Innovation in the oil & gas sector: where are we now?

Innovation in the oil & gas sector where are we now

By John Wishart, Lloyd’s Register Energy President

 

In recent years, the Energy industry has become increasingly characterised by its interplay with geopolitical dynamics and since late 2014, the low oil price environment has prompted many companies to reduce their cost base.

Whilst cost management is inarguably crucial, by focussing exclusively on their immediate needs, some companies may not be in a position to leverage the opportunities that come with any market upturn. Companies that are shedding skilled staff may struggle to replace them in the future, and businesses that do not keep pace with technological advancements are unlikely to maintain a sustainable competitive advantage beyond the immediate short term. For many companies, this forces decisions to be made around short-term survival versus long-term growth.

Clearly, innovation is a major part of the solution. Applied to technology and / or processes, innovation can either be an overnight game changer, or deliver gradual improvements that quietly but steadily nudge up productivity and efficiency. Both are vital to sustainable profitability, but innovation isn’t cheap; so at a time when margins are subject to extreme pressure across the board, it is also part of the problem.

Through our Oil & Gas Technology Radar research programme, we are examining the sector’s appetite for innovation. Our initial study, published in September 2014 when prices remained above $100 pb, described a positive outlook, with 60% of respondents reporting increased innovation spending in the previous two years, and further near-term increases anticipated. Of course, by early 2015 the industry’s economic climate was very different, but the themes that came out of our Global Executive Briefing series still reflected a cautious but steadfast commitment to innovation.

Throughout the series, there was broad consensus amongst industry leaders that, “When recession hits, you have to do things better and at a lower cost – that means investing in innovation, as it’s the only way to get out of the dip”. Although it was largely agreed that the immediate priority is technology that can be deployed – and realise cost reductions – in the short term, there was also a recognition that, “Investment into R&D is based on a long-term strategic plan. Whilst we see the current environment as challenging, it does not derail us from our longer term commitment to finding more efficient ways of operating and using technology in this space.”

The Global Executive Briefing series suggested that executives share a continued sense of urgency around the development and deployment of technological innovation that has been undisturbed by the low price environment. In fact, rather than stalling innovation, many felt that the industry should accelerate its efforts to learn from adjacent industries, both in terms of the process of innovation, and new technologies themselves.

From this standpoint, the outlook for innovation in the sector remains positive. To a great extent, this reflects the one certainty we can count on: that the sector of the future looks very different to that of the present, and therefore forward-facing investment in the right mix of skills and technologies is critical to survival. This, combined with difficult market conditions, has generated a growing recognition of the power of collaboration to advance new technologies that might otherwise be economically unviable. Obviously, it is often the case that potential commercial gain through differentiation outweighs the benefits of collaboration, but where eventual standardisation across the industry is inevitable or desirable, collaboration is a path worth exploring.

Interestingly, this in itself is an area where change is evident throughout the sector. In contrast to the traditional routes that rely on in-house development, the next few years are likely to see a shift towards leveraging the resources of external parties. The Oil & Gas Technology Radar research validated this, with only 51% of respondents anticipating in-house R&D in the coming years, versus 59% in previous years. Throughout the Global Executive Briefing series, participants shared positive examples of alternative approaches, including investment in or acquisition of technology enterprises, research/JIP funding and in-house innovation labs, where research teams have free rein to explore creative solutions to the problems of tomorrow and beyond.

Although the low oil price environment shows no sign of abating (as of July 2015), industry analysts anticipate a return to growth within a few years. The organisations that successfully navigate through the turbulence and leverage the upturn will be those who continue to seek new solutions, both in what they do and how they do it.

 

Offshore Energy Today has shared the article above with permission from Lloyds Register. The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Offshore Energy Today.