With the oil price hovering around $80 and increasingly positive signs of an increase in activity, Neil Gordon, chief executive of Subsea UK, gives his prognosis of the U.K.’s subsea sector, which is worth £9 billion and supports 50,000 jobs.
It’s been a long, long time coming but the subsea industry is finally starting to feel the positive effects of improved market conditions in oil and gas.
Pockets of the supply chain are still incredibly fragile, and the impact of this prolonged downturn was underlined yesterday by the announcement about The Underwater Center going into administration - a tragedy not only for our industry but also for the U.K.
Overall, however, the sentiment is much more positive and subsea companies are reporting improved trading performance which should lead to better results.
Supply is still out-stripping demand, however, so margins, in many cases, remain stubbornly tight. With a continuing over-supply of assets, particularly vessels, and a still cautious approach to sanctioning major, new projects, this is unlikely to change until 2020/21.
The continued lack of drilling activity is of concern, not just to the subsea sector, but right across the industry with solutions in the U.K. being pushed for by the OGA. Meanwhile, there are some strong signs of activity picking up in other oil and gas provinces around the world, although we’re not going to see an upturn in deepwater projects any time soon.
Generally, activity in IRM (inspection, repair and maintenance) which has thankfully been more steady throughout the downturn, remains much healthier and many companies in the more niche areas of subsea are close to, if not already, at capacity.
But, having dramatically cut back on people and assets, those companies which are busy are becoming uncomfortably stretched. Getting back up to capacity means investing in resources which turns the spotlight back on margins. Having been stripped to the bone during the worst periods of the downturn, the subsea supply chain needs more realistic and sensible conversations around sustainable margins to allow them to invest in the resources and assets required to meet current and future demand.
Amid all the talk of cooperation and collaboration, when we did see a real improvement in relationships and some pretty, radical shifts in culture, there are unfortunately still examples of poor behavior. There’s been a willingness to do things differently, to try new ways of working and explore the adoption of new technology. The painful cost-cutting is hopefully behind us and the focus needs to continue to center on relentlessly pursuing smart solutions and efficiencies, coupled with valued added services. But we still need to talk more frankly about cost versus value.
Our approach to innovation is key to remaining competitive and ensuring that the costs we’ve managed to get down, stay down without any further erosion of margins. Digitalization is a major factor in this, particularly in areas such as remote operations, condition monitoring, sensor technology, visualization, analytics and robotics.
In a nutshell, subsea is about putting things in the underwater environment and making them work. We do this exceptionally well and our ingenuity is world-renowned. We’re already doing some of it digitally but must develop the next wave of digital applications that will help transform our industry. That’s why the focus of our flagship event, Subsea Expo, is firmly on innovation and the future of digitalization next February.
Marginal fields are a case in point. Through the work of NSRI, OGTC and the OGA, the industry now has better data and a clearer understanding of how to develop these small pools of hydrocarbons. Subsea tie-backs to existing infrastructure are the enablers to these fields and we must introduce further efficiencies in their design, installation and operation. Digitalization will be one of the keys to unlocking this potential along with a more joined-up, campaign-based approach to achieve the economies of scale required to profitably exploit these fields.
And this brings us neatly on to skills. With digitalization, there’s a need for different skills sets in the future and that’s why Subsea UK is continuing its work with young people, providing tools and initiatives to help educate and encourage them to bring their digital skills to the subsea sector.
Our Subsea Channel resource for primary science education and STEM Challenge for secondary schools is an example of how we engage the younger generation to take an interest in underwater science. With oil and gas still suffering from a poor reputation among many young people, not helped by the recent downturn, it’s even more imperative that we demonstrate to the next generation that subsea is an industry in its own right; an industry which works across many diverse vertical markets in oil & gas, marine renewables, aquaculture, defence and ocean science.
Against this backdrop, Subsea UK provides leadership to help the sector deliver the growth and high value performance that ensures it makes a valuable contribution to the economy. It’s worth reminding ourselves of the vital role subsea plays in helping achieve MER UK (maximizing economic recovery), the £8 billion in revenues it generates, 55 percent of which are exports, the 50,000 plus jobs and high value manufacturing base it supports.
Subsea UK promotes British underwater ingenuity, innovation and expertise around the world and we are working ever more closely with the relevant organisations on a more joined-up approach to exporting and supporting subsea companies diversify into new geographical markets.
Our oceans, covering 70 percent of the planet, are a source of health and wealth. They contain rich, valuable and diverse resources and the U.K., with such a preeminent capability in subsea technology and engineering, is in an enviable position to exploit this enormous economic values. We’ve demonstrated our success in oil and gas and, more recently, offshore wind. As we look to the future, we need to ensure we have the technology and appropriate skills to continue to grow and create high-value jobs through further diversification in emerging and maturing areas such as wave & tidal energy, deepsea mining and aquaculture.