There’s no doubt the oil and gas industry has undergone another turbulent and trying year, as the backlash of the oil price crash in 2014 has resulted in unprecedented job losses, project delays and cancellations, and a rather pessimistic outlook for 2017. However, the findings of a recent survey predict the sector has now hit its lowest point and that there are cautious signs of a much yearned for but measured upswing.
The survey, conducted by Aberdeen & Grampian Chamber of Commerce in partnership with the University of Strathclyde’s Fraser of Allander Institute, shared the views of 130 businesses, employing more than 308,000 UK staff in total. It reported that two out of three respondents believed the sector had already reached the bottom of the current cycle, or will do so in the next year. A further 25% felt the low point would take hold within two years.
Its sentiment mirrors that of September’s Oil & Gas UK economic report which stated that revenue in the supply chain is forecast to fall by more than a fifth this year – taking it to the lowest level since 2010.
However, light at the end of the tunnel came from the report’s revelation that production rose by more than 10 percent last year, the first increase in 15 years, because of cost savings at least partly due to improved technological efficiency and an increased focus on innovation. This echoes the findings from November’s KPMG mergers and acquisitions (M&A) seminar in Aberdeen which said that technology and solutions will drive short to medium-term deal activity.
A streamlined supply chain
To reinforce its support of manufacturing innovation in the energy sector, the University of Strathclyde’s Advanced Forming and Research Centre (AFRC) is leading the High Value Manufacturing (HVM) Catapult’s Oil & Gas Consortium which comprises of four of the UK HVM Catapult centres. It works closely with SMEs and technology developers to accelerate and de-risk the journey from desktop to marketplace for new technologies, materials and processes.
The organisation understands the importance of innovation and the tangible opportunities that diversification can bring. It supports companies in the adoption and adaptation of solutions from other sectors as well as challenging the status quo in the supply chain. This is achieved through the investigation and demonstration of the economic potential of improved processes, procedures and best practices. Unlocking the capabilities of new or alternative technologies will secure short-term wins and pave the way for longer-term investment to sustain a competitive edge.
A change of character?
Though a particular technology or piece of equipment may be a potentially cheaper alternative to current methods and reap greater production results and financial rewards, operators are naturally nervous about the safety or financial risks associated with its trial, especially in a live production environment. A step-change in attitude and perception to new technology is essential to push the boundaries of innovation and not simply rely on tried and tested methods for simplicity’s sake.
Oil and gas is a very fast-moving industry that had become comfortable with high yields, leading to high revenue, with the focus mainly on speed of flow and production. It is only in recent times with revenue being drastically cut that there is a requirement to better understand the opportunities for innovative technologies that will lead to increased efficiencies and cost optimisation.
A perceived positive outcome of the downturn is that the traditionally risk-averse stalwarts are tentatively embracing new and alternative technologies and this cautious acceptance of the benefits of innovation through collaboration can only be healthy. All eyes will now be on BP and its newly-acquired interest in two North Sea exploration projects with operators Statoil and Nexen to see if this shift in mindset rings true.
The industry is also confidently broadening its horizons to discover how transferrable technologies and standardised practices from other sectors, such as aerospace and automotive, can be adopted and adapted to keep the apparent uptick continuing on a slow but steady rise. It is clear that the creation and commercialisation of new and enhancing technology has already helped the economics of sizeable developments in the North Sea, such as BP’s Clair Ridge project, Maersk Culzean and Statoil’s Mariner project.
The ultimate aim is to fast-track new technology, which can take more than a decade to come to the marketplace, and encourage further investment and opportunities from industry leaders, operators and service companies.
The AFRC is the only HVM Catapult centre within Scotland and provides open access to pioneering R&D across a full range of manufacturing technology capabilities, from metals to composites, additive manufacturing to metal forming, design and process stimulation, to full-scale prototype production and assembly. It supports a wide range of sectors, including energy, aerospace and automotive.
Global exportation of skills, products and services
It is encouraging to see the industry is striving towards cutting the cost of extraction of average barrel of oil, down from $29 to $16 by the end of the year, as outlined in September’s Oil & Gas UK report. But we need to ensure that focus goes towards process efficiencies and not just more stringent cost cutting-exercises in 2017.
The message is starting to be accepted by the industry that there is still business to be had at $50 per barrel, and it is good to see drivers towards supporting such a market.
It was also interesting to see that three-quarters of respondents to the Chamber survey report also expected to be involved in decommissioning in the next three to five years, whilst just over half thought they would be involved in renewables. However, the fate of oil and gas has not yet been plugged and abandoned. The Oil & Gas UK economic report stated that, by 2020, half of the UK’s required oil and gas supply is projected to come from new developments. This is a clear sign that the UK Continental Shelf still holds value to our economy. Contrary to the gloomy outlook, this is a favourable time to seize this opportunity and establish Aberdeen, Scotland and the UK as a centre of excellence once again for oil and gas technologies – strengthening our ingenuity, design capabilities, product and services and hopefully, in time, converting our innovative prowess as a future export opportunity.
The message is that the AFRC and the HVM Catapult’s Oil & Gas consortium are open for business, working with the industry to drive the growth of manufacturing in companies of all sizes by supporting them to develop innovation and thereby bring new technologies to commercial reality.
Paul Cantwell is a Knowledge Exchange Fellow Oil & Gas, with the University of Strathclyde’s Advanced Forming Research Centre (AFRC).
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