OFFSHORE OIL AND GAS AS INDUSTRIAL DRIVER TORGER REVE STAVANGER, 28. NOVEMBER 2013
PROJECT TEAM Head of Research, Professor Torger Reve, BI Norwegian Business School Project Leader and Researcher, Marius Nordkvelde, BI Norwegian Business School Project Coordinator and Lead Researcher Yuriy Zhovtobryukh, BI Norwegian Business School Project Partner Atle Blomgren et al, IRIS Project Funding: Norsk Olje og Gass
Strong growth in oil & gas the last 11 years
Total value creation in oil & gas in 2008-2012 700 Value Creation (in billion NOK) Corresponds to about 21,2% of GDP 600 CAGR=5% 500 400 300 Corresponds to about 5,4% of GDP 509 619 200 CAGR=3% 100 144 158 - Suppliers 2008 2012 Operators Sources: EKN (2008), IRIS (2012), SSB. Note: Numbers for operators include SDFI
Job Creation in Norwegian oil & gas industry Number of Employees 160 000 140 000 120 000 100 000 33 500 Oil & gas-related suppliers created 4,5x more jobs than operators in 2008-2012 80 000 60 000 114 000 147 500 40 000 20 000 - Suppliers 7 510 22 000 29 510 Operators 2008 2012 Sources: EKN (2008), IRIS (2012)
Value Creation per Employee (Productivity) 25 000 Value Creation per Employee (in thousand NOK) 20 000 15 000 10 000 Mainland Norway (2012) = 730 23 140 20 988 5 000 1 265 1 073 - Suppliers Operators 2008 2012 Sources: EKN (2008), IRIS (2012), SSB. Note: Economy average is calculated as GDP per employee
Employment-led growth in oil & gas 10,0% 8,0% 6,0% 4,0% 2,0% 0,0% -2,0% -4,0% CAGR: 2.7% 6,7% -4,0% Drivers of Value Creation CAGR: 5.2% 7,6% -2,4% -6,0% Suppliers Operators Number of employees Value creation per employee Sources: EKN (2008), IRIS (2012)
Total Value Creation: Supplier industry 60 50 40 CAGR=7% Value Creation (in billion NOK) CAGR=10% CAGR=-9% 30 20 10 CAGR=-13% vs. CAGR=2,7% in supplier industry on average and vs. 5,2% average CAGR of operators CAGR=-3% - Geology & Seismics Drilling & Well Topside equipment & vessels Subsea Operations Support 2008 2012 Sources: EKN (2008), IRIS (2012)
Job Creation: Supplier industry 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 - - 580 Geology & Seismics Number of Employees + 4740 Drilling & Well + 24480 Topside equipment & vessels 2008 2012 The total increase in employment in operators was about 7510 people + 1960 Subsea + 2900 Operations Support Sources: EKN (2008), IRIS (2012)
Productivity: Supplier industry 3 500 3 000 2 500 2 000 CAGR=-10% Value Creation per Employee (in thousand NOK) CAGR=2% 1 500 1 000 500 2 949 1 970 1 891 2 020 CAGR=-10% CAGR=-6% CAGR=-2% 1 340 1 191 894 829 929 862 - Geology & Seismics Drilling & Well Topside equipment & vessels Subsea Operations Support 2008 2012 Sources: EKN (2008), IRIS (2012)
Employment-led growth in supplier industry 15,0% 10,0% 5,0% 0,0% -5,0% CAGR: -13,1% -3,8% Drivers of Value Creation CAGR: 7,2% 1,7% 5,5% CAGR: 9,8% 11,9% -1,9% Drilling&Well segment had also grown due to productivity improvements CAGR: -2,7% 3,6% -6,0% CAGR: -8,6% 2,1% -10,4% -10,0% -9,6% -15,0% Geology & Seismics Drilling & Well Topside equipment & vessels Subsea Operations Support Number of Employees Value Creation per Employee Sources: EKN (2008), IRIS (2012)
Role of foreign ownership in supplier industry: Value Creation Value Creation (in billion NOK, 2012) 90 80 79 79 70 60 50 40 30 20 10-4 3 Geology & Seismics 10 40 Drilling & Well 42 14 Topside equipment & vessels Companies with more than 30% of foreign ownership account for about 50% of the value creation in the Norway-based supplier industry 3 Subsea 20 10 12 Operations Support Total Domestic ownership Foreign ownership Sources: IRIS (2012)
Role of foreign ownership in supplier industry: Employment 100 000 90 000 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000-1 420 2 000 Geology & Seismics 4 720 Number of Employees (2012) 40 % of employment in the industry 68 % of employment in the subsea 81 % of employement in the drilling&well Drilling & Well 48 820 20 020 18 660 Topside equipment & vessels 28 010 10 170 8 890 4 790 Subsea Operations Support 87 760 Total 59 740 Domestic ownership Foreign ownership Sources: IRIS (2012)
Role of foreign ownership in supplier industry: Productivity 3 500 3 000 Value Creation per Employee (in thousand NOK, 2012) % Δ=-57% 2 500 2 000 1 500 1 000 2 946 % Δ=-3% 2 069 2 008 % Δ=-11% % Δ=44% % Δ=83% 500 1 278 854 762 1 029 716 718 1 316 - Geology & Seismics Drilling & Well Topside equipment & vessels Subsea Operations Support Domestic ownership Foreign ownership Sources: IRIS (2012)
Offshore supplier industry outperforms the stock market The sector has grown by 10 percentage points more than the market over the last 3 years Sources: Oslo Stock Exchange
Forecasts: NCE Offshore Market
Product Innovation Across Oil & Gas Sectors
Service Innovation Across Oil & Gas Sectors
Ekofisk The North Sea Technology Adventure
Improved recovery Major technological break-troughs on the NCS Riserless subsea well intervention Integrated operations Subsea Subsea gas compression processing 4C-seismic Managed pressure drilling 2015 Åsgard 3Dseismic Multiphasetransport Waterinjection Troll Oseberg gas injection Horizontal +deviation drilling 4D-seismic 1999 Gullfaks 2003 Vallhall 2003 2004 Gullfaks C Åsgard, Visund 2004 Ekofisk 2007 Tordis 1977 Cod/Ekofisk 1979 Statfjord 1986 Ekofisk 1991 Oseberg 1996 Troll Time/Field developments
Pete Miller, CEO Offshore Technology from Norway to Brazil
The Norwegian cost level is challenging, but Norwegian engineers are highly competent and productive. Thus Norway will still be able to compete with Asia. It is a question of people Jeff Immelt, DN February19. 2013
Ashok Belani, CTO
Norway has attracted some of the world leading maritime-offshore corporations
Innovations in Oil & Gas Industry Large companies in oil & gas are conservative organizations who prefer proven technology Thus most NCE innovations are incremental Radical innovation takes place in small offshore spinoff firms Large firms innovate through acquisition of small technology firms Create climate for serial entrepreneurship
Innovation Drivers in Oil & Gas Industry The large NCE projects are the major innovation drivers (cf. Petroleum Tax) The major engineering topside project organizations are drivers (cf. NCE Topside Contracts going to Asia) R&D is a major innovation driver Focus on system innovations, e.g. Subsea Factory Deep water abroad is a current driver Arctic NCS is likely to be a new technological driver
Norwegian oil and gas today: Complete value chain
The Location Turning Point in R&D and Innovation
The Location Turning Point for Oil & Gas Supplier Industry
Will designed in Norway and assembled abroad work in the oil & gas industry?
The Location Turning Point: The Offshore Knowledge Commons Complete value chains and new major projects on NCS are critical for innovations and location decisions Norwegian oil & gas industry long term future depends on the extent to which the industry can create a strong offshore knowledge commons that can make the industry independent for the NCS
The Emerald Model Knowledge Dynamics Knowledge Commons
Offshore Oil & Gas has the strongest emerald Knowledge Dynamics Environmental Attractiveness Cluster Attractiveness Ownership Attractiveness Educational Attractiveness R&D and Innovation Attractiveness Talent Attractiveness
Oil & Gas Resources
Example of the Norwegian offshore knowledge commons: Lundin Chief Geologist Hans Christen Rønnevik (formerly Saga/Statoil) discovering Johan Sverdrup in 2012
Conclusions Norwegian oil & gas industry has shown strong growth rates over the last decade A strong warning signal now is the falling productivity in the supplier industry Norway is still an attractive location for the international offshore industry NCE projects, technological innovation and excellent engineers are what makes Norway so attractive The long term challenge is to build the offshore knowledge commons stronger