High oil prices are helping boost spending, and Norway’s subsea industry has been quick to provide full system packages to those looking to spend—at home and broad.
High oil prices, a growing level of subsea infrastructure, and a drive to increase recovery rates are all helping to boost business for Norwegian businesses, at home and abroad.
But, there are areas of the industry that are doing better than others despite the sustained high oil prices and investment, says Deloitte Norway senior manager Stein Bjoernstad.
While the emerging aftermarket segment of the subsea industry is seeing growth, smaller technology firms are not finding it any easier to get their ideas tried and adopted, he says.
“It is a buoyant area,” said Bjoernstad and the growth is likely to continue. Many new fields are smaller and do not economically justify a platform, and developments are going deeper and further from infrastructure. “Also, as older fields are starting to close down or produce less, the relative share of platform wells will reduce,” he said.
In terms of market segments, Bjoernstad said that the core business of supplying hardware was a healthy market, but this was in terms of volume and not necessarily profits. The companies with good margins were those able to provide more than just hardware.
“If you look at the companies servicing equipment and trying to get a little extra oil and gas out of each well, they are the ones growing the most and increasingly what has been a localized market is becoming much more global,” he said.
“It is the work around making sure wells are plugged, anything involving flow assurance, improving output, better control systems to optimize production, anything that makes existing wells produce more. This is also quite a new market, it is not yet commoditized.”
The growth is not just within Norway, said Bjoernstad. Early on, Norwegian subsea companies became EPC (engineering, procurement, and commissioning) contractors, taking full-system responsibilities. This was driven by the Norwegian operators ordering full subsea systems.
“That approach to procurement has become more common in the oil industry and especially as it moves in to more unfamiliar territory,” he said. “Oil companies have been used to one way of working, in Norway, Britain, the Gulf of Mexico.“
“But when they move to say Africa— Nigeria or Angola—where there is political risk, they want a simplified way of ordering subsea systems, which is why Norway is not as strong in the UK Continental Shelf or Gulf of Mexico, but it is outside those areas, in Africa and Asia, and places like Vietnam.
“This is probably because operators that have moved into those areas found it difficult to find trusted suppliers offering the EPC approach, which the Norwegians are very good at.
“So it is not really just a Norwegian subsea market anymore,” said Bjoernstad. “Norwegian companies are supplying into Africa and Asia, and they are experiencing growth.”
However, despite the high oil prices fueling sustained high investment levels, not everyone is benefitting from the spending.
Historically, he said, investment in new technology in Norway has been when oil prices are low.
“In Norway, the breakthrough in the subsea industry was very much after 1986 when oil prices were very low. That was really when Norwegian companies went to subsea technologies.
“Oil prices are now high, but risk aversion is similarly high too, which makes it difficult if someone has a new technology or something that is not yet market tested,” said Bjoernstad.
“Some of the most innovative companies probably feel frustrated because oil companies want something tried and tested.”
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