This article is part of our Innovation in America series, in which Foolish writers highlight examples of innovation going on today and what they see coming in the future.
The International Energy Agency estimates that the global demand for oil will still be climbing by 2035, despite advances in renewable resources. In the face of that reality, maximizing oil production is now more important than ever. That production is being driven not by new equipment, but by vast amounts of data. In a most unexpected way, innovation has come to the oil patch.
The original oil field
The first American oil fields weren't oil fields at all; they were salt fields. In the early 1800s, oil was being discovered accidentally in salt wells in Kentucky, West Virginia, Ohio, and Pennsylvania. The pesky black stuff was getting in the way of salt manufacturers. There was so much of it, someone eventually came up with a use for it. The oil, used mostly as a liniment, was believed to have curative properties and was bottled and sold. Occasionally prescribed as a treatment for cholera, bronchitis, and consumption, patients drank three teaspoons, three times a day.
We've come a long way in our use of petroleum, but the days of oil simply showing up if you dug a hole in the ground are also long gone. Now, resources are harder to find and even harder to produce. Two innovations in the oil field -- horizontal drilling and hydraulic fracturing -- have completely changed energy production in the U.S. It is the oil field itself that is being innovated now, and the world's top producers are hoping this will have an even bigger effect on the industry.
In 2003, Chevron (NYSE: CVX ) partnered with the University of Southern California to create the Center for Interactive Smart Oilfield Technologies, or CiSoft. The goal of the partnership is to research and develop smart oil-field technologies in areas including integrated asset management, well productivity improvement, reservoir management, and data management tools.
Chevron is one of a handful of oil majors to implement the digital oil field, and the company hopes its "i-field" concept will improve performance at its 40 largest energy developments. It estimates that digitally optimizing an oil field will increase production rates by 8% and grow overall resource recovery by 6%.
The Chevron i-fields are monitored by eight control centers around the world that are each focused on a specific goal, ranging from drilling operations to imaging reservoirs. Two control centers in Houston focus on drilling and machinery support. There is one control center that monitors deepwater drilling in Lagos, Nigeria, and another in Covington, La.
The control centers are fed information from thousands of tiny sensors -- some as small as a millimeter -- that Chevron has installed throughout its assets. The sensors take readings like pressure and temperature and can even help map underground fuel deposits. The data is then transmitted to a control center.
The amount of data pulled from oil-field sensors can be a bit overwhelming: 1.5 terabytes of data travel over the company's network every day. But managing and analyzing that data is quite worthwhile. Chevron estimates it will save $1 billion annually as production increases and expensive accidents are avoided.
Researchers at IBM (NYSE: IBM ) get much more specific with the return on investment. The company has determined that over the course of 10 years, when applied to a $2 billion mature oil and gas field, a $74 million investment in smart oil-field technology will yield $326 million in benefits.
Of course, while Chevron is forward-thinking in implementing its i-field, companies like Microsoft (NYSE: MSFT ) , IBM, and Halliburton (NYSE: HAL ) offer sophisticated IT solutions for the oil and gas industry. The companies develop software and offer consulting services that help oil companies make sense of the mounds of data generated by their smart oil fields.
This is where the real value in smart oil fields lies. Sensors can generate plenty of data, but if there is no one on the other end to make sense of it all, it is of little help. Advancements in the consolidation and interpretation of data will go a long way toward increasing production and reserve recovery -- and, perhaps more importantly, improving the safety of operations.
Technological advancement will continue to change the way we produce energy, and the best investments will be the companies like Chevron that embrace the change early. For more insight on the disruptive powers of technology, click here to access the Fool's special free report: "The Future is Made in America."
Read more about innovation today and its future in America; head back to the series intro for links to the entire series.