Editor
An emphasis on short term profits hasn’t hurt the fossil fuel sector in the past, but could the lack of a long term plan now be damaging its prospects?
Whether it’s installing new infrastructure in the world’s deepest oceans or mapping and analysing vast swathes of unexplored seabed, the oil and gas industry frequently operates at the limits of what’s possible. For this reason, it’s often compared to space exploration in terms of the problems it faces and the environments in which it operates.
But, as a forthcoming report in The Engineer explains, whilst the space industry is a well-known source of technology that goes on to have applications elsewhere (memory foam, satellite television and scratch resistant lenses to name just a few), the same can’t necessarily be said of the oil and gas sector.
In fact, as we report, the sector is heavily reliant on technology developed elsewhere to solve some of its most pressing problems. And there doesn’t tend to be much technology flow in the other direction.
It would of course be inaccurate to suggest that the industry invests nothing in research: it pumps billions into priority areas such as the development of new fuel and lubricant formulations. What’s more, by relying heavily on other industries for solutions the industry is also a major funder of UK research.
And there’s nothing particularly unusual about outsourcing large chunks of research. For instance, Rolls Royce, one of the UK’s most successful engineering companies, carries out a large proportion of its research through its network of university technology centres. And there are numerous other examples of companies using the wider research base to perform work that was once carried out in-house.
But as Imperial College’s Petroleum Engineering chair, Prof Ann Muggeridge, tells us ‘the industry isn’t very good at looking forward.’ And with a number of high-profile investment funds recently getting out of oil on the basis that it’s not viewed as economically sustainable in the long-term, industry should perhaps be concerned that growing perceptions of short-termism will only accelerate this process.
To read more about technology transfer in the oil & gas sector, watch out for the next issue of The Engineer, which is published on Monday 13th October.
Short-termism started with the Government-supported policy of “Asset stripping”. This policy resulted in closing most R&D; selling off any saleable assets that were the cushion against financial problems, and selling off any land holdings to raise quick capital, but it made a lot of money ….
This short-term profit taking was then followed by selling our highly developed coal and power industries to foreign companies and conveniently losing their previous duty of care for the power system. This is to the extent that the UK is at real, and rapidly increasing, risk of black-outs. But it generated a lot of quick money…
As another example, much of the development of Biomass combustion in recent years has been on client sites, through commercial projects. As a consequence there was little or no R&D support for these complex developments of the sort that the coal industry used to have (and needed). Many biomass projects failed commercially, and businesses were broken, causing the lack of faith from the now-troubled banking sector that is hindering any medium-risk developments. The booming waste burning industry is almost entirely based on products developed in France, sold through the French-owned operating companies who control waste in the UK. It is noteworthy that state assistance was available to the companies developing these technologies in France. However, they contribute little to the UKs long term ability to export hardware or technology.
As a further example of short-termism, we are about to start paying large electricity users not to use electricity as well as paying suppliers for not generating horrendously expensive electricity in wind-blown white elephants. Our electricity industry, once the envy of the world, has gone terribly wrong and will damage the UK’s industrial competitiveness (apart from those companies that can make more money by not working / using power).
It is hard to see how R&D driven long-term projects will ever again be funded in an economy where low-risk investments such as supermarkets and property make substantial profits and risk aversion is the norm.