The Norwegian oil and gas supply industry in hard times: Innovation in global supply chains.

The project GLOBOIL has studied how Norwegian upstream oil and gas suppliers have been adapting their production strategy and supply chains capabilities. Innovation in offshore petroleum takes place in a complex interplay between oil companies, an increasingly more integrated group of global suppliers, and a large, often local, group of smaller sub-suppliers. The development in the time after the drop in oil prices from the end of 2014, which has been the main focus of the project, has been characterized by intense efforts for a thorough automation and digitization of the oil industry. Drilling is now fully automated, with the drilling crews controlling the operations with joysticks and computers. Digitization affects everything from the modeling of pilots to the design of new fields and operations. Technologies such as digital twins, "big data" etc. are about to make their breakthrough as everyday work tools. At the same time, regulations and an acknowledgment of the climate challenges have contributed to the Norwegian oil industry becoming a leader when it comes to the electrification of offshore installations. However, over the last few years, organizational innovations have been as important as technical innovations as a measure to improve the industry’s capabilities. Here there has been a general tendency where large integrated major suppliers have taken on a much more dominant role from the first planning of projects (Concept studies, pre-FEED, FEED) to execution (EPCI), and sometimes operations. A particular case is an alliance between a new group of operative oil companies and major suppliers. This model seems to be a response to general challenges like; long-term uncertainty related to climate issues, increased competition from the shale oil/gas play, where the time span from investment to production is much shorter, and a tendency for remaining fields to be smaller. A key to succeed in such a scenario is to radically reduce time from early investments and getting oil and gas on stream. Although there have been projects with large budget overruns, from the millennium up until 2020 the tendency has been positive for most field development projects. From the time it expanded out of the Gulf of Mexico in the 1960s, the offshore oil industry had an international feel. A central hypothesis when the project started was that the offshore market has experienced a tendency towards regionalization. In the USA, there is an economic orientation where support for local suppliers has become more central. In Brazil, the "local content policy" that characterized the Brazilian offshore market from the early 2000s has been toned down somewhat. Although the Norwegian authorities have continued the same type of open market strategy that has characterized the offshore supply market since EEA membership in 1994, we have seen a tendency where the national offshore market has become more important for many suppliers with Norwegian affiliation. This does not mean that large suppliers are less global in their orientation. The largest suppliers have continued to streamline their global organizations. With many, we see a conscious focus on trying to learn as fast as possible from improvements throughout their organizations. At the same time, having a set of regionally based competent subcontractors is considered important. Aker Solutions' activities in the subsea market are an example of this. Aker acquired the capacity to build underwater equipment by purchasing a factory in the Gulf of Mexico. Key equipment from the American factory was moved to Tranby in Norway. With a further upgrade of the machine park and investment in engineering expertise, the facility became the company's most important competence center globally from the early 2000s. Alongside large deliveries to the Norwegian continental shelf, exports were significant. But at the same time, the company prioritized upgrading its own factory and subcontractors in Brazil. The company also established a factory in Malaysia that would be able to build less advanced equipment. The idea was to keep Tranby and Norway as a center of expertise. But even before the Covid 19 crisis, the tendency was to increase activities in Brazil, where the future market seems to lie, at the same time as activities at the factory in Norway were scaled back. The studies carried out by the Globoil project confirm a general perception that the Norwegian oil industry's supplier industry is a leader in many of its fields and at the same time accounts for much of the industrial expertise found in Norway. This applies to both technical competence and the ability to carry out large, complicated projects. But a tendency where central suppliers move more of the technology development abroad shows that if the intention is to transfer as much of this expertise as possible to other greener industries, one may face a critical window if this is to be transferred in the most efficient way possible.

Vi mener prosjektet Globoil vil være med på å skape en bedre forståelse av utviklingen av leverandørindustriens offshore. I samspill med oljeselskap i rollen operatører og myndigheter — tett integrert i globale leverandørkjeder — har denne industrien i mange tiår stått for en vesentlig del av verdiskapningen i Norge. Selv om den vil trappes ned som en del av «et grønt skifte», vil leverandørindustrien rettet mot petroleumsvirksomhet offshore i mange år forbli Norges største industri. Nettopp fordi denne industrien i så sterk grad har trukket til seg det ypperste av ingeniører, andre ekspertgrupper og fagarbeidere, vil erfaringer og kompetanse fra denne industrien måtte være en viktig del av svaret for fremtiden. Utfra et samfunnsøkonomisk perspektiv er det derfor også avgjørende å forstå utviklingen av næringen i et sosio-teknologisk perspektiv som kjenne tegner studien. Foruten utdanningseffekten av å engasjere to Ph.d.-studenter som begge har hatt muligheten til å drive en dypstudie av næringen, har prosjektet bidrat til å skape nettverk mellom Akademia og næringen selv. Med prosjektgruppes internasjonale karakter og deltagelse har prosjektet samtidig vært med på å skape sterke nettverk mellom forskere. Utenfor Norge først og fremst i USA og Brasil, men også i Asia. Vi har for eksempel erfart at når prosjektet har påpekt det unikt tette samarbeidet mellom leverandører, operatører, myndighetsinstitusjoner og også arbeidstaker representanter i planleggingsfasen for store utbygginger og andre sider ved teknologiutviklingen, er det erfaringer som relevante fagmiljøer og aktører i andre land med offshorevirksomhet merker seg. Det å foreta dypdykk ikke bare i selve teknologiutviklingen, men også å forstå dynamikken i det komplekse organisatoriske samspillet som gjør seg gjeldende mellom aktørene er viktig når erfaringer fra næringen skal overføres til nye næringer med mindre klimautslipp.

The project GLOBOIL studies how Norwegian upstream oil and gas suppliers are adapting their production strategy, supply chains and innovative capabilities to the demands of recent development in global manufacturing. Understanding the dynamics of the oil industry's global supply chain will critically contribute to Norway's abilities to facilitate the optimal use of its own resources, as well as maintain its position as a large exporter of offshore technology. Innovation in offshore petroleum takes place in a complex interplay between oil companies, an increasingly more integrated group of global suppliers, and a large, often local, group of smaller sub-suppliers. In this scenario, the Norwegian oil sector needs to learn concepts, technologies and practices developed elsewhere. Even though the Norwegian model has been a successful case of the creation of an entire industry of capable offshore suppliers, there is a lack of systematic studies about how the internationalization of the industry has affecting the foundations of this model. In a context of intense pressure to reduce costs and innovate and of increasing protectionism, aiming to capture segments of the offshore supply chain within national boundaries, makes a better understanding of the integration of Norwegian companies in the global value chain critical. Therefore, this project proposes to use extensive case studies and a survey to answer the following questions: How have Norwegian suppliers evolved their strategy and are governing their relationship with suppliers to continue moving up the global value chain? In what way does the participation in challenging projects abroad affect the industry's capabilities on the Norwegian continental shelf? Are there barriers in form of path dependency, technological standards or other forms of socio-economic structures that prevent or promote certain kinds of technologies? Is the Norwegian institutional setting that previously nurtured the industry still effective?