Innovation in oil and gas – industry buzzword or call to action?

In the midst of one of the worst industry downturns on record, oil and gas companies are aggressively implementing cost saving measures in a bid to protect margins. Over the last 24 months, innovation has become a watchword for the sector as companies strive to manage cost, while maintaining the same standard of operations. But despite some headline projects, innovation seems to be missing in more everyday operations. So why is this the case?

The innovation issue

The Oxford Dictionary defines innovation as “the process by which we make changes in something established, especially by introducing new methods, ideas, or products.” Easy to say, much harder to do – especially with limited resources, time and people. When there are fewer people in an organisation, who each have more work to do, but less time to do it in – it’s more straightforward to stick with the status quo to get the job done. Not because it’s the most cost-effective or because it generates the most value, but because it’s the quickest route to outcome with limited resources.

And, to add another layer of complexity to an already complex situation, oil and gas operators are understandably risk averse at a time of extreme uncertainty. Thus any kind of transformational change is wishful thinking in day-to-day operations.

The result is that the industry is using innovation as a buzzword rather than a call to action.

But why is this happening? McKinsey and Company notes that oil and gas companies behave in this way because the functions they have in place today were developed during a period of unprecedented growth. This growth enabled them to build large, complex teams with centralised functions to tackle technical challenges, manage operational risks, and deploy talent across the world as needed. But this journey has led to large, over-complex organisations, which are slow to change in today’s environment. It’s like trying to turn a large ship – it takes time and it’s not always smooth sailing.

And this complexity is not only creating significant cost pressures but, more importantly, is the reason that organisations are finding it hard to embed innovation into their daily operations.

Innovation – but not as we know it

The good news is that some organisations are beginning to embrace innovation in an entirely different way. Not by adopting untried, untested technologies, but by changing the dynamic of their relationship with the supply chain from one that’s customer-supplier based to one based on partnership. After all, smart suppliers are genuine specialists in their area and have a wealth of experience at their fingertips, which is often untapped by the customer. And the results speak for themselves. By taking a collaborative approach to procurement some companies are operating successfully with less than a third of the resources it would typically take to execute a project.

Manufacturer-supplier PJ Valves (PJV) has been doing just that. During the scoping phase for a recent FPSO project, PJV mandated that in order to propose the best possible solution, it needed to understand the reasons behind the client’s specification for valves. By truly partnering with its client, instead of supplying what the client requested, no questions asked, PJV had the opportunity to leverage its extensive knowledge and experience to supply a solution that included changing the material of origin specification. This resulted in significant savings of around US$1.5 million for the client, without compromising on the quality of the product. This may not seem like the innovation buzzword that is often bandied about – but these small changes to the way suppliers and operators are engaging with each other have the potential to make a big difference to how the sector operates. The downturn is highlighting the vital and strategic role that the supply chain can play in helping clients realise significant savings, without compromising on safety, performance or quality.

The missing piece of the puzzle

But despite these small but important positive steps, what’s still missing is an industry-wide approach. A fundamental problem with the oil and gas industry is that each operator has its own way of doing things, which means they lose out on commodity-type products in favour of a specialised, individual standard.

For example, each operator has its own approach for selecting valves, and then bolts on project-specific and commercial requirements. This is in direct contrast to the LNG sector which is much more standardised in its approach due to the fact that the gas has already been treated and its composition is relatively consistent. For cryogenic LNG projects, the requirements don’t change – valves are always going to be made from stainless steel, cryogenically tested and require a cryogenic extension. And what’s more, commercial decisions around design life for each project are relatively standard. It doesn’t move out of that realm in regards to project decisions.

Produced oil and gas is more variable, but a collaborative approach, where operators agree on certain standard equipment specifications, can have a significant, positive impact on operations. If organisations can standardise project requirements, without losing the ability to adapt to the unique demands of different applications, the valve-based model in LNG could become more typical. This would reduce the cost of equipment, without compromising quality or performance.

Innovation doesn’t have to come in the form of a shiny new equipment or technology. It can be as simple as taking a fresh view on how companies engage with the supply chain. In fact, it’s arguably this kind of innovation that’s more feasible and beneficial in a low oil price environment.

More than just a passing phrase

The oil and gas industry is in a conundrum. To innovate or not to innovate? That is not the question. Instead the industry should be asking itself how it can make innovation a reality, rather than just a passing phrase thrown into a press release or a presentation.

After all, at its core, innovation is about disruption. The oil and gas industry is currently going through one of the most disruptive period of its existence. So, what harm can a little more positive disruption from innovation do?

Perhaps the upturn is on the horizon – some certainly think so – but for the time being, US$50 oil remains the norm. For innovation to become more than a buzzword, a collaborative, industry-wide approach will be key.

Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/09122016/innovation-in-oil-and-gas-industry-buzzword-or-call-to-action/