Interview with Hari Vamadevan UK Regional Manager

DNV GL has released its ninth global industry outlook for 2019, delivering a surge in confidence for a second consecutive year. The report confirms that confidence in the outlook for the UK oil and gas sector is on a high, almost quadrupling in two years. Key findings highlight that cost-efficiency is no longer a top priority, with factors such as digitalisation cited as a major consideration for expenditure this year. The research also demonstrates a positive attitude towards alternative energies as the industry strives for a more carbon-friendly future. UK Regional Manager, Hari Vamadevan gives an insight into the factors that have contributed to these results, sharing his predictions for the year ahead.

Confidence in the outlook for the UK oil and gas sector has almost quadrupled in two years, (from18% to 71%.) What do you think has contributed to this substantial growth?

I think there’s two main factors here. One is that you’re seeing a very resilient oil and gas sector and that’s because of the steps taken in the last four years, in terms of consolidation and cost reduction in the industry are bearing fruit. This enables the industry to be much more competitive at lower oil and gas prices. The second factor is that oil prices have risen. Although there was some volatility towards the end of last year, it was volatility at much higher prices. The overall increase in the average price of oil and gas in 2018 is also a big contributor to the demonstration of confidence. So, it’s a combination of a more resilient industry, plus a higher oil price, quadrupling the confidence in two years. I wouldn’t say it’s universal, within the supply chain there are still pockets of overcapacity. Therefore, we do need a little more growth for that over-capacity to be absorbed.

68% of senior professionals in the sector expect their organisation to increase or maintain capital expenditure in 2019, what does this mean for the industry? Which areas can we expect to see companies investing in?

From an operator’s perspective, that confidence can be seen in that there are more developments underway. Two examples of that would be the Shell Penguins project and Hurricane’s Lancaster project. More projects are at the planning stage. You see that with Equinor’s Rosebank project which they’ve just acquired from Chevron recently and Premier’s Sea Lion. There are much higher levels of investment, right across existing platforms and floaters offshore to extend their field life. The higher price of oil is driving investment through.

Digitalisation has been a big focus for the oil and gas industry in the last year. The report states that 61% of people expect to spend more on digitalisation in 2019. Why do you think this is continuing to have such an impact?

It continues to have a significant impact because the industry is always striving for cost competitiveness and improvements in efficiency. In some ways, we have completed the easier actions of consolidation and cost reduction. Now, we’ve got to look at cleverer ways of being more efficient. Digitalisation is receiving a huge amount of attention in the industry, mainly around big data and data analytics. We are already starting to see some results. Examples would be remote operations, real time decision making and lots of new data apps and solutions that involve machine learning and artificial intelligence. That’s how, as an industry, we’re going to get more efficiency without just having to cut cost.

39% will focus this year on adapting to a less carbon-intensive energy mix. What steps do you think the industry can take towards this?

This result, in our survey, is demonstrating the maturity of the oil and gas industry and how it understands its responsibility. The energy transition is well underway and you’re seeing that in more alternative energies being introduced into the oil and gas operators existing portfolios. DNV GL has mirrored this development. You’re seeing acceptance of the electrification of the transport sector and the impact that will have on oil but where it’s most obvious is in the push for more gas in the energy mix. You’re seeing a lot of the industry focus on gas. The industry is really being recognised, in its role in decarbonisation. Gas will be a transition fuel, one which we must decarbonise. That’s very much a challenge to the onshore gas sector.

I would like to talk about hydrogen. There’s a lot of activity within the UK between the government, the regulator and industry on how to deliver that low carbon energy mix at an affordable cost.

You’ve got some great examples, such as Aberdeen City Council investing in transportation and housing estates using hydrogen. Companies are collaborating more on this issue. DNV GL and gas grid companies like Cadent, National Grid, Scotia Gas Networks and Northern Gas Networks are working together to examine and prepare the gas network to see if it can accommodate hydrogen. There’s a recognition that we need to do more within the energy transition to decarbonise gas and part of that is looking at Hydrogen for heat in the UK.

The figures show that cost efficiency has become less of a priority for the industry than in previous years. Has increased confidence helped change the attitude towards this? What do you think will be the key priority now?

I think that depends on where you are in the supply chain. There are still plenty of parts of the supply chain that are feeling that push to be cost competitive but if you are an operator, you’re looking at growth, extending your field life, more projects and developments. So, from that perspective, more focus on growth means that’s where the priorities lie. Although that percentage came from DNV GL research, I still think the industry will be quite careful to balance outgrowth with improved efficiency to ensure the industry remains cost competitive. It’s inevitable there is more focus on growth from previous years where the story has almost been exclusively cost driven.

Looking ahead, are there any key patterns emerging within this research that gives an insight into the future and how companies can sustain this growth?

Looking forward, what you’re seeing is a very resilient oil and gas industry that has increased confidence in the future because of efficiencies and smarter ways of working. It is an industry that understands its responsibility towards cost-effectiveness, innovation and ultimately the decarbonising of gas.