The Upside to a Down Market: Innovation and Standardization in Norway

The Subsea Factory – artist rendering – Image courtesy of XVISION (www.xvision.no)

As a daily consumer of energy, I’ve been selfishly happy about the lower fuel prices of late. Low gas prices are good – at least that’s what I thought.  And then last week, gCaptain sent me to Oslo  to attend the Subsea Valley Conference and Expo, and I learned that low fuel prices are also very bad.

For those of you not paying attention (and until last week I was one of you), Oil and Gas has been very good to Norway. The Norwegian Continental Shelf (NCS) is home to massive oil and gas reserves and, in the last 40 years, Norway’s economy has been centered around getting at it and selling it. In 2009, 60% of their exports were oil and gas. In a nation of five million, three hundred thousand work in oil and gas and that has helped push their GDP per capita to the sixth highest in the world (the U.S. is tenth). So when the price of their #1 export fell from $105 dollars per barrel in June of last year to $47 this March, Norwegians weren’t very happy about it.

Personally, I still think it’s a good thing. There is an upside to this down market. Preben Strøm, Managing Director at Subsea Valley, nailed it in his opening remarks at the conference:

Cost-saving measures might have been very difficult to implement with oil prices over 100 dollars per barrel. But lower prices now lend urgency to steps, which our industry is taking…never before have we seen such momentum to actually change our industry and prepare for a more effective and lean future.

His statement confirmed what I heard from the industry in the days leading up to the event. The push for efficiency and innovation is now the single most important topic in Oil and Gas, and the advances made while things are bad are the reasons things are looking very, very good for Norway’s continued success in the marketplace.

Before the conference, there were meetings with some of the largest names in the industry, and at each presentation I was reminded that innovation and cost-savings have always been a focus, but the overarching message was clear. Until managers at the top feel the pain from falling profits, these initiatives get less attention and funding than they might otherwise receive.

In the coming weeks I’ll be writing about the new technologies and innovations in progress on the NCS. Some of these initiatives, like DNV-GL‘s Joint Industry Project to streamline documentation, sound mundane but may in fact amaze you.

How can paperwork be amazing? Consider that 92% of the money spent on a subsea pipeline project is documentation costs, and suddenly DNV GL appears to be on to something. “92%” wasn’t a typo, and DNV GL’s recommended best practices reduce documentation requirements by up to 77%. Put another way, what used to cost $100 dollars could now cost $30. Paperwork just got very cool, didn’t it?

“Cool” does not describe the advances being made in subsea hardware. Personally, I found the current projects at companies like ABB Oil & Gas, OneSubSea,  FMC, and Aker Solutions to rival those in space exploration. What ABB is doing to get electricity out to sea at extreme depths and pressures involves some of the most challenging research and development I’ve ever seen. And OneSubSea’s new multiphase (wet gas) compressor – that will boost production from the Gullfaks South Brent reservoir by 22 million barrels of oil equivalent -, is truly game-changing technology that has redefined what is possible.

The price of crude oil this morning is $57 USD. Analysts at Rystad Energy believe that $70 is the minimum number for sustainability in the marketplace and they are also sure prices will recover, though no one is sure when. But maybe that uncertainty is a good thing.

The innovation in Norway’s oil and gas market is only happening as fast as it is because it needs to, because the price of oil is so low. But the advances made now are changing things for every not-so-lean year ahead. It’s possible that the ten-year picture for the NCS will be more profitable because of the recent crash in the price of oil, not in spite of it. It’s the upside to the down market: the forcing of “better” into a market where “good enough” was extremely profitable – but now isn’t – that will make them even more profitable for years to come.