Where’s the progress?

I’m worried. I think there’s something going badly wrong with our energy industry and particularly with the development of renewables.  Let me explain why.

Firstly, I was really quite shocked to read in a blog by Prof Brian Ashcroft of Strathclyde University that he believes that around 70% of all oil and gas industry post-tax profits are remitted abroad. According to Ashcroft this amounts to around £19bn which if correct is an astonishing figure which he says “reflects high degree of foreign ownership”

This is scary.  Such an extraordinary level of reliance on foreign ownership of such an important industry can’t possibly be healthy for our economy and perhaps goes a long way towards explaining why – as I mentioned last month – our R&D expenditure is so pathetically low compared with Norway.

Actually, I would bet that in Norway these figures are reversed.  I wouldn’t be at all surprised if over there less than 30% of post-tax profits are remitted abroad because there are a lot less foreign companies.  Different attitude you see. They think strategically and we don’t.

The danger now though is that history is going to repeat itself with the renewables sector.  Looking back over the year since the last All Energy conference and exhibition I’m finding it very difficult to come up with any examples of a UK or Scottish company introducing something new or entering other parts of the market.   I’m now really concerned we’re not just letting our competitors snap up the best bits of what we have developed but we’re not actually competing in sectors that we should be competing in.  The proof of that pudding is course that so many overseas companies are moving in.  If we were competing properly then they would think twice about setting up here.

But then the “system” the government has set up isn’t aimed at creating a renewables industry but developing mechanisms to achieve the various government policy aims on carbon emission reductions, percentage of electricity from renewable sources and so on and so forth.  

So, we tend to set up companies that meet these policy needs and they do things like consultancy, windfarm development planning and of course carbon trading and offering advice on how to reduce a company’s carbon emissions and energy consumption.  That said, some companies are offering important and valuable services such as surveying and subsea remotely operated vehicle support although no heavy lift vessels or cable laying now.

In terms of timing the introduction of policies also never allows for the development of new technologies.  By this I mean that when we develop new policies we rarely consider the industrial potential.  

A classic example of this is the so called Smart Meter. The government’s plan is that every household and business should have one of these.  That means millions of the things will be bought and installed but as it looks now none of them will be manufactured by a UK company. How stupid is that.

In fact the more I read and hear about the attitude of the Treasury in particular I seriously wonder if they care about renewables at all.  I get the feeling that actually the Treasury is keeping its fat fingers crossed that in its forthcoming report the British Geological Survey team will say that there is so much shale gas available that we can completely forget renewables for the foreseeable future.

Another threat to renewables is coming from nuclear.  If the government ever gets its act together and comes to a deal with a potential reactor builder then the cost may well reduce funding for other technologies.   There’s also little doubt that this government would much prefer to have a plentiful supply of nuclear power than anything else even if it means relying on French or even Chinese semi state owned companies to build and operate them.

At the same time though I’m completely mystified over the refusal of the National Grid to balance out the costs of grid connections rather than price them geographically.   Actually, that’s wrong.  I can understand some mindless civil service type – perhaps an ex investment banker -  coming up with that sort of idiotic proposal but what I don’t understand is why the Government didn’t tell them to drop it.  

All that said I do have some good news. Things are now stirring in at least one part of the renewables sector.  The Scottish Government’s Energy Advisory Board of which I’m honoured to be a member has agreed a proposal I developed to set up a forum on Future Fuels. 

The forum consists of a mix of members from academia, industry and government bodies and its aim is to design a strategy for the development of a Scottish renewables fuel industry. That means determining where the best opportunities lie, looking at whether we have the skills to build such an industry and of course working out which fuels provide the best potential.   The forum is “time limited” which means that once its job is done it will disband.

It’s exciting stuff because it does look as if there is much more knowledge and expertise around this topic than perhaps was originally thought. 

Whilst looking at the better known fuels such as ethanol and bio-diesel the forum is also considering butanol, bio-kerosene, hydrogen, ammonia and others and of course a range of production techniques that given the high level of life sciences expertise in Scotland could include synthetic biology. 

We have a head start given the work being done by Argent on bio-diesel, Celtic Renewables on bio-butanol and Scottish BioEnergy on algae applications. This is a good base on which to build.

So whilst I find it intensely annoying we never seem to have any projects that can match – for example – flying a solar powered aircraft across the USA perhaps we’ll soon be able to demonstrate a range of new fuels transport, energy storage and heating.   Not quite as spectacular perhaps but considerably more important.

  (First published in "Energy" in May 2013)

 

 

EMEC’s Customer Base has little UK content.

EMEC – the European Marine Energy Centre – on Orkney is a facility Scotland should be proud of. In the nearly 10 years since it opened its doors it has achieved a solid reputation and is now involved in a number of overseas collaborative projects.

This is good for Scotland and good for the marine energy sector.

However, EMEC’s success illustrates the extent to which the industry here in the UK is now increasingly dominated by overseas corporate or other investors.

Going through the list of the companies that have used or are using the Orkney centre, it is really quite surprising as to how remarkably small the Scottish and wider UK content actually is.

Looking first at the wave energy companies who have or are currently testing hardware at EMEC, the first and perhaps best known is Aquamarine of Edinburgh.

The largest investor in Aquamarine appears to be ABB Technology Ventures based in Switzerland which gives Aquamarine access – potentially – to ABB’s huge technology knowledge base. That said the company has also received investment from Scottish Enterprise and Scottish Equity Partners.

Pelamis Wave Power, also based in Edinburgh, initially found a lot of its investment from overseas and, given its chair is also managing partner of Emerald Technology Ventures, the Swiss-based venture capitalist, this would suggest that pattern continues.

It’s also interesting to note that the two companies testing Pelamis devices at EMEC are E.ON (German) and Scottish Power Renewables owned by Iberdrola (Spanish).

A third company, VattenfallB (wholly-owned by the Swedish state), is planning to test the latest generation Pelamis Wave Power device in 2014.

The Finnish company Wello Oy is also testing its wave energy system at EMEC. Having worked on a number of wave energy concepts since 1976 the Penguin model was selected in 2008 to be developed further. Wello Oy is entirely Finnish owned.

AW Energy is also a Finnish company. It is developing the Waverider device, which was successfully tested at EMEC in 2005. The firm now has a project underway – albeit slowly – in Portugal. Needless to say, all main investors are Finnish.

Finally though some good news. Seatricity is a small Orkney-based company developing and testing a new wave device at EMEC and it appears that it may well be that it is actually UK owned.

Turning now to tidal energy devices being trialled, one of the most advanced has been built by Andritz Hydro Hammerfest, which was originally a Norwegian-owned company but it is now owned by the Austrian Andritz Hydro GmbH group.

The Atlantic Resources Corporation (ARC) is also testing a tidal turbine at EMEC. ARC has a project office in London but is essentially a company based in Singapore although it now includes among its investors the Norwegian electricity utility company Statkraft.

Third in our list of tidal energy technology companies is the Dutch company Bluewater Energy Services, which is testing a novel floating tidal generator support device.

Kawasaki Heavy Industries is planning to test a 1Mw tidal generator in 2014 and is currently component testing in Holland, performing tank tests of a scale model, stress tests of blades and power train tests, as well as some component testing for its full-scale prototype. Kawasaki is of course a Japanese company,

OpenHydro has been testing devices at EMEC since 2006, has deployed a device in the Bay of Fundy, Nova Scotia, and is currently working on a project in Brittany, France, where it aims to deploy four 16m tidal turbines. OpenHydro was recently acquired by the major French shipbuilder and marine technology company DCNS SA.

Scotrenewables Tidal Power is a Scottish company that has developed a floating tidal technology device. But its main investors are the Swiss ABB group, the Norwegian Fred Olsen group and the French oil and gas major Total.

Tidal Generation is developing and testing a seabed tidal turbine similar in concept to those of Andritz Hydro Hammerfest and ARC. A Bristol-based company, it was bought by the jet engine builder Rolls Royce in 2009 but it was recently bought from them by the French engineering group Alsthom.

The German company Voith Hydro is working with RWE Innogy through the joint venture Voith Hydro Ocean Current Technologies and currently building a 1MW demonstrator of a seabed turbine due to be tested at EMEC starting this year.

Voith Hydro is also the company responsible for the recent close of the Scottish wave energy company Wavegen and “relocating” its intellectual property and assets to Germany.

When I was asked to analyse EMEC’s customer base even I was not prepared for what it would tell me.

I am actually staggered by the appallingly low level of investment in the sector by UK and Scottish companies even when the technology behind the company involved has been developed by Scottish or UK engineers.

Of course, we can praise EMEC itself for having built a very successful business and for having promoted the huge tidal and wave energy resources that Scotland possesses.

The fact that the centre’s success has exposed another major hole in how we do real economic development isn’t the organisation’s fault. But it is something we should be thinking hard about.

Indeed we should be horrified by our record so far. I certainly am.

(First published in "Energy" 20th May 2013)

UK Oil & Gas Industrial Strategy – It’s good to talk.

The Government’s latest attempt at a strategy for oil and gas was published in March but its impact was somewhat diluted by the announcement on the same day of yet another change of Energy Minister. 

The poor bloke that drew that particular short straw for the least stable post in the government is now responsible for implementing the new strategy, such as it is.

Apart from a few changes and some minor additions it’s actually pretty much a repeat of the report published by the Oil and Gas Industry Taskforce back in 1999 although actually the 1999 version was a bit more detailed particularly when it came to things like technology needs.

This new strategy includes all the usual guff about maximising the “economic production of the UK’s offshore oil and gas resources” and all the other motherhood and apple pie phraseology designed to make us think Westminster actually cares about more than how much tax they can squeeze out of the industry to pay for all the other messes they’ve created.  

For example, one of the aims is “to sustain and promote the growth of the UK industry’s supply chain, in both domestic and international markets”. That’s an interesting turn of phrase. It’s the UK industry’s supply chain not the UK supply chain.  So that includes both indigenous and foreign owned companies which is probably recognition of the extent to which the industry is now dominated by overseas companies.   It goes back to the eighties doctrine of the “level playing field” which was really all about getting as much oil and gas out of the ground as fast as possible in order to fill the Treasury’s coffers and not caring who did it.   

As with all good initiatives it’s important to establish new bodies which can provide an opportunity for the great and the good to be seen to be doing stuff. That’s until they get bored or move on or have collected their OBE.  True to form we now have an “Oil and Gas Industry Council” to carry forward all the recommendations arising from the strategy document. Where does that leave PILOT which was created in 1999 to do the same thing?  To wither quietly on the vine I would guess.

OK – I admit I’m being more than just a tad cynical here primarily because I don’t think the 1999 O&G Taskforce led to any great improvements and I certainly don’t think it led to the much vaunted advances in technology that were talked about being desirable then and indeed are still being talked about as desirable now.

Let’s look at one particular and actually very scary statistic. According to the strategy report the overall sector R&D spend in the UK is reported to be 0.3% of sales which is a shameful figure when compared to Norway’s figure of 4%.  So this aspect of the 1999 Taskforce’s master plan failed miserably much as many of us involved expected it to.  

One action arising from the new strategy’s technology plan is the establishment of “a national centre of excellence that will enable industry to better understand complex reservoirs, reduce drilling costs, improve offshore efficiency, enhance production and maintain the integrity of infrastructure.”

The Government has now done that.  It will be established at Newcastle University. Why Newcastle?  I’ve no idea. Anyway it doesn’t really matter as it seems the Government is only coughing up £7m for this “centre of excellence”.  So – it looks like just another example of Westminster “tokenism”. 

The strategy also says “The UK has very strong financial services and oil and gas sectors. The two should be working closely together to create growth.”   This would be novel because for the past 30 years or so the only growth the financial sector has been interested in is their own.  Expecting the financial services sector to invest more in the supply side is very wishful thinking especially now they are under so much pressure to increase their capital reserves.    

So what’s the answer?  Well, there isn’t one.  We can’t force either the operators or the largest contractors/manufacturers to fund or invest in UK R&D if they don’t want to nor can we force investors to cough up more to grow companies through product or service development.

That said the fact is that Norway’s R&D level is much higher because they have a larger number of technology companies and they have a national champion to work with namely, Statoil.

Neatly linking this to the recent demise of Margaret Thatcher we should recall that she privatised the UK’s national champion the “British National Oil Company” which was then renamed Britoil Plc and later sold off to BP allegedly for peanuts.   

It was claimed Thatcher did this to ensure foreign operator investment in the N Sea. It was a lame excuse because investment in exploration and production in the Norwegian sector of the N Sea has been at least on a par or better than investment in the UK sector but investment in the Norwegian supply side has been of an order of magnitude considerably higher.  There can be little doubt that the BNOC decision wasn’t thought through and like a lot of others was purely ideological.

So do I expect this new strategy to achieve real results?  No I don’t and my reason for saying that is that the one thing that would really make a huge difference isn’t even mentioned. No – it’s not set up a new state oil company although that would be a great idea and neither is it to introduce “informal” targets for genuine UK content.  The one thing that would make a genuinely huge difference is to introduce tax offsets on drilling costs as the Norwegians have.  But that’s probably a step too far for a Government that’s essentially bust and needs the oil and gas tax revenue more than it ever has before.

(First published in the Aberdeen Press & Journal's "Energy" supplement in May 2014)

Proof of the pudding - If you don’t own it you don’t control it.

It’s great being proven right.  I’ve long argued that who owns the companies that make up the energy or indeed any other sector is important because if you don’t own it then you simply don’t control it.   The free market ideologues argue that it doesn’t matter who owns what provided the jobs are anchored here and it’s that attitude which has prevailed in the UK for the last forty years or so.  

So far merger and acquisition activity in the energy sector has tended to support the free market view but that all changed recently with the announcement that the wave energy company Wavegen based in Inverness was being shut down, its eighteen employees were being made redundant and – importantly – all its activities were being moved to its parent company in Germany.

The parent company – Voith Hydro of Heidenheim in Germany say it’s their intention to “pool the Know-How” at the company’s engineering centre which essentially means Wavegen is being intellectually asset stripped. 

Of course it’s not as if Wavegen was a failure.  In fact it designed and built Limpet which uses Wavegen’s OWC (oscillating water column) technology.  Limpet is the world's first commercial scale grid connected wave energy plant. It has an installed capacity of 500kW, was commissioned in November 2000 on the isle of Islay and has been supplying electricity to the grid ever since.

Wavegen also supplied the technology Spanish utility Ente Vasco de la Energía (EVE) use for their wave power project at Mutriku on the Bay of Biscay. The plant was commissioned in July 2011 and will generate an output of 300kW to power 250 households locally.

This then all sounds like good news.  Here is a small high tech company doing some extremely smart stuff in the marine energy sector and even exporting its technology.  Just what we’d all hoped from the renewable sector although of course it took the support of German funding to get it moving along properly after Voith bought the company in 2005.  Despite its potential Wavegen along with countless other companies found the raising funding in the UK to be a major obstacle.  This is sadly not an unusual situation. 

So what triggered Voith’s decision to kill of Wavegen and retreat to Germany? Voith claim the decision was part of their plans for “re-organisation”. 

However, the company was developing the Siadar Wave Energy Project on the Isle of Lewis in the Outer Hebrides which used an “active breakwater” designed to harness power from the Atlantic waves in Siadar Bay. The project was for 4MW with a second phase that would expand the output to 30MW.  The objective was to export most of that energy to the mainland in this case via an HVDC (high voltage direct current) cable.

But in 2011 one of the project’s main investors – the German company RWE – pulled out and one of their spokesman said “Tidal seems simpler to develop and it's going to be easier and quicker to develop than the Siadar (wave) technology”. 

Given the technology has already been proven this appears to be a quite bizarre excuse and frankly, I have real difficulty in believing it.  

Then in late 2012 it was announced that the cost of that HDVC cable had risen by a mighty 75% to at least £700m!   Needless to say this effectively signed the project’s death sentence and along with it the loss of over £5m of public sector investment. 

Highlands and Islands Council have quite rightly said that questions do need to be asked about the costs and the time scales involved in laying the HVDC because it would have allowed other renewable sources such as wind to transmit power to the mainland. 

I also think the Scottish Government should take a look at this project.  Whilst £5m or so worth of grants won’t break the public sector bank and I believe in the public sector supporting projects like this I can’t help but feel that we need to better understand what went wrong. 

Of course you can’t prevent private sector companies pulling out of a project if they’re not happy with it but I would really like to know why RWE entered into the deal in the first place if they were so unsure of the technology.   Seems to me they had plenty of opportunity to make that assessment before signing on the dotted line.

I’d also like to know why this project was aimed mainly at exporting electricity to the mainland.   Why not go for the local market and aim to achieve energy autonomy for the Western Isles.  Perhaps they might even have looked at using the Western Isles for trialling a range of new technologies including using some of the energy produced by the Siadar project to run electrolysers producing hydrogen for use as a transport fuel or as a means of storing energy by converting the hydrogen into ammonia making it easier to contain safely.

Perhaps a little more imagination and forward thinking might have made this a more affordable and beneficial project both in terms of what it would bring to the peoples of the Western Isles, the renewables industry in general and of course, Scotland’s industrial scene.

I say “perhaps” because of course nobody can tell whether the outcome would have been different or whether Voith Hydro – Wavegen’s owners – ever had any intention of doing anything but absorb the Wavegen “knowhow” into its German based headquarters and shutting the Inverness base down. 

Regardless, it should teach us a lesson.  Scotland has now lost the economic potential that Wavegen represented as well as the jobs of some talented people. 

This was a small company but a very smart one with a clever set of proven technologies.  That we allowed Voith to buy it in the first place was extremely careless but of course given the attitude of our glorious financial sector towards funding companies like this it wasn’t surprising. 

It would be nice to say this is unlikely to happen again but a number of ostensibly “British” renewable technology companies are now already foreign owned or have majority overseas shareholders.  So we need to be alert to the possibility of more losses of this nature although of course we won’t stop this until such time as the bankers et al adopt a different culture.  Yes I know - pigs might fly!

(first published in the Press & Journal "Energy" supplement April 2013)

Why Trump is very wrong.

I really wanted to write about shale gas economics and practicalities this month because there’s a lot that needs saying.   However, I’m really going to have to sort this bloke Trump out because he seems to be under the strange delusion that a golf course is more important than Scotland’s industrial future.   

Firstly, let me say that there are some aspects of his complaints and those of others that have leapt conveniently onto the anti windfarm bandwagon that I agree with.  For example, I accept the fact that wind energy is intermittent and that in certain weather conditions it’s utterly useless. 

However, the fact is that wind – and waves, tidal and solar - is here for as long as the planet is whereas oil, coal, gas and even nuclear most certainly won’t be because they are all dependent on inconveniently increasingly expensive resources.  Despite TEA party type anti climate change squeals of patriotic hysteria over possible American self-sufficiency even shale gas which is currently as cheap as chips in the USA will go back up in price as gas drilling reduces and reserves are sold off to bigger players who will ensure they make money out of it one way or the other.

Wind is then a viable long term resource and it’s actually really pretty daft arguing about this.  People may get upset over subsidies being paid to windfarm owners many of whom aren’t even from these shores and they may wish to complain that wind turbines are not particularly elegant devices.  Both views are legitimate but not good enough reasons to stop wind turbine deployment particularly offshore. 

Similarly, there are concerns over noise and certainly bad planning control of some onshore windfarms has led to what might be termed as “acoustic rage” because turbines have been installed far too close to housing.   This would seem though to be far less of a problem with offshore wind turbines because they have considerably larger but much slower and therefore quieter blades.

I find it interesting though that few people complain about the lack of indigenous investment particularly in large scale wind turbine technology.   Not many protest that none of the big turbines are built here by UK let alone Scottish companies.  Watching all those valuable sales falling into overseas hands is my own major gripe about the industry and to a large extent one of the reasons I support strongly the development of the European Offshore Wind Deployment Centre (EOWDC) which is of course the windfarm that Trump is complaining is going to spoil the view from his golf course.

So far the development of wind energy technology has been fairly straightforward and predictable.  We have progressively larger capacity turbines moving offshore where there’s plenty of space using latest generation direct drive – no gearbox – systems with lots of built in condition monitoring stuff all aimed at generating electricity that can be transmitted ashore via a fat cable – which incidentally we don’t manufacture either. The cable usually forms part of a subsea grid laid by cable vessels which we also don’t build.  In fact I don’t think we operate one now either do we?

So why do we need the EOWDC?  Because where we are now with wind technology is only the beginning. 

The industry still needs more efficient generators, systems that will start generating at much lower windspeeds, more efficient and “stealthier” blade designs, cheaper and better foundation designs, improved condition monitoring and control devices, better access methodologies, more effective maintenance methods and hardware replacement techniques.

There is also work to be done on power transmission, cables, connectors, switchgear and so on and so forth.

Most important of all though, we need to develop technologies to tackle the intermittency issue. In short that means energy storage.  It’s the “holy grail” for wind.  How to make sure windfarms are productive 100% of the time or as close as possible to 100% as we can get.

Maybe that doesn’t mean moving electricity onshore but producing something else that can be stored and turned into electricity later. Work is already going on with big batteries and we could use pumped hydro. Perhaps though we should be using the electricity to run large scale electrolysers that produce hydrogen that can be piped ashore. Some of that hydrogen can then be used to fire gas turbines to generate electricity for the grid and some can be stored to be used as a means of backing up the supply in times of low wind or indeed too much wind.

Actually this is of course what the PURE project is doing on Shetland although on an albeit much smaller scale.

Add to this though the possibility of using that hydrogen to produce ammonia for use as a liquid transport fuel and wind technology will become even more attractive.

So wind technology isn’t just throwing up opportunities now for high technology high value adding Scottish companies but I personally have no doubt that it will form a major part of the core of our future energy structure. It’s just that we haven’t yet scratched the surface of what we can do with it. 

Now I don’t want to get into commenting on Donald Trump’s golf course plan because I’m not a golfer. I’ve never seen the attraction. What I do know about golf though is that as far as I can tell from Scottish Development International’s data base Scotland only has one golf related manufacturer which is a company making clubs down at St Andrews.

It’s not fair perhaps to make such a comparison but it would appear then that the industrial potential arising from the EOWDC project is going to be considerably larger than Mr Trump’s golf course.  However, I see no reason at all why the two shouldn’t co-exist. In fact, if I was Mr Trump I’d use the EOWDC as a selling point to attract wealthy overseas investors and industrialists!!  No? Oh well – he’ll just have to live with it then.  

(First published in Energy – Mar 2012)

No Shipbuilding please – We’re British!

I like to think I’m fairly well educated, worldly and reasonably au fait (that’s French) with how and why certain things happen particularly when it comes to industrial and business issues even when those issues are of a political nature.

However, the question that completely stumps me time and time again is why on earth we don’t really have a civil shipbuilding industry of any note?

A few weeks ago I was sent a link to a report that Stavanger-based Møkster shipping has ordered a new subsea support vessel from Simek’s Flekkefjord yard in western Norway to the value about $55.5million with a delivery date of May 2014.

This was followed a few days later by an announcement by the Norwegian ship operator Eidesvik Offshore that it had entered into a contract with Kleven Maritime’s for a large multi-role subsea support vessel to be built by its Kleven Verft yard in Ulsteinvik, Norway.

Delivery is set to Q2 2014 and the contract value is said to be over $160million and this would make it the largest single investment in the company’s history.

Then I found another report that the Stavanger-based subsea construction company Ocean Installer and Norwegian ship owner/operator Solstad Offshore have ordered a large, advanced construction support vessel. This will be delivered in Q2 2014 and is to be operated by Ocean Installer.

The type OSCV 06L vessel has been designed by the Norwegian shipbuilder STX OSV and Solstad, in close co-operation with Ocean Installer.

These three reports are examples of how busy the shipbuilding industry in Norway is, plus there are plenty of other ships, drilling rigs and large construction vessels being built to Norwegian account around the world.

Of course Norwegian contractors and ship owners order new builds from Norwegian shipyards and you can pretty much guarantee that a lot of the hardware being fitted to those vessels will also be built in Norway or supplied by Norwegian companies.

For example, I’d be fairly sure that all these new builds will have Kongsberg dynamic positioning systems and probably acoustic navigation systems as well.

Nothing wrong with this but it just goes to show that, once again, Norway benefits hugely from having a highly-effective, integrated industrial strategy. This is of course something those of us on this side of the North Sea can only dream of.

Here’s an example of why we should be concerned. Much is being made of the importance of the upcoming decommissioning phase in the North Sea. We’re told how huge the value of all the work will be and how important it is to the future of the UK offshore industry.

Let me make a prediction. Because we don’t have an indigenous company that operates, let alone owns, a heavy or medium lift vessel then I seriously believe very little of that decommissioning work will end up coming here. I’m pretty sure most of it will go to Norway. We simply don’t have the marine assets to deal with it. Harsh but true.

However, to be fair, the UK does get some benefit from shipbuilding elsewhere. Rolls-Royce recently delivered 13 large azimuth thrusters to the world’s largest construction vessel – the Pieter Schelte – currently being built at Daewoo Shipbuilding & Marine Engineering for Allseas. The contract is worth around £18million and is the largest Rolls-Royce thruster order for a single vessel.

That said, £18million is a drop in the ocean (no pun intended – honest) compared to the overall value of that project which is over £800million.

On the other hand, R-R does own a sizeable share of the Norwegian offshore support vessel design, build and systems manufacturing capability. But it’s in guess where? Norway.

But the core question remains. While we may be good at building warships what happened to our ability to build ships for the civil market?

How on earth did we allow such a massive market slip through our fingers especially given the obvious importance of the North Sea oil and gas industry?

And, will we do anything to capture the market for installation, cable lay and other vessels to support the marine renewables sector?

Well, reading a few academic papers and other bits of literature on the topic it would seem to me that the demise of shipbuilding was down to the usual suspects, namely rank bad management, a lack of investment and either too much or too little support from government. They got the trade unions they deserved.

The biggest mistake by Government was of course to nationalise shipbuilding.

A thesis written by a researcher at Glasgow University explains that the Harold Wilson Labour government’s “Shipbuilding Inquiry Committee” and the “Shipbuilding Industry Board”, imposed technical and organisational solutions on the industry that were totally at odds with the shipbuilding methodology in competitor nations such as Japan.

This of course fatally damaged the industry during a time of demand for newly-constructed vessels. Now though that shipbuilding has been re-privatised the Government operates a hands off, market-based policy.

That simply means it does nothing.

Add to this though the good old British disease of under-investment in technology, production methods and of course the risk adversity of the banks then shipbuilding here probably didn’t stand a chance.

In Norway, of course, the opposite was true. Spotting the opportunity they went for it in a big way with the support of their government and their financial sector.

Could we compete now? Well yes we certainly could from an engineering and design standpoint but I would doubt the UK Government would want to support civil shipbuilding and I really can’t see the financial sector getting excited about it.

Frankly, neither has sufficient vision or the ability to think strategically enough to recognise the benefits of a shipbuilding industry.

In fact, I’m now beginning to wish I hadn’t asked myself the question.

 

(Frst published in "Energy" in July 2012)

Forecasters need to be independent and free of political bias!

If there is one thing that particularly annoys me its journalists and economists that have little real knowledge of the energy sector not just passing themselves off as oil industry experts but being accepted as such by some politicians because the story they’re being told by them just happens to fit their particular political aims. 

So it’s been recently.  The utter nonsense emanating from the idiotically named Office of Budget Responsibility regarding oil price and production volatility suits the UK Government’s argument against Scottish independence.  It claims – rightly - that tax revenue from North Sea oil and gas for 2012 is £7.3 billion, down from an estimate of £9.6 billion in March and the gas leak on the Elgin field contributed to a 12 per cent drop in production, while the industry has also suffered higher maintenance costs.

However, the OBR then claims though that oil and gas revenues will decline further to £4.6 billion by 2016/17 thanks mainly to a projected 18 per cent fall in prices!   Let me say that again – “a projected 18% fall in prices”

In a similar vein, Professor John McLaren of the Glasgow-based Centre for Public Policy for the Regions (CPPR) came out and declared that he agreed with the OBR. In fact he said - "It seems inevitable that future North Sea tax revenues will remain difficult to predict. Not only do oil prices remain highly erratic and unpredictable, but production from the North Sea also appears to be getting more erratic and difficult to predict.”

There are very few people I know whose opinion on oil prices I actually trust or have ever been proven roughly correct.  But for the OBR, which has got just about every forecast it’s made completely wrong, to dare to venture into the world of oil price forecasting and expect to be taken seriously is just ridiculous especially when it provides no sensible evidence for its claims. 

It is though particularly naïve of Prof McLaren to choose to jump on this particular bandwagon and I’m afraid he’s just made himself look silly by perpetuating the OBR’s ridiculous claims.

So why do this? Well it’s obvious really.   There’s a Scottish independence referendum coming up and the OBR is of course a member of the UK Government’s establishment.  So on this and other topics I simply don’t expect the OBR to be acting independently.  In fact I don’t even expect them to make any effort at all to be even seen to be independent. 

As to Prof McLaren, although he is a former Labour party adviser I don’t necessarily think that would have influenced his opinion.  His problem is that he didn’t really do his research and in particular he didn’t consult with his fellow academic and genuine expert Professor Alex Kemp.

Prof Kemp, Tony Mackay and my old friend Richard Shepherd of Petrologica who sadly died last year, are the only three I know who have or had a clear enough understanding of the industry and what influences it well enough to be able to come up with believable forecasts on both production and price. They also collect huge amounts of data from both the operators and the contractors. So they have well established “knowledge banks” from which to draw.

Fortunately, in Richard’s case the knowledge banks, forecasting methodology and modelling tools he developed have survived him and are now being managed and refined by his old team at Petrologica.

On one website Professor Kemp is actually quoted as saying "The OBR's combination of low production estimates with low price estimates is pessimistic compared with other predictions including our own."

He added that the OBR took their production estimates from the Department of Energy and Climate Change (DECC), who had used a very high contingency for production shutdown, leading to an unusually low estimate of future production and that in its October 2012 projections for oil and gas production. The DECC report admitted to applying “very significant negative contingencies to the aggregate figures.”

Just as importantly, Professor Kemp says the OBR estimates of future prices, were not based on the DECC report but on the future contracts market, resulting in a low price of $89 per barrel.   The DECC estimates of future oil prices are actually much more optimistic, with 2017 prices predicted to reach $120.

Putting the political shenanigans aside what concerns me most is the potential damage this sort of irresponsible assertions might do to the industry in Scotland and the impression they can have on those that have less understanding of the real situation.  Countering such nonsense isn’t easy because the mainstream media much prefers a negative story to a positive one.

Let’s face it, the use of emotive words such as “volatility” is designed to create the impression of an industry that’s unstable and has no real future.  The truth though is quite the opposite as the recent spate of announcements of new field developments and drilling programmes will testify.

In fact the Deloitte petroleum services group report on the UKCS that came out during January was pretty optimistic suggesting a “broader range of tax allowances and a sustained high oil price” had resulted in much better levels of activity during 2012, that field development approvals had reached a ten year high and eight “Brownfield development” project has also been sanctioned by the Department of Energy and Climate Change (DECC).  Importantly, they also say the final quarter of 2012 turned in the strongest performance of the year. We can now of course add to this that the EIA forecast of higher Brent Crude prices on OPEC supply cuts and demand increase out of China.

Optimism is important but accuracy in forecasting is critical.  Those that play politics with data don’t deserve our respect and should be given little credence.

(first published in the Press & Journal "Energy" supplement in Feb 2013)