Innovation in oil and gas is no longer optional
The rise of new technologies, coupled with the ongoing global push for a reduced environmental impact, means the oil and gas industry is currently undergoing a period of intense volatility. Oil and gas companies must recognise innovation as a necessity and consider how digital technologies are changing the competitive landscape and industry architecture.
The oil and gas sector has generally been very slow compared to other industries when it comes to leveraging the potential of new technologies to innovate and improve operational efficiencies.
With new technologies emerging everyday, many with the same promise of reducing costs and optimising performance, ways to achieve technological advancement across the industry are now in abundance.
Industry executives must consider how best to accelerate this technological advancement to ensure revolutionary solutions enter the oil and gas market faster.
Understanding the barriers to innovation
Associate Professor of Technology Management and Strategy at Queensland University of Technology, Dr Robert Perrons, said there have been a number of barriers to innovation within the oil and gas industry.
“One of the things that gets in our way is the asset longevity. When we put an asset down in the resource sector, we’re expecting that thing to churn away and make money for us for 30, 35, 40 years. That makes it complicated from a technology-refresh point of view,” Dr Perrons said.
“Let’s contrast that with your phone. Without even knowing about the phone that’s in your pocket right now, you’re probably getting a new phone every two years or so. The natural lifecycle of those assets allows companies in that ecosystem to insert new technologies very easily, because they only have to wait 700 days.
“Number two is the consequences of failure. When things go wrong on an oil and gas platform, or at a mining site, people are going to get hurt, there’s going to be horrible environmental damage and billions of dollars of liability.”
Dr Perrons said that because of events such as the Deepwater Horizon disaster, where an offshore drilling rig exploded, killing eleven crewmen and causing the largest oil spill in US waters, the oil and gas industry is hardwired for risk aversion.
“No-one wants to be the reason why Deepwater Horizon happened. When you say to an asset manager, ‘Hey, I’ve got this new widget, it’ll improve your production by two per cent, do you want to give it a bash,’ the natural, logical response is, ‘I’ll give it a bash when ten other people have been successfully using it for ten years’.”
Dr Perrons also explained that the equity structure of assets also precludes innovation as a competitive advantage.
“The ownership structure for a platform usually looks like a pie chart, where one company might have 30 per cent, another have 20 per cent etc. Very rarely does anyone own the whole thing all by themselves. Say one company invents this fancy new widget, the rest of the pie chart can very reasonably ask ‘what’s that new thing you just put on our billion-dollar investment?’”
“When you tell them, they think that’s a pretty good idea, and they go home and reverse engineer it for themselves. So you just invested a lot of money into research and development, and now everybody in the tribe gets the benefit of that, but you’re the only one still footing the bill.”
Analysing the impact of new technologies
Dr Perrons is one of four editors of a new book that was released by CRC Press in May 2018, Extracting Innovations: Mining, Energy, and Technological Change in the Digital Age.
The book highlights the most contemporary innovations propelling the extractive industries forward while also creating new environmental and social challenges.
It also explores the new technologies that will shape the resources sector in the future and considers the nature of innovation and structural change in the resources sector.
The book has contributions from government, industry and academia.
One of the chapters looks at how innovation and research and development happen in the upstream oil and gas industry, with insights from a global survey Dr Perrons undertook in 2012 for the Society of Petroleum Engineers.
“What is innovation, except the bringing together of knowledge and ideas, and kind of squishing it together into a form that the world hasn’t seen before. I thought what does that process look like? Who’s doing it? Where are they in the world? What companies do they work for? Are they big companies or are they small companies?” Dr Perrons said.
Dr Perrons also examines mining’s big data revolution and concludes with the need for greater innovation and improved uptake of digital technologies within the resources sector.
“Innovation was nice to have, but the truth of the matter was you didn’t really need it to make decent money in the resource sector. You could have a small research and development department and have some kind of dotted line connection from your Chief Technology Officer to your CEO. It wasn’t mission critical. That’s changed,” Dr Perrons said.
“What’s going to be true in the future is that we’re going to need more innovation and more technology. Oil and gas companies are going to have to get savvy really quickly or they’re going to be left behind.”
Dr Perrons also acts as a Non-Executive Board Member for Powered, an Australian energy and resource-focused business development company.
Wade Elofson, founder of Powered, agreed that many oil and gas companies are failing to embrace the potential of new technologies. However in Australia we have seen some of our industry producers seek out and embrace new technologies.
“Accelerating changes to how we work and embracing new technologies are at the heart of the industry’s transformation, with new innovations able to improve productivity, increase efficiency and reduce costs.
“The art to introducing a new innovation is to identify the issues the energy explorers are having and to understand how your new product or service is going to help. As Robert has said, understandably no one wants to introduce risk, aka a new technology, without getting a very clear picture of how the technology will work and how it will ultimately drive down costs.
“At Powered we have introduced several new technologies into the Australian oil and gas market. We have seen firsthand how some new technologies and processes can help reduce the cost of energy production.
“Whether creating new products, new internal processes or entirely new ways of doing business, companies must consistently innovate to survive in today’s ever-changing business climate.”
For more information, contact Wade Elofson, founder of Powered, at welofson@poweredaus.com.au or on 04 7412 8517.
