Carl Wordsworth, Senior Consultant at BHR Group, explains why industry collaboration is needed to replenish the R&D reservoir.
Technology transformation is happening at an increasingly fast pace, changing the way global companies operate, shaping innovations that drive down operational costs and creating efficiencies. In the oil and gas sector never more is such innovation needed. With continual and increased exploration of subsea depths for the extraction of oil and offshore drilling, operation costs are soaring.
Technology has helped to make oil discovery more affordable and enabled oil and gas companies to find and exploit new reservoirs. But as pressure to cut costs grows, because of falling returns on capital and weaker oil prices, spending to sustain investment in R&D is slowing. According to Statista, a statistics portal, Royal Dutch Shell’s R&D spending remained fairly static from 2010 - 2014 with a drop seen in 2014. In an article in the Financial Times, Nick Butler, a former strategist at BP expressed concern that R&D will be cut ‘just when it matters’, as the industry faces a potential long haul of weak prices, with faltering demand and strong production growth in the US.
Yet a lull in R&D is not an option. With the rising access difficulties to conventional reserves controlled by national companies and new drilling environments including deep water, oil sands, and the Arctic –new solutions need to be developed.
Oil production companies often do not want to maintain and invest in proprietary technologies for everything they do given the often heavy associated costs, so they are looking now to external partners for R&D and technology solutions. Traditionally, oil and gas companies would fund the R&D needed for SMEs to create technologies that would be used and bought by the sponsor alone. Much of this funding has dried up, leaving SMEs to look elsewhere for funding to carry on innovation work.
To add further pressure for these SMEs, oil and gas companies are making it incredibly difficult to prove that their technologies are ready for offshore instalment. There are multiple reasons for this including the ability for SMEs to prove that their solution can scale to withstand the harsh operating conditions involved in offshore drilling including increasing pressures and temperatures. Oil and gas companies are now demanding that each new innovation pass a multi stage technology readiness test (TRL), which ensures that the product passes multiple pressure and reliability tests throughout the various stages of its development – from prototype to the full scale model of the product. But there is an incredible jump from testing a prototype during level 0 - 100 bbls of oil compared to whether it would be able to withstand the requirements needed to create 25 000 bbls as they near the last level. Much of the small scale testing for products can be done on premise but large scale testing needs to be done using almost full-scale models for more than six months before it can be proven. Not only is this costly, but SMEs simply do not have the access to testing facilities or know where they exist.
When it costs millions of dollars to install technology offshore, oil and gas companies are right to be concerned about the scalability of new products. But these rigid demands, deprived of funding support are creating a barrier for technical innovation within the industry.
But, all is not lost. Collaboration with open innovation experts within the oil and gas industry that can support SMEs through the funding and testing stages of product development is a solution. This support is not monetary but is knowledge, consultancy, access and contact based. For example, these experts will know how to help the SME apply for funding from the UK government, EU, and trade industry board. Additionally experts will know how to help SMEs to develop products from prototype to full scale systems and show them how to gain access to the big industry players with the testing systems and facilities required for testing products in the later stages of the technology readiness level process.
Furthermore, open innovation experts will be able to use their heritage and multidisciplinary experience to help SMEs understand which technologies will scale and will bring the most business benefit and cost savings for oil and gas companies. This is crucial to prevent against development time and cost loss. And, importantly, they can also advise on the business opportunities that government funded projects can bring, as, if work is not sponsored by one particular company the technology has a much wider industry application and reach, meaning amplified revenue opportunities.
Ultimately, the oil and gas companies will have to start reinvesting in R&D to ensure that innovation for future projects remains on track. But while the investment barrel remains dry, SMEs will need to look elsewhere. Where they can, they should collaborate with open innovation partners and experts to guide them through the difficult and often costly R&D process. This is how they will not only continue to succeed in the oil and gas market but also ensure that their technology can scale in the field.
Adapted by David Bizley