Oil prices have plummeted in the space of just a few months. In the summer of 2014 a barrel (159 liters) of “black gold” cost over $100. In January 2016 a barrel cost less than $40.

What happened? On the one hand, more oil had reached the market; on the other, demand had decreased. It was not the first time oil prices took a hit. They have always been volatile, but even more so during the past decade, explains Lisa Davis, the member of the Siemens Managing Board who is responsible for Siemens’ power businesses, in particular the oil and gas business.

The low price of oil is both a challenge and an opportunity for the industry. Well-run oil and gas (O&G) companies that are strong today are likely to emerge even stronger after prices rebound. While the availability of oil fields and the associated equipment is always paramount for them, during a slump they have every reason to also focus on cost-effective production. Often this means bringing in new technologies and further improving processes.

Siemens can help them do this. It has bought the Rolls-Royce company’s aeroderivative turbine business and acquired Dresser-Rand, a leading partner in the industry. “We have a lot to offer, especially in the three areas of electrification, automation, and digitization,” says Lisa Davis. “In all three, the aim is to achieve higher degrees of efficiency.”

Lowering production costs is not just an imminent need of the industry. It is also a long-term trend. Most of the “easy oil” has already been extracted – oil that can be produced cheaply because it is onshore, close to the surface, and conveniently spilling out of the ground under high pressure when first tapped. In the future, oil will increasingly have to be extracted from deposits that are deep underground or offshore. Gas will have to be transported from remote locations via pipelines or as liquefied natural gas (LNG) by LNG tankers. That will be a much more tricky task for production engineers.

On the whole, it is becoming harder to produce oil and gas. But there is also good news: this needn’t make oil and gas more expensive, as long as production methods are being continuously improved. In the past, technological innovations and more efficient processes have made production cost-effective under increasingly challenging conditions.

Automated equipment produces a constant stream of data — measurement data that can be mined, aggregated into big data and transformed into smart data through intelligent analysis. And smart data helps us to understand production processes better.

For example, visualization software from Siemens is already making it possible for users to immerse themselves in a virtual 3D model of a drilling platform. In-depth virtual training sessions enable technicians to prepare themselves for maintenance assignments. This is already saving customers real money. For instance, the crew of an offshore oil processing platform in Africa was able to begin its training on a virtual model while its future workplace was still under construction. Virtual training sessions reduced the time needed for training sessions on board, and as a result the oil platform entered service two months earlier than planned.

Another opportunity to reduce costs opens up when mechanical and electrical drives become smaller and lighter in response to the scarcity of space on oil platforms and pipeline stations. Aeroderivative turbines such as those that Siemens recently took over from Rolls-Royce Energy are a good example.

Will the price of oil remain low, possibly for years to come? No one knows. But there is one lesson that the history of the oil and gas industry has taught us: Although the price of oil can swing wildly, the growth of demand is surprisingly stable. There have been price peaks above $140 and troughs below $20, but over the long term average global energy consumption has grown steadily between one and two percent annually. In addition, roughly five percent of existing production capacity has to be replaced every year in order to offset the decreasing yield of aging oilfields. Meanwhile, new oilfields are being developed and the output of existing fields is being increased through the injection of gas.

Automation and digitalization are expected to keep oil and gas competitive in the decades ahead. Whether we like it or not, every year the human race is likely to burn a bit more oil and gas than it did the year before. In absolute numbers, our demand for energy is growing. However, the proportion of oil and gas in the total amount of energy consumed could decline.

That will probably hold true until, one day in the future, it will be more economical to leave the remaining oil in the earth’s crust rather than extracting it. The necessary adjustments during this long period of transition will in any case bring great business opportunities for those who have the courage to innovate and try out new ways to produce and use oil and gas.

“When you look at the growth in consumption, it quickly becomes clear that oil and gas will remain very important for the next few decades at least,” says Lisa Davis. “Of course we also need renewable energy sources. At least for the time being, we simply need everything we have. And that includes oil and gas.”