with Anders J. , Program Coordinator, Steensen, Demo 2000
In past years the Research Council of Norway (RCN) was looking for alternative areas of innovation to take the place of oil and gas as value creation from this industry fell with production decline. To what extent has this strategy been reevaluated in light of last year’s discoveries?
Last year witnessed a significant boost in the investment intensity in Norway’s oil and gas industry. The government oil and gas task force, OG21, consequently released a new strategy document in 2011 which advised an increase in investment from the RCN to 600 million NOK (USD 101 million) per year. This is an increase of 50 percent from the 400 million NOK (USD 68 million) currently invested today.
Although we do not yet know if the government will invest more money in the industry, there is widespread appreciation among the industry players that further innovations are needed for the upcoming challenges. Government spending has traditionally been a major part of R&D spending in Norway and has played the role of encouraging private sector investment in innovation. The RCN would like to boost this system so that as we witness more money flowing into E&P operations on the Norwegian Continental Shelf (NCS) we will see technology investment keeping pace from both public and private sectors.
What role does the Demo 2000 project play in this funding system?
The Demo 2000 project over the years has been a technological success resulting in many new products coming into the Norwegian market. By extension Demo 2000 also contributes to the competitiveness of Norway’s oil and gas innovations worldwide because as long as the product is viable on the NCS, it already qualifies for use in the rest of the world. From Demo 2000’s inception in 1998 the export of Norwegian technology in the oil and gas business has increased from 30 billion NOK (USD 5 billion) to 152 billion NOK (USD 26 billion) today.
Today, Norway represents the largest subsea cluster for the development of new technology around the world. The country is now looking to develop new projects which will decrease emissions. Demo 2000 has therefore been allocating money for the development of more efficient gas turbines with GE. We have also been investing heavily in more efficient drilling, because this is one of the most energy consuming activities offshore. In fact, the project I was just visiting is expected to increase the efficiency of drilling by 40 percent if it proves successful. If the time spent on drilling rigs is reduced by 40% then there will be half the emissions. This technology therefore represents a step change in the drilling process and Demo 2000 is looking at several projects like this.
One concept being promoted in Norway at the moment is the subsea factory with separation, compression and other processes occurring on the seabed. This is a very different method of production compared to the regular platform concept. Norway has designed the first subsea separator for enhanced oil recovery, processing 215 thousand barrels of oil per day. This is the same volume as that from the Statfjord platform but the difference is that the subsea set-up weighs 1700 tons and Statfjord one weighs 1.2 million tons. Going subsea will involve the miniaturization of a lot of the technology ultimately making it cheaper and more efficient.
What would you say were the pillars on which Norway’s innovation in oil and gas will be built over the coming years?
I would highlight environmental technology, drilling and subsea as three key pillars. The OG21 strategy has in fact highlighted four areas for technological development: reservoir optimization with dynamic modeling; drilling and well technology with a lot of technology is currently in development such as extended reach horizontal drilling and flow assurance which has the potential to increase the recovery rate from 46 percent to 50 percent which would create 1200 billion NOK (USD 200 billion). Every additional percent taken from the oil fields is equivalent to 300 billion NOK (USD 50 billion) so this represents huge value creation for Norway.
How does this type of funding contribute to Norway’s competitiveness internationally?
Demo 2000’s main aim is to increase the value of technology for use both on the NCS and internationally. Norway has already demonstrated the applicability of its technology in the Gulf of Mexico and in Canada and there are projects based in Brazil. Norwegian technology will be used to go through the salt layers on the giant Tupi Field in Brazil. Previous projects have concentrated on subsea separation and this technology has been supplied to many arenas from Angola to the Gulf of Mexico. FMC Technologies is an American company but in fact most of its competencies were developed in Norway.
In terms of functioning, the RCN does not select the projects for development; it is just an administrative body. The selection is actually done by the Technical forum which is run by the oil companies like Statoil, Shell, ConocoPhillips, Total, Lundin etc. and supervised by Petoro and the Norwegian Petroleum Directorate, together with representatives from the supplier industry. Technical forum evaluates the applications and ascertain if the technology is better for the NCS or internationally. This keeps the technology relevant to international markets. The main aim of the process is to increase the value of the Norwegian supplier industry whether in the domestic arena or the international one.
What do you see as the main strength of this type of financial model for innovation?
The government through Demo 2000 will offer up 25 percent of project financing, the supplier themselves will contribute 25 percent and the oil companies will contribute the remaining sum. Demo 2000 does not go deep into research, instead we aim to develop and qualify projects for the industry. Its function is therefore the later stage of commercialization.
The main strength of this model is that Norway can select the best and most commercially viable projects, which contribute the maximum value to the oil companies themselves. They are the projects that the oil companies have selected.
Demo 2000 is just one part of the innovation model – the commercialization side. There is also the Petromaks program which has as its objective the promotion of new research and development. The two financing bodies therefore work in tandem throughout the innovative process to make Norwegian competitive on a world stage.
Demo 2000 provides a crucial link in opening up innovation to a wider market. Often technologies are patented and held within an oil company. With this financing model, the technology is owned by the suppliers with support for the government and the oil companies. This creates a genuine cluster model of innovation.
What do you see as the main challenge in Norway keeping its place as an innovative hub in an increasingly competitive R&D environment?
It depends a lot on the amount of money supplied into R&D. This is a challenge for the Norwegian R&D system – there is no tradition for the industry injecting a lot of money into programs for R&D.
In theory, the oil companies can deduct the money they donate to research institutes from their tax bill. When these companies are paying 78 percent tax on their profit, it should really incentivize oil companies to front up money for research. It is simply the lack of a tradition of giving money which freezes investments in R&D.
The challenge now is to convince the oil companies to look for new ideas. The plans of development for the southern part of the continental shelf currently incorporate very little money for the development of technology. Most of the breakthrough technology has been based on large projects and the costs have been easily covered by the projects. When it comes to small projects, the companies do not have much money dedicated to develop technology. It is harder to find money for innovation.
However I am optimistic that if research continues on the subsea factory on the Johan Svedrup field, the risk will be low and the gain for the supply industry will be enormous. There is still plenty of innovation possible on some of Norway’s larger fields.
What is your central ambition as head of Demo 2000?
My one ambition would be to triple the number of applications as this would create more quality projects. This will bring the technology forward in environmental control systems, subsea factory and so on. I am realistic about this ambition. In 2009 there was an extra 50 million NOK (USD 8 million) going into new technology on the NCS and this encouraged applications. With more money invested, the process should become easier. Choosing the best projects depends on having a decent number of applications. I would encourage more companies to get involved in the process. Ultimately it is not very hard to write a ten page application.
Demo 2000 would like to be better known as an institution so that we have the applications we need. We had a meeting in June where Siemens, GE, FMC technologies all received money to develop new equipment. We are therefore very open for international applications.