Low prices predicted to spur 1980s-style oil tech boom

R&D budgets have not been spared the knife oil companies are taking to spending, but experts believe technologies such as automation and digital will ultimately benefit from sub-$40-per-barrel prices.

“It is easy for everybody to be a genius at $100/bbl,” Nathan Meehan, President of the Society of Petroleum Engineers and a senior advisor to Baker Hughes, told Upstream Intelligence.

“When oil prices and rig counts are high, asset teams scramble to keep up with activity, so there is little time or inclination to innovate.”

On the other hand, the puzzle of needing to recover more oil at lower cost tends to inspire new ideas. Meehan pointed out that some of the biggest leaps in technology were made in the second half of the 1980s when oil prices ranged from $25/bbl to $45/bbl in inflation-adjusted terms. This was when the industry commercialized horizontal drilling, invented geosteering and developed deepwater drilling technologies.

More than three-quarters of oil and gas executives acknowledged in a recent Lloyd’s Register survey that oil price instability had led them to slow down or halt most innovation initiatives. However, certain types of projects seem to be weathering the storm better than others.

The low oil prices of the late-1980s spurred advances in deepwater drilling technologies (Image credit: BOEM)

Wanted: Low cost, fast ROI technologies

According to the Lloyd’s Register report, upstream oil and gas companies are fast-tracking projects which have a shorter period to maturity, while bigger, longer-term initiatives are being put on hold.

Companies that have already developed effective technologies are continuing to fine-tune them with further enhancements, Meehan noted.

“The kind of innovation that continues is if a company developed a tool to drill at 15,000psi and now needs it to work at 20,000psi, or it worked at 300 degrees and it needs to work at 400 degrees,” he said.

Customer requests continue to provide the impetus for development of new technologies. Service companies regularly discuss with oil companies what kind of technologies and improvements they need to progress a well or field. What most development work has in common is the focus on cutting costs and boosting efficiency in the short- to medium- term.

Philip Andrews-Speed, Principal Fellow at the National University of Singapore’s Energy Studies Institute, listed automation and recovery enhancement as two fields for which innovation has the greatest potential to fulfil cost-cutting and efficiency requirements for offshore oil production.

“Automation would reduce manpower costs and recovery enhancement would increase revenue from existing assets,” he explained to Upstream Intelligence.

BP, for example, is working on water-flood, gas-based, enhanced oil recovery (EOR) – which is price-competitive in comparison to thermal EOR. In the North Sea, smaller operators are very interested in new processes to decommission wells which would not require a drilling rig.

Data collection and analytics is another key area of development and is almost certain to see more investment, according to Andrews-Speed.

The oil and gas industry is already a vigilant collector of data, Lloyd’s Register pointed out. Sensors in subsea and remote environments have been used for more than a decade to generate large volumes of data about deposits, physical infrastructure and flows. As more and better sensors are attached to the equipment, data volumes will become considerably larger. However, this data generally does not undergo proper analysis. Lloyd’s Register concluded that companies that are good at analyzing data are also better at conceptualizing and developing new technologies than peers who are poor at analyzing data.

Putting their heads together

Given the financial imperative, collaboration will play an important role in future technology development. Precedents are being set by the likes of Pumps & Pipes, a Houston-based association where medical professionals, NASA, the oil industry and the academic community share knowledge and ideas about pumping liquid in different systems.

“We have definitely used some ideas which NASA implemented on space shuttles,” said Meehan. “We have also collaborated with cardiac doctors in Houston and we can feed off one another’s ideas for valves and pumps.”

In another example, Statoil has worked together with Baker Hughes on developing steerable drilling liner technology and GE and Statoil are developing techniques to reduce natural-gas flaring.

Not all companies are in as strong a position to finance development. “Because of low oil prices some companies, particularly smaller ones and those focused on exploration, are under so much pressure that they are mainly focusing on survival,” said one industry executive who asked not to be named.

But while dropping or postponing a project today may help the bottom line in the short term, it will also impair a company’s ability to find and exploit new reserves of oil and gas tomorrow.

As Lloyd’s Register noted: “Downturn or no, the reality remains that there is no more ‘easy oil’ – future reserves will be harder to reach and ever more expensive to get out of the ground.”

By Vanya Dragomanovich