DNV energy has an annual turnover of around half a billion dollars, 90% of which is attributable to oil and gas activities. It came as a surprise then that Remi Eriksen, the man steering that ship as chief operating officer, was most enthusiastic about engaging oil companies with the firm’s alternative energy solutions.
What does today’s oil price mean for Middle Eastern upstream companies?
“For our Middle Eastern customers $70 is more than acceptable for most fields. There are other provinces and regions that struggle in the 60-70 dollar bracket, particularly deepwater, Arctic projects and tar sands. These more expensive projects struggle in a depressed oil price environment. Some of these need $80 to make commercial sense. For the Middle East. there are big opportunities to extend the assets they already have. The potential here is in taking fields beyond their 30 year range: Finding out what has happened during the life of the asset and establishing how it will behave in the future is important for this region. The current price environment is easily capable of funding that sort of important work.
What should national oil companies be doing right now?
It’s important that companies in a financial position to invest should definitely push ahead with that. Some capacity building projects are on hold, and companies are holding on, hoping that construction costs come down even further. Our prediction is that energy demand will go up and oil, gas and coal will play a major role in meeting that need. There are massive gas reserves which are being developed now. The Middle East is contributing to 30% of the global energy need, but it has around 60% of the resources, so that in itself presents a huge potential for the region, and a huge opportunity for the national oil companies responsible for producing those resources.
Where can the biggest gain be made in upstream operations?
I think energy efficiency will play a big part in improving operations. There are big strategy questions at the moment about where investment should be flowing now. Energy efficiency and CCS are the two biggest buttons companies in this region can push to become cleaner, better oil producers. CCS technology is expensive, but the costs are coming down. This solution can reduce the environmental footprint of oil companies significantly. We are currently working with customers in the Middle East on CCS development projects, and we have some prospects too.
Is it right to put capacity building projects on ice when the oil price plummets?
The oil price today should not govern what companies do in terms of investment now. The price in the future is much more important. Companies in the Middle East are not bound by the same constraints as shareholder owned firms, so those that can really should invest now. I think the price of oil will only be going one way in the coming decades, what we have now is a correction, but it is not in the $10 – $20 range which poses a danger to the Middle Eastern projects.
What’s the biggest business opportunity for Middle Eastern oil companies?
Now is a fantastic time to invest in alternative energies. In a hundred years time oil, gas and coal will not dominate in the way they do now. Of course, the next 30 years is still hydrocarbon focused. There is nothing yet that can take its place. But energy companies, which NOCs inherently are, should certainly have an eye on the very long term too. I’m a firm believer that companies should be using that financial strength to develop alternative resources. Now is absolutely the time to get right behind this push.
What is the biggest challenge facing energy companies today?
No question, the need for more energy and the need to address climate change are the two biggest hurdles right now. Companies which have these missions at their core have a massive challenge, but dealing with these two is going to define energy companies for decades to come. Also, selecting the right project, executing it in the most efficient way, and then managing operations in an optimised fashion is something that national oil companies are doing in a much more coordinated way now, and that’s helping them deliver much better, very impressive results.
What does the rest of 2009 hold in store for DNVÂ Energy?
I am a cautious optimist. I’m expecting 10-15% growth for the DNV energy group for this year and next, against a backdrop of 20% growth previously. That is a product of the financial environment to a certain extent, but I think all things considered that is a healthy growth rate in the current market. In this region, our operations have grown 30% in the last year. We are growing both market share and expanding the remit of what we do. The renewed focus on life-extension and Greenfield projects throws open new business areas for DNV to engage in. I don’t think we’ll see the rampant market conditions we saw in 2007 and 2008, rather I expect something more sustainable.
