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Douglas Westwood predicts growth for North Sea services and support industry

“Despite a long-term decline in oil & gas production in the North Sea, its services and support industry has a bright future,” said John Westwood, Chairman of energy business advisors Douglas-Westwood, in Aberdeen this week.

Addressing a major event organised by the Norwegian British Chamber of Commerce on opportunities and challenges for the industry in the North Sea area, Westwood noted that the North Sea is a major world-class basin that for the past 40 years has delivered huge economic benefits to Norway and The UK.

Oil production is in decline in the North Sea though, Norway’s production has fallen 32% and the UK’s has dropped by 46%, in spite do recent discoveries it will probably not reach historic highs.

“The continuing challenge for both countries is to greatly slow production decline by focusing on maximizing recovery from existing fields and the multitude of small fields that remain untapped and extensively explore the northern & western frontiers.”

OFS boom

“But in the decades ahead it will be the support industry that has developed to serve North Sea oil & gas, that will ultimately deliver greater economic benefit than the oil & gas itself,” Westwood continued.

Norway and UK have built up large product and services industry to tap North Sea resources and it is this industry which is likely to be the lasting legacy of the North Sea boom, as reserves dwindle.

People problems

Moving on to address issues facing the industry, Westwood stated, “The most significant problem both nations’ industries face is people. The baby-boomers are retiring, many young people are under-educated or have zero-value qualifications and those that are capable are often reluctant to enter an industry perceived as lacking in green credentials.

“In the case of my own company and many others, our growth is restricted not by the market, but by the difficulties of finding entrants with the basic skills, such as writing in the English language.”

“At the other end of the skill spectrum many companies’ solutions to attracting experienced manpower is to steal from others, thus creating cost inflation in an already high cost area – but still not addressing the underlying issue.

“Pulling together operators & OFS companies to force an education & training culture is essential to assure the future. Undoubtedly the training sector is a great commercial opportunity.

“But here in the UK, the industry is not united. Instead we have a gaggle of trade bodies and special interest groups. There is no forum really representative of both operators and service companies, no united voice, and specifically nothing with the necessary size to impact government thinking and ‘educate’ the wider stakeholders – the government and the general public – to the importance of this industry,” he commented.

Opportunities for growth

Opportunities still exist in the North Sea but many of them are not necessarily related to exploration and production:

  • Decommissioning will be an important industry worth in excess of £ 20 billion.
  • Onshore oil & gas is forecast for a massive expansion over the next five years.
  • Unconventional gas – European onshore reserves are estimated to be a multiple of those of conventional gas.
  • Offshore wind – this logical area for employing offshore oil & gas skills is beginning a period of massive growth.

“But the essential ingredient for long-term success is long-term thinking. The failures of short-termism were, in my opinion, at the core of the global financial crisis. The recent changes in UK E&P taxation are another example of this short term thinking at treasury level.

“Taxation of North Sea oil & gas must be internationally competitive, but both BP and Statoil’s recent investment announcements suggest that now, for many operators, it probably is.

“And yesterday’s announcement by the UK oil minister, Charles Hendry, of an industry/government tax forum is a welcome development.

“The bottom line is that oil & gas will dominate our energy consumption for several decades and declining supplies of cheap oil will mean oil prices will stay high or go higher.

Published on 12/09/2011


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