Simon Youngman, Oil & Gas Product Manager, Castrol.
It has been a period of great change for our industry. Although we are a far cry from the depths of the financial crisis, oil price fluctuations and other economic factors have continued to heap uncertainty on operators and principals across the offshore supply chain.
Despite these factors, there is a glimmer of progress afoot in the subsea market. There is a growing understanding that, given current market conditions – and combined with the understanding that hydrocarbon production will become harder as more remote wells are targeted – subsea production systems will be brought into the spotlight once again.
The recognition of the economic potential of these systems is no longer under question. Enabling hydrocarbon production in challenging circumstances is an economic necessity and, although barriers remain to their widespread adoption, operators are now looking at these technologies as a credible, means-tested way of achieving medium-term commercial goals.
Before the recent drop in oil prices, and as recently as five or six years ago, development of these systems was focused on record-breaking performance, through achieving milestones like running hottest, operating deepest, and working at true extremes. In other words – it was recognised that the easy-to-develop wells would no longer be the norm.
OEM focus is now shifting away from attaining these extremes as operators have changed their economic models, instead settling on an approach that favours systems designed to be credible, means-tested and suitable for the majority of the market. In short, this means that every new piece of equipment or component is required to deliver significant incremental value to justify the operator’s time to review and select.
Fundamentally, this trend can be explained by one word: standardisation. With less component diversity on the market, operators will be choosing off-the-shelf subsea control systems that have very little differentiation in terms of parts, designs and operational profiles. Clearly these purchasing decisions have ramifications on both the systems market and also for the companies that underpin its supply chain. Speed to market and economic considerations have become a major driving force – not withstanding that risk management and safety still come first.
In the long term, it is true that electrification could still re-emerge. But for the systems currently being built and in use, this refocusing of priorities presents the opportunity for a resurgence in hydraulic subsea production systems – and an opportunity for operators to reap the benefits of using this type of system.
Most observers would agree that the newbuild market for hydraulic subsea production systems is bouncing back, although this will still take some time as a result of a continued reduction of exploration activities. This, when taken with the number of hydraulic systems currently in operation, reflects the view increasingly held by the industry that, for a significant proportion of the market, hydraulic systems represent an assured, proven technology.
The reason that these credentials of assurance are being so widely accepted lies in several key characteristics of hydraulic systems; all of which can help to meet the challenges that the industry is currently facing.
For example, these types of systems are well-known for their reliability, using components that are proven to work in even the most strenuous of conditions. And, aside from their reliability, hydraulic systems give operators the ability to finely tune the scaling of operations. Put simply, the capabilities of hydraulic control systems can be matched to operational demands with greater ease than some of their counterpart systems.
Then there are lifecycle considerations. Lifecycle cost is a watchword in our industry, so the fact that newbuild hydraulic systems coming online in the coming months are expected to last years in operation will serve to impress operators.
This makes the process of obsolescence management – perennially the bane of any subsea engineer – easier, but also gives these operators assurance in performance timelines and better system management control.
This is especially important when considering that field lives are only being extended, and when acknowledging the fact that this means that subsea structures will have to last a commensurate amount of time. This in turn will require adaptability in component supply to ensure that both new and old components can work alongside each other seamlessly.
But, back to the question: what does this new operating mode mean for the industry? Put plainly, it requires companies that support the subsea supply chain to adapt in lockstep, with OEMs, component manufacturers and other service providers rising to the challenge of a changing make-up of systems on the market.
Control fluids, for example, which have always needed to operate at the most rigorous of performance and environmental standards, will now have to be made to do so in a market that is materially different from the one of a few years before.
As one of the most complex moving parts in a subsea system, assurance of reliability from selecting the correct fluid is paramount. The control fluid has to transfer power, lubricate, deal with contamination and protect equipment from degradation in a wide range of temperatures and pressures for the life of field.
And let us not forget that all of this change is also happening at a time when more geographies are being tapped upon for hydrocarbon reserves than at any point in our industry’s history; a fact that creates clear supply chain problems that need to be met.
Extrapolate these fundamental dynamics – a changed industry, a focus on standardisation, and a push for globalisation – and one gets a picture of the scale of the challenge facing operators and suppliers. To move in unison with these forces is no small feat, requiring technical expertise, operational acumen, and a good understanding of the wider macroeconomic picture that is driving producers to make the decisions that they are making about subsea control systems.
But these changes also represent a clear call to the industry: suppliers that support and underpin hydraulic systems must muster for battle and adapt to change. The potential for our industry of more assured operations is too strong to pass up, and the commercial winners and losers of the next decade will be decided by the early movers in adapting to this trend.