— The production control centre is located within the IT function?

— No, I mean the production control centre for refining. This is a single platform, into which information on the status of production facilities flows, and on which basis specialists are able to being strategic management of production — generating status forecasts, and compiling requirements and recommendations regarding technological operations and issues relating to production control. That sort of work is only possible at the interface between IT and the core business, and includes the creation of a duplicate of the production facility as well as constant data enhancement online, together with analysis and visualisation of the results.

— Does Gazprom Neft have a clear vision as to how to manage corporate data? Is it prepared to share this with anyone in the market?

— We’ve already been working on the issue of corporate data management for some years, and have worked out a concept and strategy for data management. In recent times we’ve come to the idea of monetising data — i.e., the targeted creation of added value for the company, from corporate data. Initially, monetisation should arise as a result of more thorough use of data within the company, making this a meaningful asset. To that end, we want to identify data owners and those responsible for it, verify the quality and reliability of such data, and avoid duplicate — and triplicate — input.

Data is in the same asset class as material objects, with the same attributes: cost, lifetime, value, and so on. It can be shared with one partner or another, or sold on the open market. But this latter is not a priority for us; our core business is in oil and petroleum products. First and foremost, it’s a question of finding synergistic effects, on a win-win basis. We have already initiated discussions on this issue with various companies, and will soon be launching pilot projects in using data to improve efficiency internally. One of the barriers to this strategy is the lack of staff: there are almost no specialists with these skills and competencies on the market.

— Ultimately, you’re talking about the digital transformation of business. How important is the support of all of the company’s divisions and business units in this?

— The maturity of internal customers, and the business as a whole, as well as the thinking and mentality of IT services and the people responsible for technological and business processes being, so to speak, on the same wavelength — these are the key conditions for successful digital transformation. A willingness to listen to IT specialists and to have confidence in them, to change, to move in the same direction, and to share risks — these are all of utmost importance. We are currently at a point at which technologies are changing before our very eyes and, most of the time, there just aren’t any ready answers to questions. You have to learn from your mistakes and engage in experiments, and that demands courage on the part of all management staff. This question is far from simple, and its resolution, generally, demands additional training.

— Do you see a direct connection between digitalisation in complete corporate data management and success in implementing the IIoT (the Industrial Internet of Things)?

— There most definitely is a connection; all of these terms relate to the issue of creating or adding value through data. Gazprom Neft’s first IT strategy, which began to emerge several years ago, was aimed at creating data sources throughout the entire company: we automated processes, implemented hardware, software, and IT systems, all of which act as data sources, across both production and corporate functions. That job is now complete and the time has come for a radical improvement in such data’s added value for the business. New digital technologies should do that — from augmented reality and AI systems, to advanced analytics, cognitive computing and autonomous robotic centres.

— Electric car engines and alternative energy sources are gaining momentum all over the world, reducing the demand for oil and oil products. Does it make sense for oil companies to make long-term investments in technology?

— Oil is a limited resource. There are various points of view on the outlook for the global oil and gas industry: some portend its decline, others hold that never in human history has demand for any specific natural resource ever gone into decline (even demand for coal — which, it would seem, should long have been displaced by oil, gas and nuclear energy — continues to grow). Talk of a decline in the next 10 or 20 years is clearly premature. The life-cycle return on investment (ROI) in IT is far shorter, so within a decade it will have more than paid for itself.

— Which part of the oil business will be digitized fastest — upstream (exploration and production) or downstream (refining and sales)?

— That’s a highly speculative question. Although downstream is, thus far, closer to digitalisation, that is connected with market characteristics. Retailing and sales is subject to intense competition, and new technologies give a major advantage; a refinery is a far more contained facility than an oilfield. But that doesn’t mean, however, that digitalisation isn’t needed upstream — it’s coming, but in its own time. There aren’t any straightforward upstream facilities left. We’re implementing projects under Arctic conditions, in the Far North — under the harsh natural environments of these regions digitalisation becomes of primary importance, and individual projects can be digitized very quickly.

— In 2010 the Ministry of Energy initiated the creation of the state “Neftekontrol” information system. Is Gazprom Neft involved in this work?

— We’re not just involved — we are, without exaggeration, leading it. It’s a strategic project for Gazprom Neft.

We have implemented — and given a demonstration of — a pilot project under Neftekontrol, which has received good reviews. This “pilot” covered the entire chain — from lifting oil, to its delivery at the pump — and included oilfields in the Khanty-Mansi Autonomous Okrug, the Omsk and Moscow refineries, two tank farms (storage depots, in Omsk and Kaluga), and filling stations throughout various regions of the country. The second stage is now ongoing.

Neftekontrol, is already, in effect, the Internet of Things for the oil industry, and the basis for its digitalisation. This system will allow oil and oil products to be turned into a “smart product”, the qualities and location of which will be known throughout the entire life cycle, from the subsoil to the petrol tank. Without that sort of knowledge no oil company can radically improve its operational efficiency. Neftekontrol acts as a kind of litmus paper, exposing those internal inefficiencies and losses that need to be worked on, as well as showing what kind of points need to be automated, and where to install additional sensors. So the system is interesting not just to government (and, for example, the Unified State Automated Information System, USAIS) but to every oil company.

— Some characteristics of the digital economy include companies achieving high market capitalisation, managing other people’s assets, and goods being replaced by services. How do you see these tendencies reflecting in the oil and gas sector?

— That’s a question of futurology. It’s quite possible to imagine an oil company’s future as a transition from managing physical infrastructure and products to managing information. Information is, already, one of the key products produced and utilised by Gazprom Neft: data on seismic investigations, on drilling and production, and even client data. The key performance indicators here are the quality and speed of decision making within the company — which is directly dependent on the accessibility and quality of data, as well as the opportunity for its timely processing. To paraphrase a well-known saying from another industry, you could say that Gazprom Neft will, in the future, become an IT company, working with information on oil and oil products.

A genuine technological revolution in the oil industry is possible: at a point at which production can be generated on demand — under the criteria the market requires, at that moment. With numerous client-oriented goods produced instead of mass production of a single product.

Modelling, model libraries, working with data and IT mean the costs of mistakes can be reduced. New technologies make it possible to simulate outcomes and adjust the production process to make it as efficient as possible, even before going into mass production. Similar results can be achieved throughout the entire value chain.