2018: Subsea pulls up its sleeves

InnovOil speaks with Subsea UK chief executive Neil Gordon about the industry’s progress in 2017, and how it is working to “face the future” of 2018 and beyond

The year may yet be new, but as Subsea UK prepares for its annual conference, the challenges facing the industry remain largely the same. 

That said, the attitudes with which these challenges are approached do appear to be changing. If 2017 was about looking inward and formulating a response to a troubled and sluggish market, 2018 sees industry body Subsea UK pushing for proactive steps towards building a future for the industry. Around 5,000 delegates are expected to attend the organisation’s flagship Subsea Expo event in Aberdeen next month, convened under this year’s theme of “Facing the Future,” during which the industry will examine what must be done to reinvent itself in the face of a new reality.

Speaking with InnovOil in early January, Subsea UK chief executive Neil Gordon explained: “2017 was about a recalibration of the industry. It was about what size the industry had to be moving forward to see where it was going, so you saw quite a lot of changes going on, restructuring from top to bottom, all shapes sizes and assets. It was really about positioning organisations for the recovery.”

Certainly, he says, 2018 will be about continuing that restructuring, and although Gordon sees indications of a recovery, for many firms it could still be a slow climb. “Some will feel it quicker than others,” he said, “so what we have to do as an industry is ensure that we’re prepared for that.”

Fundamentally, “Facing the Future” means an acceptance of the current market, rather than holding out for sunnier times. “It is about rolling our sleeves up as an industry, face the future and be bold. There is a lot of talk about being in a downturn but this is reality – the industry is still very cautious but we have to realise that this is where we are,” Gordon continued. 

FIDs in

That is not to say that reality is all doom and gloom. 2017 did see an uptick in projects reaching final investment decisions (FIDs), and that guarantee of projects – even a few years down the line – bodes well for companies that can plan ahead. 

“We’re starting to have more visibility of what projects will be coming and when we can perhaps see them coming through… Things are improving and decisions are being made” Gordon added, noting the recent approval of Royal Dutch Shell’s Penguins redevelopment as a cause for optimism. 

Longer term, he pointed to the prospect of new deepwater projects and opportunities in markets such as Brazil and Mexico – as well as the UKCS – which suggest that activity is likely to pick up from around 2020 onwards. UK subsea exports are valued at around GBP4 billion (US$5.6 billion), and Subsea UK’s latest business activity review found that around 80% of large companies and 65% of SMEs are expecting exports to expand in the next three years. 

Indeed, forecasts from Douglas Westwood anticipate global subsea vessel and hardware expenditure to reach US$141 billion between 2018 and 2022 as the industry moves past the bottom of the cycle. Over 60% of this will be on hardware alone, with demand for equipment like subsea trees growing at around 3% a year in light of new FIDs. Andrew Reid, president of consulting at Westwood Global Energy Group will talk about global markets in the Expo’s opening plenary, while the UK Department of International Trade (DIT) will also host a dedicated number of country specific sessions.

Nevertheless, the industry will have to remain resilient and lean in the meantime. “If you generalise, you can say that there is an upward trend, but if you speak to some companies they will say they still have a really long way to go because of the lag in the timeline for projects to come through. FIDs might come through now, but when does that actually hit the supply chain?” he added. 

Is the grass greener?

Even with the oil market ticking generally upward, the sector is still fighting for its position against other investments and this too feeds into the medium-term prospects for subsea suppliers. “The market is tight, there is a lot of competition from other sectors – shale, wind, solar – all areas competing for the energy space,” Gordon noted. “There are big changes too when you look at industries like automotive where governments are pushing electrification, all these things play an important part. You’ve got to think about the future a lot more, it’s not just business as usual, and that means a number of different things.”

“In the subsea space, the future means you have to identify where you add value. If you can’t then you need to really have to question what your offering is – and that perhaps means diversification into other markets or other sectors,” he added. 

The offshore renewables industry presents one such area, and is a sector in which many subsea businesses can still grow. “There’s no doubt that the subsea industry grew up in the oil and gas industry, but there are some great examples of companies that see it as just part and parcel of their operation. Although the term subsea is often associated with oil and gas, subsea means working underwater and engineering – so whether they’re working [at] cable-laying or [at] inspecting a structure, many of these companies are using the same assets – ROVs, vessels, etc – in different sectors,” Gordon continued.

Encouragingly, the sector’s contribution to that market has grown quite remarkably – doubling turnover in just three years, from GBP770 million to GBP1.4 billion (US$1.1 billion to 2 billion). Subsea UK is particularly keen to emphasise that transferrable potential, and this forms a growing part of the Expo’s focus. Gordon explained: “If you look at the renewables side, these things are going to be out there for 20-25 years very similar to oil and gas assets, and they’re going to have to be looked after. Although it’s in relatively shallow water, it’s still good business for some of these companies.”

Cultural shift

Another sign of changing attitudes within the industry is shown by an increased willingness to co-operate – a trend that will be key to ensuring future growth. In particular, Gordon believes that recent calls for more collaborative contracting structures seem to have been heeded: “There is a lot in the public domain about new models of contracting, but I would say that most of the new ways of contracting and operating come down to the cultural behaviour. It’s about how the client and suppliers work together and some companies are making in-roads in that regard. Rather than being very competitive and getting the lowest price for the same thing, they’re starting to approach problems together.”

He continued: “Traditionally contracting has been a case of a client trying to get the most from the contract, and the firm delivering it trying to do the same, and there was a real clash of objectives. Now the way in which they are looking at these projects is a bit more open, and [they are] actually trying to discuss what they’re trying to achieve, as opposed to clients dictating what they want step-by-step.”

In addition to fostering greater trust between operators, service providers and suppliers, Gordon said that this outcome-based approach should also help cut unnecessary process work in an industry which has perhaps become too risk-averse. Questioning these processes, and allowing technology providers to take managed risks with a new piece of technology, for example, can also help make projects more cost-efficient. “Some of those are quite big changes if you’re talking about new technology, and some are just marginal – but every little bit of change does stack up to be worthwhile,” he said.

Subsea UK also works to increase visibility of existing technologies via other events, such as its Subsea Springboard series – a forum where technology providers are offered the chance to present their “elevator pitch” to Tier 1 contractors and operators. This is a great way to put innovators in the room with key decision makers, and allows smaller firms to discuss their successes in projects which may not otherwise get attention. 

Sticking with UKCS projects, Subsea Expo will also see technology body Oil and Gas Technology Centre (OGTC) lead a session on small pools development – one of the main opportunities Gordon and his colleagues believe will drive industry innovation. “The UK has some decent small projects coming through, and the challenge there is: can we develop those cost-effectively to make big returns? If we can get that right then that’s the benchmark for the world in terms of how we can really reduce the cost of subsea development,” he explained. 

It is testament to the subsea industry that despite slogging through the trough of an oil price cycle, becoming more innovative and setting those benchmarks has remained its goal. With that focus and dedication, Subsea UK and its members should be more than capable of facing the future and thriving, come what may.

Subsea Expo runs from February 7-9 at Aberdeen’s AECC. For more information, or to register to attend for free, please visit www.subseaexpo.com