Astute at Making Global Connections, UK Subsea Supply Chain is Strong
07 February 2011A decade or so ago, a question mark hung over the sustainability of the subsea capability in and around Aberdeen. However, the creation of Subsea UK, coupled with improving fortunes for the UK oil & gas supply chain, especially on the international circuit, changed all that.
Aberdeen and especially Surf City (aka Westhill), are home to a remarkable concentration of subsea maritime energy capabilities. So the theme of Subsea 2011 - global connections - would appear apposite.
But what are the realities? Is the sector as robust as we're led to believe and what are the big issues?
Subsea UK's CEO, Alistair Birnie, told Energy that nothing could be regarded as a given and that, just when things appeared to be settled, along came another challenge.
"Three or four years ago this sector reached a crossroads; this time to do with local content internationally," said Birnie.
"Though the global market was growing for our members, the issue became how could the UK retain market share? And yet we have grown our share over the last three years, in spite of this issue."
Birnie said that, while the domestic market was in reasonable shape, margins remain under constant pressure, so it is essential for UK firms to cultivate overseas markets.
He was especially complementary of subsea small fry - the SMEs - in that many had managed to avoid being trapped in a tight-margin vice.
"They have not sat around and moaned and groaned like their counterparts in other industries," he said. "They have got off their backsides, they're using global connections, they're getting on to planes and they're going out around the world winning business. That's brilliant. But there is this much greater expectation, on the part of national oil companies (NOCs) and governments, that as much content is kept in-country as possible. So that's a challenge to the entire supply chain.
"If you look at what's happening in Angola with Sonangol, for example, they are very active in making their own decisions as to who they want and how they want services delivered in-country. Brazil is an excellent example, too.
"So we have to ensure that what we're offering the world market is compatible with the indigenous content expectations - now and in the future.
"More and more, that means that we will have to accept that manufacturing may not be done in the UK, which it still is to a large extent. Companies will have to concentrate on providing services that create significant value for the clients; which means continuing to develop for the long term that knowledge base that has served them so well until now.
"But don't forget, knowledge too can be created elsewhere. This is where staying ahead of the game and the competition with yet more innovation will be so important."
That said, Birnie does not think that the UK can simply turn protectionist and guard its own patch. His view is that the current open-door policy should prevail.
"In any case, the global subsea market has grown and we've grown with that market," said Birnie.
He agreed that recent consolidations, such as the marriage of Acergy and Subsea 7, appeared to contradict this, as mergers and takeovers are traditionally driven by hard times.
But Birnie said that some consolidation could be good, partly because it could help reduce the level of cut-throat competition among peers.
"Yes, that might pose problems for client oil companies, nonetheless, I believe it can help with overall market stability.
"Too many competitors can destabilise a market to the point that it collapses, and they never get into a position where they can invest for the long term. Consolidation amounts to self-regulation in a free market."
Birnie insisted that, while the big business road is littered with failed mergers and takeovers, by and large they seemed to work in upstream oil & gas.
"Look at Aker Solutions (previously Aker Kvaerner), when Aker and Kvaerner merged, Aker brought real energy to the table. Whilst it still has some way to go in terms of structuring to meet market needs long term, Aker Solutions has made progress. I'm not sure that Kvaerner would have survived had the merger with Aker not taken place.
"Mergers can breathe new life, though I admit there are other mergers where the wheels have fallen off."
Despite perceived threats from protectionism/nationalisations, what else might threaten the UK's current subsea superiority? The skills issue perhaps? After all, there has been endless talk over the past decade that experience has been walking out the door, with a dearth of fresh blood being drawn in and trained up to suitable standards.
Birnie: "We've been a net exporter of people for the last 15-20 years. Go to Australia and even Brazil and you will find Brits embedded, but a lot of people have come into the sector.
Where else in the world do you get this kind of opportunity to become involved with so many cutting-edge technologies? It's highly attractive.
"The UK, Aberdeen especially, is an ideal centre for developing individuals to a far higher level than might be possible in other locations.
"This is a tough, demanding industry, but by heavens it develops individuals capable of being highly successful. The UK seems to have captured that essence; there are lots of great people coming up through the ranks of this industry - the next generation of subsea leaders.
"There are plenty of really good lieutenants who are already in junior leadership roles and will come through as the seniors of tomorrow.
"Some 30 years ago when I came into this industry, the then leadership was moaning that all the talent would be lost. But another generation has come in with different ideas and who do things in a different way - not quite such a high profile perhaps, but they're here. This gives the UK a strong edge internationally."
Even on the domestic front, Birnie reckons there is now plenty to attract new talent into the subsea side of the oil & gas industry, not forgetting maritime renewables.
"Look, I'm aware of more than 30 platforms that will be needed over the next several years. I got shouted at by quite a number of interests, including the UK Government, for saying that, based on the P50 reserves estimate, there will be a need for at least 40 new offshore facilities/structures.
"They asked me what I was on. Government needs to understand what's actually going on; the second thing is that those who would have us go bust need to wake up to reality. It's simply not going to happen.
"We're not going to allow it to happen in any case. The resource is out there to be exploited and this industry will go out after it, as Malcolm Webb of Oil & Gas UK also stressed very recently.
"We should be going after such a prize and we are. And the nation should be very proud of the offshore industry that we have. That industry creates massive wealth for Britain and a lot of tax revenues for the Treasury.
"Of course, renewables may be required to save the planet, but I see offshore oil & gas as being a very good business and it supports a lot of jobs. That must not be killed off on the basis of a whim.
"For Scotland as a nation, for the UK, we must ensure that we remain competitive with what we have - the oil & gas industry and especially its supply chain - and yet also accommodate the renewables market, the potential for which is huge, if it can be made cost competitive.
"Around 25-30% of current costs need to be stripped out of offshore wind to make it commercially viable medium to long term. But that will only be achieved sensibly through wise investment; not price cutting, because that will turn off the oil & gas supply chain.
"We're not an industry that's looking for things to fill its order book. We're an industry that has experienced healthy growth and will continue to do so."
Despite his enthusiasm for renewables as a complementary business opportunity for the UK's subsea-related supply chain, his view is that market opportunities are quite limited in some respects: cable supply and laying; design and fabrication of structures; installation and operations support.
Not every company in subsea oil & gas will be interested or willing to become involved in renewables.
Birnie said too, as he has said on many occasions over the past couple of years or so, that the renewables industry must learn from the oil & gas experience, and exploit it.
"However, to strip out the kind of costs I'm talking about, you don't sit down with a blank sheet of paper and a bunch of engineers fresh out of university. But, currently, that's what's happening.
"You need to engage with an industry that has already been there and which has learned many lessons along the way. But to be fair, some power companies are doing this, look at Scottish & Southern Energy, which is making a point of engaging contractors from the offshore industry to work the issues and solve the problems."
Birnie agreed that the maritime renewables sector needs to pay more attention to the North Sea oil & gas experience.
And he agreed that there are going to bad experiences that will serve to check some of the overconfidence being shown in some parts of the market, particularly as power companies go into deeper water.
"It's a very different game," said Birnie. "I think there's a gross underestimation of the amount of technology qualification work that will have to be done for the next generation of turbines. The Aberdeen area will of course have its deployment centre to test that. Renewables companies keep talking about project consents in two to three years' time. They must use the space they have to qualify the technology they're planning on using."
As for the vexed issue of safety, where Energy has in the past been lambasted by Renewable UK, Birnie said that there really was a need to avoid reinventing the wheel. Learn from the oil & gas industry, learn from IMCA (International Marine Contractors Association) and agree to a common standard.
"The power generation companies are at least acknowledging that they have a significant issue regarding safety. Which brings me to the point that everybody has a responsibility but nobody owns safety - we all have to make sure we do our bit. Once people try to own safety, that creates a major problem, as it blocks open and honest dialogue.
"At least we're now seeing the idea of the safety case being considered as an option in renewables - different to the oil & gas industry and yet the same.
"However, the Health & Safety Executive (HSE) has stood back a bit on renewables, though they are becoming more interested and were at last year's Scottish Renewables annual conference.
"But I think even the HSE struggles to grasp the fact that we have a perfectly good safety regime for the oil & gas industry that can perhaps be modified to suit offshore renewables. Why reinvent the wheel when it's not necessary?
"It's disturbing that some large European contractors seem to think that, because they have a safety system that's been created for a factory, it's also transportable offshore. Dream on buddies, you're not even on the first page let alone in the game with a suggestion like that."