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Halting R&D not an option

Written by  Carl Wordsworth, Senior Consultant, BHR Group Thursday, 19 November 2015 00:00

Technology transformation is happening at an increasingly fast pace, changing the way global companies operate, shaping innovations that drive down operational costs and creating efficiencies. 

In the oil and gas sector, never more is such innovation needed. With continual and increased exploration at greater subsea depths for the extraction of oil, operational costs are soaring.

Technology has helped to make oil discovery more affordable and has enabled oil and gas companies to find and exploit new reservoirs. But as pressure to cut costs grows, because of falling returns on capital and weaker oil prices, investment in research and development (R&D) is slowing. 

According to Statista, a statistics portal, Royal Dutch Shell’s research and development spending remained fairly static from 2010-2014, with a drop seen in 2014. In an article in the Financial Times, Nick Butler, a former strategist at BP expressed concern that research and development will be cut “just when it matters,” as the industry faces a potential long haul of weak prices, with faltering demand and strong production growth in the US.

Yet, a lull in research and development is not an option. With the rising access difficulties to conventional reserves controlled by national companies and new drilling environments, including deep water, oil sands, and the Arctic, new solutions need to be developed.

Oil production companies often do not want to maintain and invest in proprietary technologies for everything they do, given the often heavy associated costs, so they are looking now to external partners for research and development and technology solutions. Traditionally, oil and gas companies would fund the research and development needed for small to medium sized enterprises (SMEs) to create technologies that would be used and bought by the sponsor alone. Much of this funding has dried up, leaving SMEs to look elsewhere for funding to carry on innovation work.

To add further pressure for these SMEs, oil and gas companies are making it incredibly difficult to prove that their technologies are ready for offshore installment. There are multiple reasons for this, including the ability for SMEs to prove that their solution can scale to withstand the harsh operating conditions involved in offshore drilling, including increasing pressures and temperatures.  

Oil and gas companies are now demanding that each new innovation pass a multi stage technology readiness test (TRL), which ensures that the product passes multiple pressure and reliability tests throughout the various stages of its development – from prototype to the full scale model of the product. But there is an incredible jump from testing a prototype during level 0 for 100 barrels of oil compared to whether it would be able to withstand the requirements needed to create 25,000 barrels as they near the last level. 

Much of the small scale testing for products can be done on company premises, but large scale testing needs to be done using almost full scale models for more than six months before it can be proven. Not only is this costly, but SMEs simply do not have the access to testing facilities or know where they exist.

When it costs millions of dollars to install technology offshore, oil and gas companies are right to be concerned about the scalability of new products. But these rigid demands, deprived of funding support, are creating a barrier for technical innovation within the industry.

But, all is not lost. Collaboration with open innovation experts within the oil and gas industry that can support SMEs through the funding and testing stages of product development is a solution. This support is not monetary, it is knowledge, consultancy, access and contact based. For example, these experts will know how to help the SME apply for funding from the UK government, EU, and trade industry board. Additionally experts will know how to help SMEs to develop products from prototype to full scale systems and show them how to gain access to the big industry players with the testing systems and facilities required for testing products in the later stages of the technology readiness level process.

Furthermore, open innovation experts will be able to use their heritage and multidisciplinary experience to help SMEs understand which technologies will scale and will bring the most business benefit and cost savings for oil and gas companies. This is crucial to prevent against development time and cost loss. And, importantly, they can also advise on the business opportunities that government funded projects can bring, as, if work is not sponsored by one particular company the technology has a much wider industry application and reach, meaning amplified revenue opportunities.

There is not a one-size-fits-all answer to this, as large companies embrace open innovation in ways that works with their business, customers and culture.  As the term implies it is about an organization transitioning from solely relying on internal and supply chain expertise to a more transparent approach.  You could argue that it’s about how “out there” your business wants to be when determining its future sources of innovation.

Many of the large multinationals are embracing open innovation based on collaboration with external experts through outward-facing activities and campaigns, inviting entrepreneurs, companies and other institutions to offer their solutions to high impact challenges, which are then screened and may pass into their internal research and development funnel.

The UK has established the Innovation Forum to connect business to research institutions, universities and government business support.  Of these the independent research and technology organizations have for many years playing a key role in technology pull-through for many industrial sectors. In the UK these are represented by a body called AIRTO, while Europe wide is represented by EACRO.  At a more granular level, there are many specialist companies offering services to develop and implement open innovation.

Ultimately, the oil and gas companies will have to start reinvesting in research and development to ensure that innovation for future projects remains on track. But while the investment barrel remains dry, SMEs will need to look elsewhere. Where they can, they should collaborate with open innovation partners and experts to guide them through the difficult and often costly research and development process. This is how they will not only continue to succeed in the oil and gas market but also ensure that their technology can scale in the field.

Carl Wordsworth has 17 years experience in fluids research and development, project management and product development. He spent 10 years developing compact in-line cyclonic technology for numerous separation duties for the oil and gas industry. He has presented at numerous conferences around the world and has published several papers regarding oil-water separation technology. He is the holder of several patents and patent applications regarding separation technologies for the oil and gas industry. He has a PhD in Solid State Electroschemistry from the University of Leeds.

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