The PSA has carried out a scenario analysis with four visions which explore what the petroleum industry might look like in 2035. These scenarios can make it easier to face the future in the energy sector ¬– both for the PSA and for the rest of the industry.
Preparing for tomorrow
Nobody can know with any certainty what tomorrow holds for Norway’s petroleum activity,” says Ingvill H Foss, one of the PSA’s directors of supervision.
But she points out that the authority knows a good deal about trends, development aspects and what it has called certain drivers.
“We’ve now assembled what we know – and not least what we don’t know. On that basis, we’ve created visions which we believe can help us to move forward – regardless of what happens.”
This exercise has addressed a series of questions which include how the petroleum industry could develop and what the HSE position might be in 2035.
Another is what measures must be adopted by the PSA to ensure that the Norwegian petroleum industry continues to be a world leader for HSE.
The resulting four scenarios point in fairly different directions.
Their purpose isn’t to show exactly what the world will look like, but to describe extremities which collectively delineate the opportunity space. The world of 2035 is unlikely to look exactly like the description in any of these visions, but the aim is to be prepared for developments which can take different paths.
Many companies pursue scenario analyses or similar methods, says Foss, who has been the PSA’s project manager in its collaboration with Rambøll.
“But the primary concern for most of the players is the resource position, access to exploration acreage, finding rates and prospects for oil and gas sales.
“Our work has had a different perspective, and it could therefore be useful for the companies to incorporate these findings in their strategic thinking."
“The analysis we’ve carried out shows large variations in trajectories for safety developments. They are bigger than those which usually emerge from discussions.”
Important subjects have been brought out with particular clarity through the work, Foss says. Examples include trends for regulation and collaboration between the parties.
“Several of the scenarios describe increased pressure on tripartite collaboration and challenges with supervising expertise. We must all be very conscious of these areas.”
Although the work is primarily intended to prepare the PSA for coming changes, she hopes that others in the sector will utilise the material in their reflections on the future.
“We’ve identified a lot of interesting and relevant information about coming challenges related to HSE. These visions will be good tools for discussion by all sides of the industry.
“Nobody knows for certain what tomorrow will look like. But the point is to be ready when it comes.”
Familiar tunes, unknown future
The Beatles provided the inspiration in naming the PSA’s four forward-looking scenarios. Norwegian Wood, Yesterday, Ticket to Ride and Hello, Goodbye reflect different trends.
Scenarios for the industry and HSE status
The PSA’s four scenarios are distributed around the intersection between uncertain and critical driving forces which will affect both petroleum operations and HSE status off Norway up to 2035.
The uncertain driving forces are:
- organisation of the petroleum sector: evolution or revolution?
- attractiveness of the Norwegian continental shelf: cessation and late life, or willingness to invest and faith in the future.
As a contrast to the uncertain forces, the analysis is based on conditions which are fairly certain to influence developments in 2018-35.
- Oil prices will fluctuate
- Efficiency gains and cost cuts will characterise the industry
- Technology developments and digitalisation will continue
- Work organisation and interaction will change
- Use of vessels will increase
- Environmental protection and sustainability will become more important
- Late life, tail production and cessation will characterise the industry
The PSA’s scenario
The PSA’s scenario project has been a major job. The texts presented on the following pages are short extracts from the four development trajectories described in the analysis.
Renewable sources have greatly expanded, but are still unable to meet energy demand on a global basis. Oil, and not least gas, remain important components in the mix. Crude prices are relatively high. A high level of demand has led to extensive exploration, and substantial discoveries have been made.
Many people have wanted to see a swift transition to renewable energy during this period. But oil, and not least gas, remain important components in the global energy mix in the scenario.
A high level of demand for Norwegian oil and gas leads to great interest in both exploring new areas and improving recovery from existing developments.
Some big discoveries are made in the Barents Sea around 2020, and declining production from the North and Norwegian Seas has been combated with new technology and specialisation.
Gradual technological progress has been made throughout the period. New intelligent solutions have helped to cut costs and boost productivity.
However, the advances have been smaller than the technology optimists hoped in 2018. People generally, both inside and outside the industry, nevertheless have faith in the future.
Oil prices remain on average around USD 80 per barrel during the period, but with big fluctuations.
HSE status in 2035
A high level of activity has created competition over personnel and expertise. Many assignments are outsourced to contractors and sub-contractors.
The physical workload has been reduced compared with 2018. Fewer people are now exposed to a burdensome working environment and hazardous conditions offshore.
Employers, unions and government continue to collaborate, but the unions seldom agree on joint action. Constant conflicts over staffing changes and restructuring are seen in 2035.
Norway’s petroleum sector is now yesterday’s news. After a period of exploration and technological optimism, most people have accepted the approaching end of the oil and gas adventure. Renewable energy forges ahead in investment terms.
Global demand for oil and gas is lower than most people envisaged in 2018. Crude prices have lain around USD 30 per barrel during the period, but with big fluctuations. Nobody any longer believes that they could return to USD 100.
A number of exploration prospects with high expectations have failed during the period. The big older fields are being operated by large energy companies, while tail output has been offloaded to specialists.
Existing facilities are characterised by demolitions and repairs.
The petroleum sector is now a sunset industry.
HSE status in 2035
Attracting key expertise is difficult. The physical workload has been reduced from 2018, especially on the newest facilities. Digitalisation and automation have cut the most hazardous jobs.
The feeling of being under surveillance and an uncertain future create stress and discontent among workers. Tripartite collaboration still functions at industry level, but is strongly coloured by politics. Few want to be a safety delegate.
Everyone knows maintenance offshore is inadequate. Public opinion increasingly sees the petroleum sector as a burden, and nobody wants stricter standards than in other industries.
Ticket to Ride
Oil and gas face strong competition from renewable energy, but remain necessary elements in the energy mix for a world with sharply rising demand. People have got used to low oil prices, and the industry has been forced to make drastic changes. Extensive exploration and big new discoveries mean that an optimistic mood nevertheless prevails on the NCS.
Climate-friendly solutions such as power from shore and carbon capture and storage (CCS) have improved the industry’s reputation in this scenario.
At the same time, digital solutions characterise the sector. Substantial discoveries have been made in both mature and frontier areas, and the NCS is known for innovative solutions.
Extensive involvement in the petroleum sector has created growth opportunities for Norway’s data processing industry. The NCS has a great variety of players in 2035, and dramatic changes have occurred to contract and collaboration models.
Offshore staffing has almost halved in the space of a few years. Operational centres on land operate a number of installations for several companies.
Crude prices in this scenario have fluctuated around USD 40 per barrel. However, the industry has realised that stepwise cost cuts are not sufficient.
HSE status in 2035
The physical workload declines sharply throughout the period from 2018.
A large proportion of the workforce comprises highly educated self-employed people who are hired in on a project basis. The degree of unionisation is very low.
Improved decision support from machines has reduced the risk of human error. Innovation and technology have almost eliminated traditional risk in the petroleum sector. Nevertheless, concern prevails that new solutions will introduce further risks.
Stringent environmental standards are imposed by society. No political will exists to open new areas for exploration. Renewable energy has taken big market shares, and oil prices are low. This means goodbye to Norway’s golden age of oil and gas. But technological progress says hello to a new era – characterised by exciting solutions.
Agreement is reached in the 2020s on stringent environmental standards for fulfilling international agreements. The period is marked by few petroleum discoveries on the NCS, ever declining demand and little political will to open new areas for drilling.
Renewable energy sources have taken big market shares, and oil prices are low, at around USD 30 per barrel for much of the period.
Society is characterised by big technical advances and new collaboration models. Petroleum operations are run by small departments in the energy companies. Digitalisation and automation have contributed to big cost cuts.
HSE status in 2035
Employment and contractual models have changed dramatically. Few workers are left on facilities and vessels, and most are contractor personnel with specialist expertise.
A number of them lack experience with old equipment. Older workers are squeezed out. New and interesting jobs have emerged on land at the interface between petroleum and other energy forms.
With few traditional oil workers left, the level of unionisation is very low. Collaboration between the parties has in practice withered.
Strict standards are still set offshore to prevent major accidents and environmental pollution, while working environment norms have come under even greater pressure.
New solutions are constantly being introduced – but time is not necessarily available in advance for extensive risk assessment.
Challenging established truths
Predicting the future is not easy. But scenario analysis makes it possible to lift the veil a little by providing visions of what tomorrow could look like.
These indicate the possible trajectories which developments could take, what might happen, what opportunities could become available and what challenges might have to be overcome.
“Scenarios aren’t forecasts or projections, but are meant to contribute to creativity, better decisions and improved preparedness for change,” says Kristin Karlsrud Haugse.
She notes that the analysis cannot predict specific incidents, but can identify key driving forces and trends which could influence future trends.
“The goal is to provide insights and challenge established truths, so that managers and decision-makers question their own assumptions,” Haugse says.
“Scenarios also help to give decision-makers a broad and long-term perspective. An important effect is to move discussion from ‘what will happen?’ to ‘what do we do if this happens?’.”
“We like to think the world will stay unchanged,” she observes. “Imagining alternatives is hard. But acquiring and systematising data about drivers and trends can reveal new aspects.
“It can also allow us to see what we already know with new eyes, and get us prepared in a different way.”
Taking good decisions is often a matter of identifying the current problem and solving it, Haugse notes. But concentrating on this alone can lead to big surprises.
“Technological changes, new business models and different ways of working are examples of conditions which can alter in dramatic ways.
“In purely practical terms, we can test ideas and decisions to see if they’re robust, or we can make changes which might fit several of the scenarios. Decisions or investments can sometimes be delayed until we see which of the outcomes we’re heading for.”
A scenario project can yield various benefits, Haugse notes, with its visions of the future as perhaps the most visible.
“The insights and preparedness for change which emerge from the actual work are equally important, though. In both cases, the process is significant.
“The goal is for the work to have an effect, and it’s important that the pictures painted are recognisable. So entrenchment in the organisation is very significant.”
She emphasises that scenarios must be incorporated in a strategic dialogue, both internal and external, and involve stakeholders and partners.
“This type of analysis has a long shelf life and will be useful and valid for many years to come. But you need to use it actively and keep an eye on which scenario is developing.
“The future sometimes arrives more quickly than you can imagine.”
Thinking the unthinkable
Scenario analyses were devised to win wars, and proved useful when the oil crisis hit in the 1970s. Today, they are contributing to better decisions in a number of areas of society.
This methodology was originally developed on behalf of the US armed forces as a tool to support military planning after the Second World War.
The aim was to combine certain knowledge with relevant unknown variables such as development aspects, driving forces and trends, and use this to describe the future in the form of visions."
Military strategist Herman Kahn, who headed the work on these analyses, applied the term “scenarios” to the resulting descriptions.
The technique of “thinking the unthinkable” was extended to non-military applications, with big multinationals applying it from the 1960s. Royal Dutch/Shell is among the best known.
In the early decades after 1945, rebuilding and stable growth dominated the world. A global oil group like Shell needed – then as now – to optimise management of resources and investment.
It adopted computing, and introduced an advanced computer system known as the unified planning machinery (UPM) in the mid-1960s to give all parts of the group an overview of the future.
Large quantities of data were systematised and used as the basis for predicting commercial developments and investment requirements.
The system gave Shell a six-year projection, but that quickly proved too short. It did not take account of uncertain and unknown variables, and primarily delivered “more of the same”.
As a result, the UPM was phased out by Shell in the early 1970s and replaced with a commitment to scenario analysis. Its combination of the known and the unknown helped to structure thinking about alternative trajectories for the future.
Shell’s timing was good. The stable postwar development gave way in the 1970s to economic turbulence – made explicit by the 1973-74 oil crisis.
This was unleashed when the Organisation of Petroleum Exporting Countries (Opec) imposed boycotts on many oil importers and drove prices sky-high. Both the market and the rules of the game in the international petroleum sector were altered.
Shell is said to have been one of the few oil companies which was prepared when the crisis erupted because of its systematic use of scenario analyses internally.
This meant the group was better equipped to position itself, and it thereby managed to emerge strengthened from the challenging conditions.
“When the oil crisis came, Shell was prepared for change,” explains scenario expert Kristin Karlsrud Haugse at Rambøll Management Consulting.
“It didn’t foresee the actual event. But one of its scenarios outlined a number of assumptions about market trends which turned out to be correct.
“This dealt with a pipeline accident with consequences for market supply and demand. Once the crisis occurred, Shell was therefore ready for that kind of change.
“It could therefore adjust more quickly than its competitors. To this day, scenario analysis remains a tool Shell uses to make provision for new shocks and changes.”
Many companies and organisations now use this method to prepare for the future. It is particularly valuable in sectors with long time frames, big changes or an important social role.
“Communications, construction, health and social care, education and petroleum are all examples of areas where long-term thinking is needed,” Haugse observes.
“Decisions taken in these sectors are often highly significant for society and have consequences which extend far into the future.
“Within these industries, scenario analysis can not only contribute to adapting successfully but also actually help to shape tomorrow.”