REVOLUTIONISE ENERGY SOLUTIONS
The global oil and gas industry should shape post-easy-oil era with technological innovation or risk being shaped by it!
The global oil and gas industry should shape post-easy oil era with technological innovation or risk being shaped by It!
It is the fundamental truth of our time that technology is evolving at an accelerating pace, transforming, whether we like it or not, the way companies operate and make decisions every day in order to optimise business. The global oil and gas industry is no exception, and it must decide whether to proactively shape the future or risk being shaped by it.
Advances in and the widespread adoption of technologies have triggered a conversion process that's resonating across the entire industry and along its value chain. The growth in computing power and widespread digital connectivity enables companies to harvest and analyse ever-larger amounts of relevant data in real time, helping make faster and smarter decisions, facilitating equipment maintenance, optimising production, and enhancing safety and compliance.
Technological advancements in reservoir imaging, drilling and well completion, among others, have truly revolutionised the industry. For decades, technological innovation has helped offset the impact of depletion by introducing smarter and more efficient ways of discovery and production. Thanks to technological progress, the industry has been able to open up evermore challenging frontiers in the quest for new hydrocarbon resources, develop increasingly deep and complex reservoirs, and boost efficiencies in their recovery.
And, going forward, more than ever before, innovation – new and improved technologies – will play a crucial role in meeting the rising energy needs of a growing and increasingly urbanised population, and coping with the environmental challenges in the decades ahead.
Only 10 years ago, the production of shale
oil and gas in North America wouldn't have been feasible. Although the existence of shale formations in the US was known for many decades, high cost and a myriad of technological challenges stood in the way of development. It was a cocktail of high oil prices and advances in horizontal drilling and hydraulic fracturing technologies combined with a push for greater supply security that brought shale oil and gas developments within the realm of economic feasibility – potentially opening up billions of barrels of oil and trillions cubic feet of gas for extraction and production in the US and in other parts of the world, and with it the potential to lower the price of power generation.
As traditional forms of hydrocarbons are becoming harder to find and extract, ongoing technological innovation will be integral to pushing back the much debated arrival of ‘peak oil' – the point at which the world's oil production is reaching its peak. This also holds true for the Middle East, a region long known for the existence of easily accessible oil and gas reservoirs from such giant fields as Ghawar in Saudi Arabia and Burgan in Kuwait that are now maturing while new ones are more challenging to develop.
It therefore doesn't come as a surprise that improving recovery and extending the life of existing assets are emerging as dominating themes in the oil industry around the globe. As the findings from a Lloyd's Register Energy survey “Technology Radar” (www.lr.org/technologyradar) carried out among senior industry executives and academics in 17 countries shows, the majority of those polled plan to focus on further innovations in high-impact technologies such as automation, including remote and
subsea operation, and enhanced oil and gas recovery (EOR) in the near and medium term.
Enhancing production and operational efficiency is one, but not the only, driver of technology innovation in the industry. Cost reductions as well as safety and environmental improvements are also widely seen as major objectives of innovation, especially related to remote operations. The reason is clear. Safety isn't just about loss prevention and minimising the cost arising from industry accidents and incidents; it is the industry's moral obligation to protect the environment and people – both those who work in the sector and those whose lives may be affected by the industry's actions.
As the industry pushes into deeper waters and more hostile environments, and refines existing and develops new technologies, the rising cost of doing so could potentially hamper progress on the innovation front. Finding practical ways to collaborate more closely with other organizations to share development costs for new technologies will therefore be of great significance for the industry at large. International oil companies (IOCs), national oil companies (NOCs), service companies as well as academia and government will all have to play a role in this by coming closer together.
NOCs in particular are raising the stakes on the innovation front. Since 2005, five of the largest NOCs – PetroChina, Petrobras, Sinopec, Lukoil and Statoil – have grown their research budgets at twice the rate of the super majors and, in 2011, out-invested IOCs at $5.3 billion (QR19 billion) versus $4.4 billion1 (QR16 billion) – a trend that's unlikely to stop.
At a time when oil prices are declining and the industry's operational costs remain firmly on an upward trajectory, concerns are that innovation and research and development (R&D) will take a back seat as they did in the low-oil price era of the 1980s/90s. However, while this may have been the case in the past, a look at today's mature oil industry shows that it has been widely recognised that technology and innovation are business enablers, which – tight times or not – need to be pursued in the sector's own interest.
For in an increasingly globalised world an oil company's competitive edge will, in the long term, largely be determined by its ability to gain advantages through innovations. This makes the investment in R&D and technology a necessity, not an option.
And we are still all too aware of the dramatic consequences of the 1980s/90s oil price slump, which led to investment cuts across the industry, in turn slowing innovation and leading to an outflow and reduced influx of talent. The industry has never fully recovered from being seen as more unstable and less desirable to work in than others, leaving scores of young people to choose careers in areas such as IT and finance rather than oil and gas. As a result, the flow of new talent into the oil and gas industry hasn't been able to match the outflows and keep up with rising demand.
Today, the single biggest challenge facing technological innovation in the oil and gas industry is arguably the knowledge shortage resulting from the generational gap that can be sourced back to the 1980s, and that's set to worsen as an entire generation of experienced engineers is reaching retirement age. The question being asked is who will capture this vast knowledge and expertise that is set to exit from the industry amidst this ‘Great Crew Change'?
There isn't a simple answer. Critically, collaboration between all energy stakeholders – industry, academia and government – will have to be expanded and new ways of working will need to be explored and deepened by better utilising existing and establishing new knowledge sharing platforms. The oil and gas industry will have to broaden its search for talent across geographies, backgrounds and genders. The sector also needs to look to adjacent industries, such as nuclear. And it will need to attract talent from more diverse backgrounds ranging from geology to mathematics, IT and analytics in order to drive innovation in future technologies.
There can be little doubt that technological innovation will continue to transform the oil and gas sector. But just as the pace of technological advancements is accelerating, so will the need to understand the longterm implications of technology adoption and any potential risks, along with how to pass on the knowledge that's on the way out before it's gone forever. That's another fundamental truth