Scotland’s oil and gas sector must “innovate or die” and truly collaborate if it is to maximise productivity.
That was the message from a leading international economist Professor Bart Van Ark, who addressed an audience at a leadership masterclass event in Aberdeen.
Professor Van Ark, chief economist at the Brussels-based Conference Board, is a worldwide expert on productivity. Prof Van Ark is co-author of Getting A Handle on Energy – a report that examines global growth scenarios in times of changing oil prices.
He said innovation would enable the industry to maximise recovery from marginal fields that could be viable in a low oil price world.
He added that Scottish companies should also look beyond the North Sea to ensure their long-term future and also to “retool” and explore opportunities in adjacent industries such as renewables and nuclear.
Van Ark said: “The key message is: innovate or die. Scottish companies must look at new opportunities.”
The audience, comprising senior figures in the energy supply chain, were told that continuing oil price volatility will drastically rearrange the global energy landscape in the next few years and produce clear winners and losers in the global economy.
He said: “The negative effects have been most drastic for countries with large producing sectors and lack of diversification. Companies must plan for volatility as the oil price could drop as low as $20, although it is likely to settle in the $50-$60 dollar range in the mid-term and go beyond $70 in the recovery scenario.”
Van Ark said lack of investment in the North Sea would hasten its demise as a viable hydrocarbon basin.
He added: “Lower prices are a mixed blessing. The oil industry and related businesses in the supply sector will experience lower profits and postponed investments, mitigating many of the positive effects elsewhere in the economy.”
“The North Sea has declined and fallen behind due to a general lack of investment. This was okay when the oil price was high but when they are low, it begins to bite.
“We are at a tipping point. The industry really must innovate and collaborate at all levels to secure a viable future. This relates to technology, but also to its management culture and business model. It requires flatter management structure not usually associated with a conservative, boom-and-bust mentality that exists in the oil and gas sector.”
Van Ark said supply chain companies should also look to new markets such as Iran for alternative growth options.
“Iran is in desperate need of a modern supply chain and service sector. It is an excellent opportunity for Scottish companies to strengthen their export portfolios.”
“Supply chain firms should also look to ‘retool’ for the adjacent, related markets such as chemicals, renewables and the nuclear industry, which have similar set-ups to oil and gas,” he added.
Van Ark said he was aware that industry leaders have expressed a desire for change and are calling for greater collaboration and cooperation to drive the industry forward, but he said more time – and evidence – was required to prove change was happening.
“If you want to paint a gloomy picture, it is not diffcult. There is a tendency for people to hunker down, but I am optimistic that if the right environment is created to stimulate technology and innovation systems, things will turn around.”
The Conference Board is a non-profit global, independent research association. The Aberdeen event was organised by Scottish Enterprise.
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