Falling crude oil prices from more than $100 a barrel in the summer of 2014 to less than $30 a barrel at the start of 2016 may mean good news at the petrol pumps, but it has proved disastrous for the global oil and gas industry, which has seen plummeting profits, dramatic job losses and delayed and postponed projects as a result.
The North East offshore subsea sector, which, according to Subsea North East, supports 15,000 jobs and generates a combined turnover in excess of £1.5 billion a year, has also been affected, creating worrying times on the banks of the Tyne, Wear and Tees.
With forecasts showing the downturn is set to continue – and in some reports, even worsen – throughout this year, attention has turned to how the offshore oil and gas industry must change and adapt to survive.
Dr Tony Trapp is considered the ‘godfather’ of the North East offshore and subsea industry, having founded SMD, The Engineering Business (now IHC EB) and now OSBIT Power, where he is executive chairman.
He talks about the need for the industry to improve efficiency and change behaviours – but warns that this is no easy task.
“The oil and gas sector, historically, has been very conservative about its methods and has been very resistant to change,” says Tony. “We need to break this mindset, which is endemic in the industry.”
George Rafferty, the chief executive of business development organisation NOF Energy, agrees that a change of mindset is needed.
“There needs to be greater degree of trust built up between oil operators and the tier-one contractors and the rest of supply chain; at the moment, there is hardly any,” he says. “More cooperation and co-working where the supply chain can learn from each other and come up with solutions to the industry’s challenges is required.”
“The aerospace sector went through similar challenges a few years ago and adapted and changed accordingly. The oil and gas sector needs to learn from that.”
Tony concedes that some offshore oil and gas companies are starting to look at how they can standardise and simplify their processes. George also highlights companies such as Apache Corporation and INEOS Group that are adopting new methods. He also believes smaller companies that can adapt to market changes quicker will find it easier to weather the current storm. But the rate of change – especially among larger operators and tier-one contractors, however, remains frustratingly slow.
New technology is seen as critical for the survival of offshore oil and gas and the wider subsea sector. Thankfully, this is an area in which the North East has a growing international presence.
GE Oil and Gas and Technip Umbilicals have both established dedicated research centres in the region, while SMD, IHC Engineering Business and Subsea Innovation all invest heavily in R&D.
In addition, Newcastle University is currently constructing the £7 million Neptune National Centre for Subsea and Offshore Engineering in Wallsend, and the university has also partnered with BEL Valves to construct a second £10 million subsea innovation centre and hyperbaric test facility next to Spillers Mill.
One area where new technology is seen as key is in accessing small pools of oil based in the North Sea.
George explains: “There are around 250 of these small reservoirs of oil, which, at the moment, are economically stranded.
“It’s not viable to build large-scale structures above the waves to access this oil but people are looking at how to extract the oil at multiple locations and feed this back to one central hub.”
Innovative technologies continue to be developed in this area but the problem, George says, is that there is a reluctance in the industry to deploy new technologies.
“There’s a race to be second,” says George. “Companies don’t want to
be the first to deploy the technology because of the risk associated with it. There’s tech out there but it hasn’t been put it in the water yet.”
Both George and Tony agree that companies need more incentive to deploy new technologies – whether through increased funding or from Government tax breaks.
“The Government, the operators and the supply chain need to come together and have a simple road map by which they can develop the technology and then have a separate deployment mechanism whereby Government reward the operators for deploying it,” says Tony.
But it isn’t all doom and gloom in offshore oil and gas. Longer-term forecasts show the industry beginning to recover from 2017 onwards and spoils to be gained for those North East-based companies that have adapted and survived the current challenging times.
“There are still decades of life left in the oil and gas industry in the UK,” reflects George. “And as long as we embrace new ways of doing things, these decades of opportunities will materialise.”
Tony adds: “Ultimately, the industry is going to be a great place to be and subsea is going to play a key role in the North East’s economic development.”