Energy industry's technical challenges under the spotlight

There are no prizes for coming second. Current thinking would suggest the oil and gas industry operating in the UK Continental Shelf doesn’t agree. Last week’s latest wave of findings from an industry-wide Energy Voice research project served to underline that view as more than two-fifths of firms to respond admitted to not wanting to be the first adopter of technology.

“Oil companies, particularly the ones operating in the UK, have always been extremely timid,” says Dick Winchester, a member of the Scottish Energy Advisory Board and one of four to sit on Scotland’s Independent Expert Commission on Oil and Gas.

“The reason they’re timid is because oil companies don’t exist to provide you and I with plentiful cheap energy – they exist to satisfy the whims of their shareholders. That’s what it’s all about and we shouldn’t misunderstand that.”

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Part state-owned companies such as Statoil – now suffering its own difficulties in light of last week’s announcement that 1,500 permanent jobs are to go by the end of 2016 – have historically invested significant sums in developing their indigenous subsea sector, points out Winchester. As such, oil and gas research and development spend in Norway constitutes four per cent of sales, last July’s expert commission report noted. By comparison, the equivalent figure for the UK sat at 0.3 per cent.

“Funding for R&D in the oil and gas sector, not just from the industry but from government – I’m particularly talking here about Westminster – is appalling; very, very low levels compared with our main competitors, like Norway, France and the States,” adds Winchester, managing director of consultancy firm Pipistrelle Ltd. Industry is “talking a good game” when it comes to use of technology to solve cost and production efficiency issues. The question, which he is clearly skeptical about, is whether they back it up with actions in light of oil prices falling from $115 a barrel to $63 in the space of a year.

“It will be interesting to see whether that does lead to a willingness to take more risks and be more innovative, or whether that might be seen as, ‘we’re in such a bad way, why on earth would we try something new?’” adds senior lecturer and deputy head of the University of Aberdeen’s law school, Dr Abbe Brown.

Her research on technology and intellectual property in the industry, published last April, identified the need for a ‘new culture’ in respect of technology in oil and gas in Scotland, given the difficulties developers are facing in convincing industry to test their technology. Eight new innovation centres, established with support from the Scottish Funding Council, one of which is focused on oil and gas and another on sensor and imaging systems, are specifically intended to bridge the gap between concepts and commercial application.   

The landscape, most notably the oil price, has changed since Brown’s research was conducted. Sir Ian Wood’s sweeping review warned of an “urgent need for industry to focus in depth on the five or six most critical technology challenges”.

A Technology Leadership Board made up of industry, government and research bodies is now up and running in an effort to drive technological innovation within the North Sea. The Oil and Gas Authority, which emerged out of the former Wood Group chairman’s review, promised its support earlier this year as TLB looks to create a ‘focused strategy on technology development’.

Though the TLB hasn’t necessarily brought about a change in culture quite yet, Brown suggests there is certainly a wider recognition of the need to do so. Further regulatory pressure through changes to licenses, for instance, if firms fail to behave in a certain manner, could also be applied.

“A pure market solution has perhaps only worked so much, so maybe there is a call for greater assistance [and a] greater requirement that new technologies are being used,” she adds.

With over 5,500 wells, 400 facilities and 10,000km of pipelines to be wound down over the next 35 years at an estimated cost in excess of £50bn, some expect the decommissioning process to be a catalyst for change.

Decom North Sea, the representative body for the offshore decommissioning industry, together with Oil and Gas UK as well as international engineering consultancy ARUP, is in the process of investigating why it is difficult to get new technologies adopted in oil and gas at the moment, with their final report to be published within the next few months.       

“If you imagine a very simple see-saw and on one side you have an SME with a great new technology that will reduce the cost of decommissioning and on the other an operator 
thinking about risk and reputational damage, we’ve got to balance that see-saw so the operator balances the risk with the benefits of the new idea,” says Decom North Sea chief executive Nigel Jenkins. “At the moment, I don’t think we’re far down the route of understanding how best to do that.”

While oil and gas seek to innovate in order to sustain production, others are planning how they intend to kickstart it. As far as the university sector is concerned, research output continues to increase, says Energy Technology Partnership project manager, Stephen-Mark Williams. ETP, an alliance of 12 universities seen as the largest power and energy research partnership in Europe, has itself been involved in partially funding over 90 PhD projects across the entire energy sector in the last five years as part of an arrangement that sees the university and a company share the cost.

But Scotland’s biggest challenge, according to Williams, may be one that R&D can do very little about: the shortage of major manufacturers in renewable energy actually located here. “They say 90 per cent of innovation takes place in SMEs but they only do that because large companies are there to actually pull that product through,” he says.

“If we don’t have those large companies, if they’re not controlled in Scotland or even indeed in the UK, then what happens is that, despite all our best efforts, all the impact of that R&D is felt more on the continent abroad than it is here.”

Williams identifies a shift in the last few years whereby the Scottish Government has placed a greater emphasis on heat networks that could, for instance, improve large swathes of housing stock. Going forward, micro grids are also likely to be the subject of further discussion given grid limitations. One Strathclyde University spin-out, Smarter Grid Solutions, was behind the UK’s first fully operational smart grid in Orkney two years ago, their technology allowing the addition of 24MW of wind generation to the existing local grid.

Carbon capture and storage will garner further attention too given Shell’s plans for the first full-scale gas CCS project in Peterhead were approved by Aberdeenshire Council last week. That, of course, will not be without its challenges. A document published earlier this month on the Department of Energy and Climate Change (DECC) website confirmed the company’s expectation of “large risk premiums” given CCS is “perceived by insurers to be a combination of new technology”.

However, it is the marine sector that has suffered something of a perfect storm in recent months. An announcement at the tail end of 2014 that a national R&D body for the wave sector would be launched was sandwiched in between Pelamis entering administration and Aquamarine Power announcing plans to significantly downsize. Wave Energy Scotland (WES) has since issued two invitations for applications to fund technology development, one for power take-off systems and another for novel wave energy converters.

Its creation has earned Scottish Government ministers praise from within the sector. Even so, there is clearly a need for urgency. WES anticipates it could take up to ten years until the technical and commercial risks are low enough for the private sector to re-enter. “If it’s as much as ten years then it’s game over for that [wave sector],” says Stuart Brown, chief executive of the FloWave Ocean Energy Research Facility at the University of Edinburgh. Attendance at a recent meeting in Edinburgh of potential applicants for a share of the £10.5m at WES’ disposal gives Brown hope, however, that it will be a much shorter timescale.

Amber Rudd opened FloWave in her first official engagement as parliamentary under-secretary in DECC. Now Secretary of State and with the UK slipping down the Ernst & Young attractiveness register for renewables at the same time as others are offering further incentives, Brown underlines the need for certainty around support.

“The money that is supposed to cluster around initiatives like the [Offshore Renewable Energy] Catapult and so on is choosing to go elsewhere because it appears more attractive. If we can reverse that situation [and] make the UK attractive again then all the other aspects are still there. We’ve still got the resource, we’ve still got the expertise [and] we’ve still got the R&D capability.”

In spite of recent setbacks, Neil Kermode, managing director of the European Marine Energy Centre, believes momentum hasn’t been lost, rather that there has been a “slight slowing down”. “If anything, I think it’s starting to build up again,” he adds, citing two developers recently signed up to test at the Orkney facility. Kermode opts for the word ‘reasonable’ rather than ‘rapid’ when describing progress of technology coming through EMEC, albeit technical challenges – while considerable – are in the order of what other energy sub-sectors have faced previously.

Those challenges are exacerbated by external factors, however. “We’re trying to derive energy on the edges of the country and feed it to the centre and that was not what the grid was designed to do,” adds Kermode. “The grid was designed to take electricity from the pithead where it was burned in large power stations and distribute that power outwards, so we have to reconfigure the grid for a dispersed energy system – that is quite a challenge.

"And we’ve also got to realise it is not just the wires that are not necessarily in the right configuration; often the regulatory controls are also designed for a fossil-based system, rather than a sustainable-based one.” It is vital then, he argues, that proposals contained in the Smith Commission around energy market regulation – requiring Ofgem to consult Holyrood on the content of their energy and strategy policy statement and for their reports to be scrutinised in both parliaments – are acted upon.

Three years ago last week, the then First Minister, Alex Salmond, claimed Scotland was becoming the “Silicon Valley of marine energy”. The last six months or so may beg the question as to whether the former FM spoke too soon. “No, he didn’t speak too soon – it absolutely is possible,” insists Kermode. “But the point is our Silicon Valley has only just started.

"We’ve not been there 20 years or have got the big companies in, but if you look at what’s happening across the world, more is happening here than at any other single site anywhere in the world and on occasions there is as much happening here as the rest of the world put together.

"Are we the centre of activity? Yes, without doubt. But the trouble is the activity level isn’t big enough yet and we need to do much more and do it better.”

Tomorrow: “When you draw the parallel with the aviation world, you don’t design an Airbus A380 on a computer, build it and then start selling tickets to New York” Holyrood speaks to Stuart Brown, chief executive of the FloWave Ocean Energy Research Facility at the University of Edinburgh.