Norwegian activity on the rise–at what cost?

A wave of new projects is set to hit the Norwegian Continental Shelf this year, but how sustainable cost cutting measures have been to carry them out and the huge potential seen in digitizing the business was discussed in Oslo today.

Shell's Kaikias development.

Norwegian Petroleum Minister Terje Søviknes told the Subsea Valley conference that 10 plans for development and operation are expected to be put forward this year, compared to just five small projects last year. Ann-Christin Andersen, managing director, TechnipFMC Norway, also said there was a huge amount of activity on going and projects were probably overdue, as firms work to make breakeven costs add up.

But, while it was seen that a more competitive industry was emerging from the downturn, concern was raised that some cost cutting might not be sustainable and more would need to be done to transform the industry, including reducing CO₂ emissions reduction and embracing more digitalization, which would be crucial to reducing costs and emissions as well as increasing safety.

“The challenges facing the industry have seen structural changes with a number of mergers and acquisitions and others may follow,” Minister Søviknes said. “It has not been easy, but it has seen efficiencies made. However, we cannot relax.”

He said the 10 expected plans for development this year was a positive sign for the industry, and that digitalization and automation would offer huge opportunities for the industry to make processes safer, cheaper and more efficient.

France’s Total is moving forward with digitalization and reducing emissions on its Martin Linge development, in the Norwegian Sea, which will be the first platform offshore Norway fully powered by electricity from shore. Total is also looking to reduce manning on the facility through remote operations.

"This allows us to be at the right end of the cost curve,” said Michael Borrell, senior vice president, Europe and Central Asia, Total, at Subsea Valley. “We have access to all this data; we need to make it available to our top engineers and we need to give them the tools to treat that information and get better understanding of our business.” Borrell adds that making efficiencies on a project like Martin Linge will be an ongoing process, with 1% a year, for 20 years, planned.

There has been a concern that some of the cost reduction, leading to improved breakevens, has been at the expense of the supply chain, which could be pricing itself out of business, Andersen says. In fact, discussing the Johan Sverdrup project, which is now 40% complete, Trond Stokka Meling, technical director on the project, said one risk was suppliers going bust.

“All the suppliers are selling at prices that are not sustainable,” Andersen says. “But, it must be sustainable. I don’t believe there’s [going to be] a market [with oil] above US$100/bbl anymore. Some of the things that are selling too cheap are vessels. They want utilization, but you have a limit to how long you can limit maintenance, etc. So, we must speed up [cost reduction/efficiency efforts]. When this wave of projects hits us that we are quoting for, we need to make sure we are ready to [be able to] make money. We cannot afford not to change. We are not there yet, but we can get there.”

Andersen says that many projects are probably overdue and that, “there is an amazing activity level, the trick is to do the right ones [projects].” It’s also about taking a different approach to design and using technologies to change subsea architecture, such as heated pipelines, she says, which could be used to “redefine” control architecture.
Andersen says that savings come from integrated contracts. If contracts are bundled, there’s a benefit, she says. If they’re integrated, there’s more to be saved. But, if there’s an integrated front-end engineering and design of subsea production systems (SPS) and subsea umbilicals, risers and flowlines (SURF), the benefits are even higher – or 30%, at a minimum.

TechnipFMC won integrated engineering, procurement, construction and installation contracts on Statoil’s Trestakk subsea tieback offshore Norway, and Shell’s Kaikias deepwater development in the US Gulf of Mexico. The firm is working on Hurricane Energy’s Lancaster early production system, west of Shetland. “We are seeing a lot of this now and it’s quite scary,” she says, alluding to how much potential there could be.

On Kaikias, integrating the SPS and SURF work has meant a simplified subsea architecture, she says, using the firm’s compact pipeline end manifold solution. But, there are potentially other measures firms could take. Andersen said that TechnipFMC was weighing whether it should have a financial instrument to help oil firms make investments. Andersen also says that digitalization had a place, including making aftermarket work more cost-efficient based on better monitoring.