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Interview

Neil Gordon, Chief Executive, Subsea UK

The chief executive of Subsea UK discusses the potential of the country’s subsea industry in the current economic and political context, and talks about the ways his association is trying to help its members add value to their offerings, expand their international footprints, and remain one step ahead of the global competition.

 

Given that production on the UK Continental Shelf is declining, how do you assess the current potential for the subsea industry in the UK today?

Although there is a decline in production on the UK Continental Shelf (UKCS), based on our current technologies, we can expect a further 40-50 years of production. If we go back 30 years, the oil and gas was supposed to be gone in 20-25 years, but here we are today talking about another 40 years. In the future, so many different technologies will come into play, such as improved seismic and overall understanding of the reservoirs. Currently, we are only at a total average recovery rate of between 30 and 35 percent on the UKCS: we have only squeezed the sponge so far, and we need to look at how to squeeze it further. There are significant opportunities for UK companies in this situation: if we can create the next level of subsea technologies to extend that recovery rate, we can export them around the world.

In order for this to become a reality, several important changes need to happen. The Government needs to create the right fiscal incentives for operators to remain at brownfields, rather than abandoning them and moving on to other opportunities, possibly in other countries. Not only will this produce more oil and bring more into the national purse, it will also spur the development of the needed technologies. It’s a very positive circle to create.

Over the last few years, this environment has not been in place in the UK. When the government announced it would increase taxes on the oil and gas sector a few years ago, it jeopardised quite a lot of planned investments. Now, the new outlook is that the government needs to create long-term sustainability in the oil and gas industry. This is an economic, rather than a political realization. Compared to other oil and gas hubs around the world, the UK has the opportunity to be one of the most stable producing countries in the world from a political, economic and security standpoint. And creating the right atmosphere for operators in turn affects the supply chain: wherever big operators invest, the supply chain will follow.

How important is the subsea sector for the UK economy today?

The last survey we conducted on the global subsea oil and gas market was conducted in 2010, and found that the global market was estimated at GBP 18.9 billion. From this, the UK was bringing in GBP 5.9 billion, which equated to about a third of the global market. We carried out the same exercise and used the same methodology this year and found that today the market is estimated to be worth around GBP 20 billion, with the UK responsible for GBP 8.9 billion of that, which is significant. A lot of this is domestic work being carried out in the North Sea, but also internationally, and the companies contributing come predominantly from the northeast of Scotland, simply because of the presence of the industry here, but there are companies contributing from all over the country. Products or services exported from the UK three years ago was worth GBP 3.3 billion in 2010, and that’s grown to GBP 4.3 billion. Sixty-six thousand people are currently working in the sector, and we are looking at 10,000 plus coming into the sector to continue the growth that we are seeing.

What work are you carrying out in order to help UK subsea-focused companies expand their businesses and look for opportunities abroad?

Part of our work at Subsea UK is to help other countries develop their subsea industries and many ask for our help because they know that this part of the world has the best subsea supply chain. I am speaking with various bodies and organisations in Brazil, offering them advice on how to develop their subsea supply chain capability. Other parts of the world are looking to us to find ways to emulate our supply chain. They also look towards Norway as a model of a technology driven and supportive national oil company, but the supply chain we have in the UK is the strongest for subsea. Malaysia is another area where we are working closely with local organisations and have developed MoUs (Memorandums of Understanding). We have an event we run every year in Malaysia, and alongside Petronas and MRPC and other organizations, we help to forge relationships with both large and small companies, assisting them to partner with UK companies and help them develop in that area, whether it is through direct export or a service or manufacturing base.

The success of the UK’s subsea supply chain should be replicated in other parts of the world, because the results are positive for everyone. The supply chain is not just regional; it is truly international as a big field may be serviced from all over the world. A tree may be manufactured in the US, a control system in Aberdeen and the flexibles from another market entirely. The supply chain in the long-term is for the operating expenditures of a project that come after the capital expenditures involved in construction; maintenance needs to be much more local, and that is where there is an opportunity for companies in the long-term. What is happening in Australia at the moment is five or six big subsea projects running simultaneously, with extremely high capital expenditure, and there will be a lot of activity from certain companies in the construction stage. The long-term, local businesses will be able to find space to work once the projects reach a more operational stage.

Subsea UK expects the subsea sector to double in size over the next five years, and for UK-based companies this means great opportunities for growth in other parts of the world where deepwater projects are underway, namely Brazil, the Gulf of Mexico, Africa, Australia and Asia. There is a big challenge for us ahead as an organization to retain 45 percent share of the global market, but what we have to focus on is helping companies to capture some of that market, and looking at the ways they can export or internationalize their businesses.

In the past, you have mentioned that you are counting on public support for your sector. What is it you need?

Norway and Brazil are excellent examples of countries where there are a number of incentives and publicly funded technology development areas. We are now seeing some change in attitude in the UK; we now have both the Scottish and UK oil and gas strategy documents, and elements of them involve the stimulation of innovation and technology development. We are speaking with government, particularly aimed at the Technology Strategy Board (TSB), which is part of the country’s business and innovation strategy, and although as an industry, we haven’t received any financial support from them for a number of years, there used to be quite a large fund for oil and gas in previous years. Part of what we are pushing for is to try and get the TSB to start investing more in oil and gas, and particularly subsea.

The oil and gas industry is starting once again to have the ear of the government, following the realization that this industry is valuable to the country and it should be nurtured and stimulated in the long-term. The UK has a fantastic opportunity to capitalize on improving its recovery rates and supporting the new technologies that that brings with it. The market conditions have to be correct or there is always a chance that operators will look to invest somewhere else.

You have also mentioned in the past about the need for diversification in the subsea sector. Which sectors should your member companies be looking at?

A good example is offshore renewables, in particular wind farms, which are now moving to deeper waters. These require a great deal of subsea construction, inspection and cabling. Offshore renewable and subsea can both learn from one another, particularly in terms of technological developments.

Defence is another area where there are overlaps: sonar and ROVs have military applications, as do submarine cabling, connectors and navigation. There are so many different technologies that we use between seabed and surface that have great opportunities for companies to go into other sectors.

One of the interesting things I am looking at now is the overlap between challenging deepwater environments and space; the challenge of repairing or replacing faulty equipment at 3000m below sea level and in space have many similarities. There is definitely an opportunity to share best practices and technologies related to reliability, resilience, longevity, and back-up redundancy systems. We want to take a look at standards the space industry is using today, and start talking about the technologies we are using, because we are both putting technology in harsh environments that presents huge challenges for intervention methods

 

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