DNV GL’s R&D investment: 5% of revenue
Joint industry projects underway: more than 100
Response teamOctober 31, 2016
TOGY talks to Hernando Caceres, director of oil & gas for DNV GL Malaysia, about how the Malaysian oil and gas industry is responding to the current market conditions and the steps being taken to develop the country’s role as a regional downstream centre. He also details DNV GL’s efforts to help drive efficiencies in the industry and its ongoing investment in innovation.
How will the development of Malaysia’s downstream sector affect the country’s role in the region?
Malaysia’s geographical location is one its strengths; it has the potential to be a regional gas hub. Malaysia understands that the offshore easy oil era is over and the country has worked to see how else it can compete regionally. When the government started creating the Pengerang Integrated Petroleum Complex (PIPC), moving the country more into the downstream market, it was centralised geographically to create a significant value proposition for customers. Malaysia’s oil and gas industry has great technical resources and the competence to manage these projects successfully.
How will Malaysian service providers be able to compete globally?
There are a few Malaysian companies such as, Dialog, Scomi, Sapura Kencana and Bumi Armada which have global capabilities and a big international footprint. They use Malaysian funding and government support, and, of course, local talent to compete internationally. That kind of mix, I would say, is one of the strengths in Malaysia; companies that can help in driving growth globally and moving beyond the Malaysian market.
Do you have any examples of new technologies or applications that have been applied to marginal fields in Malaysia?
The sector in Malaysia has been very focused on enhanced oil recovery (EOR) and managing wells, sand production, and hydrocarbons with high water injections, gas injections and different gas recovery points in this space. Good progress has been made. When it comes to topside facilities, it is apparent that the sector now needs to explore different technologies and see how it can move from manned facilities to unmanned facilities, for example.
What progress has been made in Malaysia regarding unmanned facilities?
It’s been slow because it’s more complex, but there are a couple of longer-term initiatives and I believe it’s top of the agenda for Petronas. You will begin to see more connected facilities, more fiber optics happening offshore, and potentially facilitating remote overviews of facilities. Petronas has installed a fantastic monitoring center at the Twin Towers in Kuala Lumpur, for example. As companies start trusting the technology to operate facilities remotely, it will attract more investment. Staffing these facilities is a major part of the cost of operation and this kind of innovation will help Petronas in adjusting to the new reality.
How much will the transition to unmanned facilities cost?
There are a couple of elements beyond cost; safety is a key critical element, cybersecurity and emergency response are also some of the critical factors. When we look at operations cost for manned facilities, you need to build a facility that does not compromise on safety, and then serve the individuals working there: catering, logistics, personnel, flights in and out, and so on. Going remote has significant potential to reduce operating costs. Petronas has a couple of pilot projects underway and those will hopefully move forward by the end of this decade.
You mentioned the current cost of deepwater operations is not economical enough to attract further investments; what price range do you think investors would be comfortable with?
Two or three years ago, many of our customers were looking at USD 85-95 per barrel, but now the economics have changed. With the downturn and this ‘new normal’, we are seeing projects with a different breakeven price, potentially as low as USD 65 per barrel, probably between USD 60-80 per barrel.
The whole supply chain has achieved reductions on some of the costs. The designs and engineering are leaner. If we look at some of the larger projects onshore BP Tangguh in Indonesia, for example; before, it was not economically viable and, through the supply chain exercise and working closely with EPCs, they managed to make it more cost effective.
Could you expand on the economics of oil and gas projects and the effect of lower oil prices?
There are reports that look at project execution costs and 90% of projects overrun on budget and schedule. Customisation is a bit contributor to the cost. In DNV GL we firmly believe that standardisation is one of the key solutions for cost effective projects and operations. DNV GL invests 5% of its revenue on research and development and we have more than 100 joint industry projects (JIPs) underway, which often result in standards or recommended practices.
For example, DNV GL led a joint industry project to streamline subsea documentation, which showed that implementing a standardised approach can drive efficiencies. A customer case shows potential for a 40% reduction in engineering hours on subsea paperwork, and up to 80% less documentation. The JIP led by DNV GL has concluded in a publicly available Recommended Practice, DNVGL-RP-O101 ‘Technical documentation for subsea projects’, which can reduce the amount of subsea documentation and enable documentation reuse in a typical subsea field development project.
Are there new technologies being used in Malaysia that you believe could have a major impact on the industry?
Petronas is leading the industry in a couple of new technologies, looking at the first floating LNG (FLNG) facility PFLNG Satu – a megastructure that will challenge the landscape of LNG production. Petronas will operate this facility at Kanowit field, offshore Sarawak and we are very proud to work closely with Petronas to class the first FLNG in the world.
FLNG will potentially become a new technology reducing the need for extensive pipelines and heavy infrastructure, adding efficiency to the LNG supply chain. The first ones are costly, but this technology will evolve and the new FLNG generations will be more cost-effective, smaller and deployed faster.
Do you have any thoughts about the number of companies active in the oil and gas supply chain in Malaysia?
This is a key challenge in Malaysia where greater efficiency is needed in the supply chain. When we compare to Norway for example – it has 400 service providers to serve the entire Norwegian sector whereas Malaysia has 3,500, and Norway managed three times more production. Then, you will need to look into how many of those 3,500 are actually serving the industry; how many of those 3,500 companies are capable of moving forward and supporting the industry, locally and globally? Norway has been more successful in this area, and I am glad that Malaysia is looking into this issue and learning from different countries.
Who are you working with in Malaysia on standardisation, and how is DNV GL helping?
DNV GL invested around MYR 300 million (USD 72.6 million) in R&D in the past year including on JIPs. Petronas is actively participating in some of them and many established companies in Malaysia like Subsea 7 and Technip. Subsea is one of the areas where a lot of breakthroughs are happening and we have more than 25 companies participating in that specific JIP.
The goal here is to be more efficient in the supply chain. DNV GL’s R&D efforts keep us ahead of the competition and help us to provide foresight for our customers so we can address their needs now and in the future and contribute to advancing the industry. This is a key differentiation for DNV GL.
What do you think will provide growth for the company in Malaysia?
The oil, gas and energy industry currently contributes about 20% of Malaysian’s GDP and is a key sector in Malaysia’s long-term strategy. 2016 has been a difficult year for the industry; I believe 2017 will be another tough year in Malaysia. When we look at the oil price we do not see a U-shape, but an L-shape, where a lower price will be maintained for a longer period of time while there is over supply.
DNV GL is strengthening our footprint in the mid- and downstream sectors, which are likely to be more robust than the upstream sector and this approach is aligned with the strategy for Malaysia’s oil and gas sector. In 2017, we forecast a steady market in operations and a reduction in maintenance, engineering and overall EPCs. However, Malaysia’s long-term plan will prevail as there is a national interest in sustaining production and with the sanctioning of key projects the industry may recover in 2019.