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Study signals highest innovation spend since 2014

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Kenneth Vareide Kenneth Vareide
Digital Innovation Director, DNV GL - Oil & Gas
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Study signals highest innovation spend since 2014
Demand-led research, development and innovation are key to adapting to market changes and building long-term competitive advantage
  • More than a third of oil and gas professionals surveyed by DNV GL expect their companies to boost R&D and innovation in 2018

  • Digitalization and cyber security top the targets for this spend

  • Increased focus on digital is linked to seeking more cost efficiency

  • Demand-led innovation is key to addressing longer-term market threats and opportunities in the energy transition

Research published by DNV GL reveals an imminent turnaround in oil and gas industry spending on research and development (R&D) and innovation after three years of cuts and freezes. The findings come as rebounding industry confidence aligns with a firm intent to seek new ways to embed cost efficiencies into projects and operations for the long term. 

More than a third (36%) of the 800-plus senior oil and gas professionals surveyed for the DNV GL report Confidence and Control: the outlook for the oil and gas industry in 2018 expect their organizations to spend more on R&D and innovation in 2018. 

This is the highest such proportion in four years (figure 1 ), a marked rebound in companies’ appetite to invest in this way.  

For some, such investment is urgently needed. Nearly a fifth of respondents (19%) said that lack of investment in innovation is a key barrier to growth in 2018. This is on a par with oversupply of oil and gas (19%), reduced exploration activity (19%), operating costs (18%), and competitive pressure (22%); only the oil price (37%) is cited more in this regard.

Figure 1: Respondents’ expectations for changes to their companies’ R&D and innovation spending, by year
Figure 1: Respondents’ expectations for changes to their companies’ R&D and innovation spending, by year

Priorities for oil and gas innovation 

Digitalization (37%) and cyber security (36%) are the leading targets for investment on R&D and innovation in 2018, according to DNV GL’s survey respondents (figure 2 ). Over half (54%) intend to boost spending on digitalization in 2018 – up from 39% the previous year. More than three-quarters (76%) say they will invest in digitalization over the next five years. 

Figure 2: Top priorities for R&D and innovation in 2018
Figure 2: Top priorities for R&D and innovation in 2018

There are striking examples of digitalization’s potential throughout the oil and gas value chain. The International Energy Agency (IEA) estimates that digital technologies could decrease upstream production costs by 10–20% with more advanced use of sensors, seismic data, and reservoir modelling, for example. It also concludes that digitalization could increase technically-recoverable oil and gas resources by 5% globally. 

Digitalization could potentially create around USD1 trillion of value for oil and gas firms, a report published for the World Economic Forum (WEF) has estimated. WEF breaks this figure down to USD580–600 billion (bn) for upstream companies, around USD100bn to midstream firms, and USD260–275bn to downstream players.

Digitalization comes of age in the oil and gas industry

The effects of digitalization now are different from what the oil and gas sector has experienced in the past, when there was limited impact beyond becoming more energy efficient. 

Increased focus on digitalization is linked with a drive towards greater cost efficiency. Nearly half (49%) of respondents to DNV GL’s 2017 survey thought their own organizations needed to embrace digitalization to increase profitability. This year, that figure is 70%. 

In an interview for Confidence and Control, Maria Moræus Hanssen, CEO and chairman of the management board, Deutsche Erdoel AG (DEA) said that we should expect to see more R&D going into digital, artificial intelligence and automation.  

“This is really about costs, about other ways of doing our business. R&D is now less likely to be focused on ultra-deep water, the Arctic, or other extreme environments. It will be more about rationalizing the business – making the industry more profitable, more productive, modernized.” 

This mindset is vital for the oil and gas industry to remain relevant in a changing energy mix, according to Kenneth Vareide, digital innovation director, DNV GL - Oil & Gas. 

“A plateau in demand for energy, coupled with cheaper resources, will lead to tough competition between energy sources in the lead-up to mid-century.

“The oil and gas industry must continue on a path of strict cost control to stay relevant. We believe that increased digitalization and remote or autonomous operations will play a central role in delivering the long-term cost savings and carbon footprint improvements in the oil and gas industry.”  

It is not just about digital. Confidence and Control  highlights how demand-led innovation in other areas are also key to adapting to market changes and building long-term competitive advantage. 

In the mid term, these include: subsea pipelines; smart reduction of emissions in a decarbonizing world; advanced materials development; and, enhanced oil recovery to get more from existing reserves and improve the business case for making positive final investment decisions on new field developments.  

Disclaimer: 

DNV GL prides itself on providing accurate information but makes no claims or guarantees about the accuracy, completeness or adequacy of contents in this publication, and disclaims liability for any errors or omissions. The authors’ views here do not necessarily reflect DNV GL’s views.