Oil and gas cannot stop R&D amid low energy prices

For decades, technological innovation has helped to offset the impact of depletion by introducing smarter and more efficient ways of discovery and production.

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It is the fundamental truth of our time that technology is evolving at an accelerating pace, transforming the way companies operate and make decisions every day. The global oil and gas industry is no exception, and it must decide whether to shape the future or risk being shaped by it.

For decades, technological innovation has helped to offset the impact of depletion by introducing smarter and more efficient ways of discovery and production. Thanks to technological progress, the industry has been able to open up ever-more challenging frontiers in the quest for new hydrocarbon resources, develop increasingly deep and complex reservoirs, and boost efficiencies in their recovery.

As traditional forms of hydrocarbons are becoming harder to find and extract, technological innovation will be integral to pushing back the much-debated arrival of peak oil. This also holds true for the Middle East, a region long known for the existence of easily accessible oil and gas reservoirs from such giant fields as Ghawar in Saudi Arabia and Burgan in Kuwait that are now maturing, while new ones are more challenging to develop.

It therefore doesn’t come as a surprise that improving recovery and extending the life of existing assets are emerging as dominating themes in the oil industry. As the findings from a Lloyd’s Register Energy survey carried out among senior industry executives and academics in 17 countries shows, the majority of those polled plan to focus on further innovations in high-impact technologies such as automation, including remote and subsea operation.

Improving production and operational efficiency is one driver of innovation in the industry. Cost reductions, safety and environmental improvements are also major objectives of innovation, especially related to remote operations. The reason is clear. Safety isn’t just about loss prevention and minimising the cost arising from industry accidents and incidents; it is the industry’s moral obligation to protect the environment and people.

As the industry pushes into deeper waters and more hostile environments, and refines existing and develops new technologies, the rising cost of doing so could hamper progress on the innovation front. Finding practical ways to collaborate more closely with other organisations to share development costs for new technologies will therefore be of great significance for the industry at large. International oil companies, national oil companies, service companies, academia and government will all have to play a role in this by coming closer together.

At a time when oil prices are declining and the industry’s operational costs remain firmly on an upward trajectory, concerns are that innovation and research and development will take a back seat as they did in the low-oil price era of the 1980s-90s. However, while this may have been the case in the past, a look at today’s mature oil industry shows technology and innovation are business enablers that – tight times or not – need to be pursued in the sector’s own interest.

We are still all too aware of the dramatic consequences of the 1980s-90s oil price slump, which led to investment cuts across the industry, in turn slowing innovation and leading to an outflow of talent. The industry never fully recovered from being regarded as more unstable and less desirable to work in than others, leaving scores of young people to choose careers in areas such as IT and finance rather than oil and gas.

Today, the single biggest challenge facing technology innovation in the industry is the knowledge shortage resulting from a generational gap that can be sourced back to the 1980s, and that’s set to worsen as an entire generation of experienced engineers reaches retirement age. The question being asked is who will capture this vast knowledge and expertise that is set to exit from the industry amid the Great Crew Change?

There isn’t a simple answer. Collaboration between all energy stakeholders – industry, academia and government – will have to be expanded and new ways of working will need to be explored. The oil and gas industry will have to broaden its search for talent across geographies, backgrounds and genders. The sector also needs to look to adjacent industries, such as nuclear. And it will need to attract talent from more diverse backgrounds ranging from geology to mathematics, IT and analytics in order to drive innovation in future technologies.

Just as the pace of technological advancements is accelerating, so will the need to understand the long-term implications of technology adoption and any potential risks, along with how to pass on the knowledge that’s on the way out before it’s gone forever. That’s another fundamental truth.

John Wishart is the president of the Lloyd’s Register Energy division of Lloyd’s Register

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