June 2016

Executive viewpoint

Low oil price environment drives efficiencies, collaborative projects
Alasdair Buchanan / Lloyd's Register

This is a crucial time for our industry, balanced precariously between long-term success and failure. The choices that we make in the next few years will determine whether it has a future or not. So, initiatives that nurture technical innovation can no longer be an afterthought. They must be central to any organization’s strategy for sustainable growth and market leadership.

They are central to our growth at Lloyd’s Register (LR), too. Adapting that sort of thinking into what we do as a leading provider of integrity, compliance and specialist risk consulting services, is going to be a very interesting part of how we move forward. We are driving the development of new concepts and technologies through collaborative R&D, and our focus is firmly on innovation. Recent examples include the launch of industry guidance on how unmanned aircraft systems/drones are used onshore and offshore, plus the development of additive manufacturing techniques to bring down costs, while maintaining quality manufacturing.

We are finding ways to help the industry pull costs down radically and do things differently. For example, our collaboration with 16 members of the Danish consortium called OPTION; the €3.9-million project, Optimizing Oil Production by Novel Technology Integration—funded by the Danish InnovationsFonden—is focused on integrating and optimizing reservoir and horizontal well simulation models to enhance oil production and recovery. A 1% increase in oil recovery from Danish fields would represent approximately €8 billion to Denmark’s economy. Imagine taking this concept to other fields.

Lower oil prices, stifled energy prices, stricter emission standards, and the complexities of exploring new energy sources are increasing the technical assurance needs of operating companies. The world of business and technical assurance, safety and integrity has a challenging contribution to make in today’s energy climate. We are beginning to see collaboration emerge across the industry. As the results of our recent global survey (www.lr.org/technologyradar) prove, the real deal with this challenge is how companies must develop an end-to-end response.

They need to develop a comprehensive digital strategy and rethink their business and operating models. It must be about C-level leadership, and focus critically on innovation and differentiation through each business’s operating model. But this strategy must go far beyond the marketing department. It has to be about cross-sector, cross-geography and supply chain connectivity. It must enable continuous engagement with all stakeholders.

Our strategy for growth is continuing in this challenging time. Our new 100,000-ft2 office complex in Aberdeen, UK, is being built to our specifications. We expect to be operational in third-quarter 2017 and will have capacity for up to 900 staff. Despite the challenging market, we are fully committed to supporting both the energy sector in the UK, and worldwide, with the talent available in our offices.

Our vision at LR is to be a leading supporter of engineering-related research, training and education, that make a real difference in improving the safety of modern society’s critical infrastructure. To support this, we promote scientific excellence and act as a catalyst, working with others to achieve maximum impact. Technology is helping to rapidly advance education and training to ensure the availability of the necessary skilled people. Our Lloyd’s Register Foundation plays an important role in meeting the global energy challenges, connecting science, safety and society.

If present conditions hold, then efficiencies have to be looked at without downgrading safety issues. Technology is an enabler, and it should be a constant focus. If you look at the business challenges that we face today, you realize that industry needs to embrace technology faster and sooner, and become smarter at improving ways of operating to remain competitive in today’s tough market. Development and adoption of technology also will require a lot more collaboration, because the cost is significant.

I have been asked many times about where I see the industry in the future. You can answer that question by asking, “What will be the global demand for power?” If there is a consistent demand for more power, there will be demand in the energy sector to deliver a sustainable, robust energy supply through engineering expertise and independent technical assurance. And, collectively, we need to look harder at technology to help solve those issues.

Over the last few years, the turbulent oil and gas landscape has forced industry to hold a mirror to itself and examine what has driven it and what needs to change, to adapt to the current challenges. Cost-cutting has been rampant in the industry, with redundancies announced almost daily and big projects delayed frequently or cancelled entirely. Wherever the industry can save, it is looking to do so. This is likely to continue; 70% of executives surveyed for Technology Radar 2015–16 believe that the oil price will achieve $50–$60/bbl in the next year. It is little surprise, then, that “improving operational efficiency” was identified as the most common driver for investing in innovation; nearly half of respondents said this was their primary reason.

The use of data is also going to change how we do things. But it will mean new ways of working, new collaborations, and how we think about different disciplines. New technologies bring improvements, but many also bring new limitations that require engineers to revisit accepted risk-management techniques, develop their standards, procedures and methodologies, and apply their experience in new ways. Technology is exciting, and we are all just at the start of the development curve for a much leaner, efficient industry. wo-box_blue.gif

About the Authors
Alasdair Buchanan
Lloyd's Register
Alasdair Buchanan was named director of Lloyd’s Register’s energy business in December 2015. Prior to this, in 2012, Mr. Buchanan joined Senergy, which became part of the Lloyd’s Register group in 2013, as the COO and managing director of the company’s Energy Services division. He began his career as an engineer in the early 1980s after graduating from the University of Edinburgh.
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