Neil Gordon, CEO of Subsea UK, tells InnovOil about how innovation will add value and drive the future of the North Sea
Subsea Expo, the world’s largest annual subsea exhibition and conference returned to the Aberdeen Exhibition and Conference Centre this month. The annual event welcomed over 5,000 delegates, 150 exhibitors and 70 industry speakers.
InnovOil spoke with Subsea UK chief executive Neil Gordon to hear his thoughts on the North Sea subsea industry.
“With the theme ‘Innovating the future’, we looked at the ways in which companies can add more value and increase efficiencies. If we look at the oil and gas sector and the renewables sector, the challenges are very similar. That means the UK subsea industry can play a very important role in leveraging its years of experience from the oil and gas industry to benefit other emerging sectors.”
The exhibition featured a large number of presentations on a variety of subjects, from new technology through to life extension and decommissioning, as well as marginal fields and new construction.
“I think there’s a real enthusiasm now because the oil price has recovered, although it’s dipped back down again, we’re hearing that many oil and gas companies are making profits, and projects are being sanctioned. Last year, in the UK there were over 12 new field development plans sanctioned, that’s more than the last three years combined,” Gordon said.
Innovation in oil and gas is hard, especially for companies that are not already major global services operators. The challenge is less coming up with new ideas, and more in in persuading operators to take the risk of using them on infrastructure where tens or hundreds of million pounds are at risk if something goes wrong. Gordon stressed that innovation doesn’t just lie in developing and applying new technology, but in how companies work together.
“That’s where the innovation comes in, working in partnership with customers and suppliers to achieve the same objective. But we can maybe do it in a smarter way, whether that’s bringing in new technology, new processes, or cutting out some of the unnecessary barriers. We are, however starting to see a shift in behaviours and more early engagement with the supply chain and technology developers to identify more innovative ways of tackling issues.”
While the innovation market has been hard to crack since 2014, at least there are now two related industries to sell into. Offshore wind investment has moved firmly beyond European waters, while at the same time it has come under cost pressures as painful as those hitting hydrocarbons. For example, a recent giant tender in Turkey for a 1,200 MW offshore wind project near Gallipoli was won by Siemens at 3.48 cents per kWh. With prices at that level the pressure to cut costs by innovating is intense.
“We foresee more companies looking at diversification opportunities into places such as offshore wind,” Gordon said. “The technology and challenges are very similar in areas such as seabed survey, cable lay or subsea infrastructure inspection. You want a supply chain that is competitive, and can offer and deliver opportunities without being solely dependent on an industry that can be volatile,” he added.”
Gordon pointed to cooperation as an alternative to the aggressive cost cutting that a number of companies have resorted to since 2014.
“There’s been a real drive in getting costs down,” he said. “I believe about 50% of savings have been made from cost-cutting, but that’s had a major impact on eroding supplier margins. A more positive way to make savings is really about creating smart efficiencies and adding value.”
Gordon believes that marginal fields, with reserves around the 3 billion barrel mark, will provide a steady source of revenue for the North Sea.
“The operating community has seen that the UK is one of the quickest areas in the world where you can get a return on investment, from sanction to actual first return on cash. UK subsea tie-backs for example, can deliver far quicker returns in just five years. In other parts of the world, you’re looking at around 12 years for Nigeria, and nine years in Brazil for payback.”
The real game-changer has been the UK’s pioneering development of the subsea tie-back which allowed subsea wells to be developed much further from the host installation, and at lower cost. As a result of this early lead UK companies have become world leaders in subsea developments.
Offshore assets have been changing hands frequently, and this has created opportunities for new owners to try new techniques and new technology. “We see many of those assets moving from big international companies to smaller, leaner companies – getting the assets in the right hands can maximise value. A good example of this would be the Forties going from BP to Apache, but we’re seeing a new generation of companies, like Chrysaor taking on Shell’s assets and they’re now investing in and looking at getting more out of those facilities.”
However, most the North Sea’s infrastructure was built with a design operating life of 20-25 years, but are already pushing 40, and being asked to run on for 10-15 more.
“As we get assets that have been there for quite some time, you want to make sure the integrity of that infrastructure is sound – that’s where smart technology has to come in to make sure those assets are going to be safe to operate and will be able to last for a lot longer,” Gordon said.
“If we’re looking at what technologies are going to be of use in the future, it’s about how we will be able to monitor those things. So, areas such as sensors, data analytics, internet of things, artificial intelligence, robotics, these are all new aspects of technology that companies are researching and developing in an effort to add value and efficiency to the industry. “
The winner of this year’s Innovation & Technology award at Subsea Expo was c-Kore, which has launched a range of tools for monitoring in-place subsea infrastructure. “We looked for a company that’s working hard to bring new, disruptive technologies to market. What the judges wanted was real tangible proof that their innovation has positively impacted the industry and increased revenues,” Gordon said.
Delegates to Subsea Expo were eager to leave behind the last few years. “The big projects will probably see the real upturn coming in 2020-2021, although there’s optimism and the operators are now making money and the market seems to be improving, however margins are still tight at the moment. The challenge is to keep on innovating and work on attracting people into the industry.”
InnovOil certainly found the atmosphere at Subsea Expo 2019 much lighter and more optimistic than has been the case for the past four years. For companies that can offer real cuts to costs with acceptable risks the next few years are looking considerably brighter