"2012-14 was very buoyant. 2015 was exceptionally hard and 2016 was painful," and there's little by way of good news until 2018-19, Subsea Expo, being held in Aberdeen this week, was told this morning (1 February).
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Image of Subsea Expo's opening plenary panel. From OE Staff. |
But, it doesn't mean there's not some hope out there, with operators getting to a point where deferred maintenance can no longer by put off, deferred projects start to filter through, and even offshore wind and decommissioning offer opportunities.
But, industry behaviors still need to change and without a change in mindsets, smaller companies with innovative technology will still struggle to get past the gate keepers, delegates at Subsea Expo said.
Apache North Sea Projects Group Manager Mark Richardson said the 2014 crash the industry was already in crisis - little EBITDA was being made despite US$100/bbl oil prices - driven by its own behaviors.
"The UK Continental Shelf business behaviors are the root cause of why we had a failing industry in 2014, before the oil price crash," Richardson said.
He cited a huge reliance on industry processes and practices, centralized functional control, micro-management of in-house teams and in the supply chain, a complete lack of trust between operator and contractor, aversion to risk and fear of failure, with overpaid staff not wanting to put their head above the parapet, and a huge focus on management over leadership.
"Twentieth century management is no longer applicable in the current environment," in which volatility, speed of change, uncertainty, complexity, ambiguity and speed of communication. "In the (wider global, modern) environment we are working in, we need to change our thinking," he said.
Andrew Reid, managing director at Douglas Westwood, said in the near-term, the focus would be on lowest marginal cost, i.e. onshore and shallow water. Floating production vessel projects based on conversions will only wash their face at about $60 oil price and new builds $80/bbl.
Over the course of this year we will see some improvement in activity, with a number of delayed projects coming through the system. Also, more IMR (inspection, repair and maintenance) type work. The rest of the decade is going to be a bit of a flat line.
"It is about hanging on in there. It will come."
"Deepwater is going to remain relatively muted," he said. "We are not going to see the same highs of 2014 over the rest of this decade, although there are a couple of wild cards out there [i.e. Global events that could impact the oil price]. But, he said there are some potential bright spots, such as LNG and offshore wind, he said.
It all depends on oil prices, of course. Reid says the consensus for this year is an oil price at $56/bbl, with estimates ranging between $45-73. An upward trajectory is expected throughout the rest of the decade.
"There is a feeling that the worst is behind us," says Reid. Still, without any significant disruptions to oil supply, Reid doesn't expect much activity to come through until at least 2018.
Douglas Westwood predicts a 21% increase in North American oil industry spending this year - that's against a 41% decline last year. "The International recovery is a bit off yet," he says. "Offshore, particularly deepwater, we are looking at 2019 and beyond."
Some markets are more stable and show a greater sense of health. Offshore IMO (inspection, maintenance and operations) cuts were in made in 2015-16, but there are stable longer term drivers for these, he says. In 2018, we expect many of the back logs and work tasks that have been put off start to materialize, particularly in the UK and Norway. But high MMO costs could influence decommissioning decisions," says Reid. But, decommissioning is also a potential market, certainly from 2019 and beyond, he says. Some US$24 billion spending is expected between 2017 and 2025 in the North Sea, he says, and spending will accelerate from 2030. "The UK will be the biggest market given there is a large amount of complex infrastructure and given its maturity. We are already seeing the Brent field decommissioning and others."
Reid also highlighted offshore renewables as a potential market with global capacity expected to increase 455% up to 2025, with an additional 55 GW.
Neil Gordon, Subsea UK chief executive said: "This new norm is something we are going to have to get used to and embrace."
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