The importance of technological innovation in the oil and gas industry has risen over the past two years, according to a survey by Lloyd's Register Energy.
|Image from Lloyd's Register|
Lloyd's Register surveyed operators in America, Europe and Asia to assess the impact of innovation and investment. According to the survey findings, it is more important than ever that oil and gas companies identify, adopt and integrate critical technologies.
The survey showed decades of decline in research and development (R&D) investments.Largely due to high prices, investment began to rise in the 2000s as conventional production peaked against a background of strong global demand growth.
However, the survey found that R&D’s future looks bright. It is expected to expand. And over the last two years 59% of companies that were surveyed grew their average R&D spending, with almost one in four increasing by more than 10%.
The survey revealed that although part of that rise might be aimed at coping with higher costs, the bulk represents real growth in activity and interest. For example, management time spent on R&D and innovation has risen at 45% of companies in the last three years and 54% of respondents expect it to do so in the next three while only 6% foresee a decline.
The innovation imperative graph.
From Lloyd's Register.
Also in the next two years, as other companies bring in new technology, the advantage of international oil companies (IOCs) to diminish is expected. Those surveyed expect an increasing role for national oil companies (NOCs). An estimated 67% expect NOCs to increase spending on R&D significantly to support their drive for international growth and to increasingly operate like IOCs.
When it comes to innovation, more than 75% of respondents say that the pressure to innovate has risen over the last two years.
A high number, 73% of those surveyed, believe that the rate of innovation in the sector is increasing. However, despite the rise of spending in R&D, the industry is reluctant to take risks, especially in deploying new technologies, which in turn, holds back innovation.
“Innovation has increased and we are trying to innovate faster. The time of easy oil and gas is gone, and so technology will need to develop in response to that challenge,” Gerald Schotman, former Shell CTO told Lloyd’s Register.
More firms are expected to spend more money on technology innovation, with IOCs leading the way and NOCs looking to catch up on their voyage to become international companies.
According to those surveyed, 46% percent say IOCs have introduced by far the most breakthrough technologies in the last two years, followed by exploration and production companies (31%).
The survey reports that the importance of technological innovation is rising as the search for new oil and gas reserves moves beyond the conventional and easily accessible. The days of sticking a drill in the ground and hoping for the best have long gone; in future, it will be increasingly important for oil and gas companies to be able to identify, adopt and integrate critical technologies, even if they are not the primary developers.
While the oil and gas sector is becoming eager to adopt change, it still remains highly conservative.
Most companies are more likely to use a combination of a variety of new and existing technologies for their businesses. Interviewees say it brings the most dramatic change.
According to the survey, this is true especially with new skills required, combined with the risks that new technologies can bring, such as in operational disruption, make the majority of firms reluctant to be the first to adopt substantial innovations. Instead, 56% of respondents describe themselves as “fast followers”, who make changes once others have proved their worth; only 25% consider themselves to be “early adopters.”
25% of companies consider themselves to be early adopters; 56% are fast followers.
Image from Lloyd's Register.
“Technologies are coming along at a time when you can retrospectively look at wells that didn’t work out properly and go back in and look again, using that technology, and find out the reasons why it didn’t work and that automatically feeds back into the experience of the technology,” Ken Cronin, UK Onshore Operations Group CEO told Lloyd’s Register.
Delayed deployment is also a major barrier to progress, slowing the commercialization of new ideas. This is mostly due to difficulties associated with testing in appropriate, real-world conditions. More than one in five surveyed name this as their biggest problem in dealing with the quality-assurance requirements associated with deployment.
Survey respondents have a range of concerns with the challenges of testing in real-world conditions, difficulties in keeping pace with regulatory change, and related costs.
One issue noted in the survey from Gregers Kudsk, Maersk Drilling VP, is that at times technologies are introduced too early, which results in pushing up operations and maintenance costs, as well as inspection costs.
“Quality assurance is complicated by real-world conditions, cost and regulatory requirement changes,” Kudsk says.
Joanna Pohorski, Lloyd's Register Senior Vice President, agrees, referring to an example of Shell’s mega-project Prelude FLNG platform.
“Assurance in the supply chain is the big challenge for projects of this scale and complexity, because you are bringing components and equipment from a number of different manufacturers around the world to one of the largest floating installations ever developed,” Pohorski says.
In the coming years, survey respondents say they feel positively about a variety of technologies having a high impact on several relating to extending the life of existing assets, such as enhanced oil recovery (EOR).
In the near term, Lloyd's Register revealed that automation, including remote and subsea operation, and EOR are expected to have the greatest impact on the sector. In the medium term, high-pressure, high-temperature drilling (HPHT) and multi-stage hydraulic fracturing are also expected to have a major impact, but won’t become fully deployed until around 2020. From 2025 and beyond, subsea robotics is seen as most promising.
Equally important, there will be the more effective use of data and computing. Of those surveyed, 58% agree thatmany future breakthroughs will involve “bits and bytes, rather than physical hardware.”
In all, the study focuses on 25 specific technologies and highlights five within each of five key categories of development, which include: life extension, uptime and efficiency, supply chain, next resource, and risk exposure.
In conclusion, the study says that while a can-do attitude pervades successful innovators, who demonstrate much greater willingness to explore new partnerships and approaches, much of the sector remains cautious. However, as both complexity and risks mount, along with rising competition, tomorrow’s leaders will show a greater willingness to explore new routes to innovate – or risk failure.