February 14, 2017

Global hub may be the future of oil and gas industry

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The recent launch of the Oil and Gas Technology Centre (OGTC) in Aberdeen is welcome news not only for the North Sea but also for the international industry.

The £180million government-funded centre will focus on developing technology, which has either been mothballed or in its early stages. It will work alongside a range of partners to accelerate the development and deployment of technologies that improve efficiency and increase productivity to create a global technology hub.

It will co-invest alongside industry, technology and academic partners, whose matched funding can be both cash and in kind, in the form of access to knowledge, expertise, assets, facilities and equipment.

The Oil & Gas Technology Centre will draw from the experience of other sectors, exploring how technologies such as 3D printing, photonics, virtual reality and robotics can be used to help maximise the economic recovery of UK offshore oil and gas.

Initial projects will help halve the cost of drilling wells, reduce maintenance costs by up to 50 percent, and unlock up to three billion barrels of oil currently stranded in small discoveries. The greater use of digital technology and decommissioning are also important early themes.

The centre has already screened hundreds of opportunities and many projects are under way. These include a field trial in 2017, which could create a change in processes for the plugging and abandonment of wells, with the potential to save hundreds of millions of pounds.

The OGTC’s chief executive, Colette Cohen, said: “We will work with industry and academic partners to inspire, accelerate and fund technology that increases efficiency and improves productivity. We have a unique opportunity to create a culture of innovation in the UK North Sea. This is our moment. We must be brave and seize the opportunity.”

And Sir Ian Wood, who is the chair of the OGTC, was quoted at the launch as saying that the North Sea was “nowhere near the end of its life.”

I find both Sir Ian and Ms Cohen as no-nonsense, straight-talking characters. I remember being at one awards ceremony as the current downturn was starting to kick in, where Sir Ian brought the giddy mood of the audience down in rapid fashion with his stark warning of what was to come, and what could happen if we didn’t change our ways. For me, he tells it as it is and if he can see reasons to be cheerful, then so can the rest of us.

The OGTC should also provide visible evidence of greater, meaningful collaboration, which is at the heart of the UK’s maximising economic recovery strategy. Its aim is to provide common ground where companies can work together to develop technology solutions that may otherwise have never left the drawing board for one reason or another. In developing technologies to enhance activity in the North Sea, but which also have a global application, it is hoped that the OGTC will help establish international centres of excellence in a variety of fields related to mature regions.

On the same day that the OGTC was officially launched, it was announced that it had signed a memorandum of understanding with the University of Aberdeen and Robert Gordon University for a multi-million pound joint venture to develop a centre of excellence for field life extension and decommissioning. The partnership will help the UK become a global leader in the decommissioning market. 

Both these examples add to the growing body of evidence that suggests the UK oil and gas industry is taking notice of the calls for change and evolution to ensure survival. Towards the end of last year, Oil & Gas UK indicated unit costs in the North Sea had fallen 45 percent from US$29.30 in 2014 to US$16. Shell and BP recently announced the divestment of North Sea assets to smaller operators focused on maximising late life production and at the Subsea Expo conference and exhibition held in Aberdeen at the beginning of February there was a definite feeling of cautious optimism among attendees.

Our industry is becoming leaner, more efficient and better suited to survive in a lower commodity price environment.

The necessary increases in efficiency, particularly in the North Sea and the shale plays of North America, have coincided with the rise in the price of oil following OPEC’s decision at the beginning of this year to trim 1.2 million barrels-a-day off its production for at least six months, plus support from Russia and some other non OPEC countries.

The success of this policy will depend on the commitment by OPEC’s member countries to abide by it – and indications from the International Energy Agency suggest OPEC has cut 90 percent of the supplies it committed to. It will also depend on the extent to which the US shale industry grows in response to the rising oil price, and whether this will create excessive oversupply once again. The week-on-week growth in rigs in shale regions such as the Permian basin suggests this will remain a valid concern.

For OPEC’s de facto leader, Saudi Arabia, the policy U-turn, from two years of unfettered production to capping, has to work. In fact, Saudi Arabia is reportedly exceeding its curb levels. Burdened with budget deficits, the country cut spending after getting through more than a quarter of its vast foreign financial reserves in the past two years. The kingdom has announced that it will sell off up to five percent of state oil producer Saudi Aramco – the world’s most valuable company worth in excess of US$2 trillion – in 2018, and a healthy oil price will help maximise returns from the sell-off.

The part-sale of the Saudi Arabia’s cash cow will fund the kingdom’s plans to diversify its energy mix away from oil and more towards renewables, increase privatisation and boost job creation for unemployed Saudis in a range of sectors, including technology and tourism.

An oil price hovering around the US$55 mark, (as it is at the moment) with the potential to kick on to $60 going into next year, would seem to suit the more realistic ambitions of many of the world’s producers right now, hopefully supported by efficiency-generating technologies emerging from organisations such as the OGTC.

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Andrew Bradshaw

Head of Energy Insight at Fifth Ring

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