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COMPETITION BETWEEN TECHNOLOGICAL SYSTEMS IN PRE-SALT FIELDS
ADILSON DE OLIVEIRA Instituto de Economia, Universidade Federal do Rio de Janeiro
Campus da Praia Vermelha Av. Pasteur, nº 250, andar térreo, Rio de Janeiro, RJ – Brasil
CÁSSIO GARCIA RIBEIRO Faculdade de Ciências Humanas e Sociais (FCHS), Universidade Estadual Paulista (UNESP)
Av. Eufrásia Monteiro Petráglia, 900 - Jd. Dr. Antonio Petráglia 14409-160, Franca, SP, Brasil
ANDRÉ TOSI FURTADO Departamento de Política Científica e Tecnológica (DPCT),
Universidade Estadual de Campinas (UNICAMP) R. João Pandiá Calógeras, 51 - CEP: 13083-870, Campinas, SP, Brasil
Petrobras is a leading oil operator in deep-waters. Historically, the company opted for an incremental strategy to develop its technological capabilities to explore the Brazilian offshore oil resources. As the company moved to deep waters, the use of floating production systems with a Christmas tree installed on the seabed (wet completion system) proved the winning technology for the development of these resources. However, the discovery of supergiant oil fields in the Brazilian pre-salt prompted an opportunity for reviewing the technological trajectory within which the company has been moving so far. Petrobras can either continue moving forward along its incremental technological strategy (occasionally using dry completion platforms) or the company can risk moving the oil production systems to the ocean seabed (therefore eliminating the use of platforms). This radical move would give the company (and its suppliers of equipment and services as well) a leading technological role in the oil industry but would also imply on extensive challenges regarding science and innovation. Continuation with the incremental innovation strategy poses substantial risks related to both the harsh geological conditions of the pre-salt reservoirs and the logistic operation at 300 km off the coast. This paper reviews the past incremental strategy, adopted by Petrobras, identifying advantages and limitations. We also compare the challenges and risks related to both innovation trajetories. We believe that Petrobras is likely to explore incremental innovations instead of risking new, radical innovations allowing the company to gradually move its future oil production to the seabed. Interviews with key actors of the Brazilian oil industry (especially Petrobras) support our assessment.
1. Introduction Petrobras, created as result of a popular mobilization and a congressional decision, started its operation in 1954 without any important oil reserves or much expertise in the oil business. Despite the initial skepticism of oil experts, Petrobras is a successful oil company based on innovation capabilities (Victor et alii, 2012) and the company’s innovative approach to deep offshore operations is a key aspect of this perception1. Recently Petrobras announced the discovery of several giant oil fields in the pre-salt layer of the Brazilian coast (annex 1). Most of these reserves are not already dimensioned and proved, and the technology to operate it in competitive level is not fully available. A large increase in the Brazilian oil and gas
1 Petrobras was awarded the OTC (Offshore Technology Conference) prize in 1994 and 2001.
reserves and production is nonetheless expected in the next two decades, resulting from the exploitation of these fields (EIA, 2013 e IEA, 2013). To bring these oil reserves to the market place, Petrobras has to overcome remarkable technological challenges, however: the pre-salt oil fields are situated around 300 km off shore, in harsh geological conditions. A full range of radical though incremental innovations are needed to develop the logistics, materials, subsea equipment and the managerial expertise necessary turn production of oil in the pre-salt both economically and environmentally sound.
So far, Petrobras has been navigating along the Floating Production Systems technological trajectory based on the use christmas tree installed in the sea bed floor, flexible risers and FPSOs. Taking advantage of its monopoly over the Brazilian oil resources and the large incentives granted by the Brazilian government, Petrobras has had the managerial autonomy to make technological choices (de Oliveira, 2010). By coordinating an international network of innovation (Rocha and Ruiz, 2011), the company undertook large risks, gradually moving its operations along the relatively calm Brazilian post-salt platform (Furtado, 1998; Morais, 2013).
Conversely, the context within which Petrobras will have to operate to develop the pre-salt resources is radically different from the previous post-salt. The government is arbitrating the company’s management decisions both financially and technologically. Petrobras’ pricing policy needs to comply with the government’s macroeconomic objectives2 and its operational choices have to be submitted to a committee controlled by the government as well3. Moreover, Petrobras is moving from the position in which the company was short of oil to supply Brazilian refineries to a position in which it becomes a large oil supplier to the world market, and this in a period when the unconventional hydrocarbons technological revolution is drastically reshaping the oil market. In a few words, Petrobras will have to operate risks that are no longer determined domestically but largely by the global oil market.
The discovery of several giant oil fields in the Brazilian pre-salt layer triggered much enthusiasm in the oil industry. A new oil frontier was available, reducing the global economy dependence on the oil from the Middle East4. The Brazilian pre-salt was perceived as an enormous laboratory of innovation where oil companies and its suppliers would create a new set of technologies that should mitigate the risks associated with development of pre-salt oil. Almost all major oil suppliers have established R&D centers in Brazil, aiming to participate in the pre-salt technological development5.
Petrobras suggested that it could use dry completion systems, with tension leg (TLPs) or spar buoys (SPBs) platforms, but envisaged also moving the oil production system to the seabed,
2 The Ministry of Finances fix the company pricing policy. 3 A state owned company (Petrosal Petroleo –PPSA ) was created to participate in the management committee of each pre-salt licensed block. The new company has veto power on management decision of the oil operator. 4 There is good likelihood that substantial pre-salt oil resources will be found elsewhere, especially in the West coast of Africa that has a similar geology to the Brazilian offshore. 5 Some suppliers have been encouraged by Petrobras to undertake technology development for the pre-salt in Brazil. Six major companies in the oilfield equipment and service sector – Halliburton, Baker Hughes, Schlumberger, FMC, Cameron and Siemens - are placing research laboratories in the country. The focus of the work of these R&D laboratories is to develop solutions through an agenda in common with Petrobras (Vigliano, 2009a). The Technological Park of Rio de Janeiro (located at the Federal University of Rio de Janeiro) will house most of these R&D laboratories (Vigliano, 2009b).
eliminating eventually the need of a platform6. Continuity in the company’s so far successful incremental technological trajectory was not dismissed, however. The radical choice of moving the oil production to the seabed would give the company (and its service and equipment suppliers) a leading position in the oil business but would also imply on extensive scientific and innovation challenges. Continuing with the incremental innovation strategy poses substantial risks related to both the harsh geological conditions of the pre-salt reservoirs and the logistic operation at 300 km off the coast. In order to assess the risks and benefits associated of these two technological trajectories, we interviewed key decision makers in Petrobras.
In the next section, we review the literature related with technological change, aiming to understand how rupture from a lock-in technological trajectory may occur. We then examine the incremental strategy followed by Petrobras to become the leading FPSO operator in the world. Lastly, we compare the risks and the benefits of different technological strategies to develop the pre-salt resources.
2. Competition Among Technological Systems
Rosenberg (1982) argues that technologies are interdependent. Advances in a given technology rely on the advances of other technologies, making the process complex with sometimes unexpected outcomes. From this point of view, technological change is a phenomenon of clustering innovations. Freeman and Perez (1988) define the concept of the technological system as a set of radical and incremental cross-linked innovations. Under certain conditions, the competition among technologies can be regarded as the competition among technological systems. The choice of a dominant technology becomes a competition between companies or even between national economies7.
The search for the efficient set of technologies is a complex process governed by firms. Full of failures and successes, technological learning is a key aspect of the process. Firms move their innovation activities through technological trajectories, creating evolutionary patterns that lead to a set of cumulative technological characteristics, eventually diffused in the production of goods and services (OECD, 1992). A technological trajectory is standard way of solving problems within the framework of a certain technological paradigm (Dosi, 1982).
Technological trajectories are shaped by the selection context (a range of social, institutional, economic and environmental situations) in which the firm operates (Nelson and Winter, 1977). Although these contexts are influenced by the firm itself, its institutional setting is very relevant: regulations and laws can facilitate or restrain the use of new technologies. There is always a certain degree of uncertainty in the economic performance of new
6 It is important to note that this perception is based on field and documentary research. Regarding the field research, some interviews were conducted with senior executives of Petrobras and Brazilian experts in the O&G sector. 7 When the government supports its national firms, through multiple mechanisms such as the promotion of industrial R&D and funding of the first series of products.
technologies. The ability of the regulatory setting to mitigate the risks associated to these uncertainties is a crucial aspect of the innovation process.
Firms move along technological trajectories through evolutionary stages (Abernathy and Utterback, 1978; Dosi, 1984; Perez, 2003). At the early stage, a wide spectrum of possibilities and multiple concepts can be explored and there is plenty of room for radical innovations (Perez, 2003). The expected economic performance of the innovations is fundamental to choose winning concepts. At this stage, product innovations are more important and, most often, several technological concepts are competing, each one having the potential to become dominant. As the company moves along the technological trajectory, the number of technological concepts in competition is gradually reduced. Arthur (1989) suggests that the expected increasing returns of new technologies explain why a technological concept becomes dominant. Katz and Shapiro (1985) indicate that aspects related to the company are not the only relevant for its technological choice; network externalities (i.e. the cluster of innovators connected to the firm) have a strong push on the increasing returns of new technologies as well.
After a dominant concept prevails (Abernatty and Utterback, 1978), a more predictable avenue of innovation is opened (Sahal, 1985). The search for economies of scale becomes a central aspect of the process and the incremental innovations become increasingly relevant aspect of it (Rosenberg, 1982). Notably, once a technology is adopted by a large group of firms, it becomes dominant despite the fact that larger economic benefits can be expected from other technological trajectories. This situation typifies what the literature calls a technological lock-in, meaning that firms are reluctant to take risks associated with the adoption of different, although more efficient, innovations.
Technological lock-ins are usual when a new trajectory is too risky in offering a predictable economic return (Ruttan, 1996) and breaking out is most often related to a radical change in the selection context of the firm (Arthur, 1989; Dolsma & Leydesdorf, 2009; Cowan & Hulton, 1996). Cowan and Hulton (1996) list six reasons for breaking out of a lock-in situation: a technology crisis; new regulations; technological breakthroughs; changes in demand patterns; emergence of niche markets and scientific advances. These factors are largely associated with changes in the learning process and the technology selection context. Dolsma & Leydesdorf (2009) studied the situation where a firm moves from a two selection drivers context (market and technology, for example) to triple one where another driver (such as regulation) is added to the selection context. They found out that there is much greater chance of break-out of a technological lock-in when a third factor is introduced in the selection context.
Petrobras’ technological trajectory offers a good example on the roles played by the selection context in the innovation process. So far, geology was determinant to finding offshore oil reserves but its selection context was largely determined by geopolitics and the domestic regulations. The emergence of a technological break-through such as fracking is likely to disrupt the selection context in which Petrobras has been moving so far. Indeed, the technological competition between the supergiant oil fields of the Brazilian pre-salt and the shale resources of North America is just starting. And the regulatory frameworks in both countries, especially as the environmental regulations are concerned, will have a determinant role in their innovation processes.
3. Petrobras Technological Trajectory in the Offshore Segment
Petrobras initiated the evaluation of the Brazilian offshore in the 1960´s but the development of oil resources started after the 1970´s oil embargo, when the minimization of oil imports became a crucial piece of the economic policy8 (de Oliveira, 2012). The radical change in the oil market situation, both domestically and internationally, increased the economic attractiveness of Brazilian offshore oil. Petrobras reexamined its investment plan, concentrated in the downstream, giving offshore activities top priority (de Oliveira, 1977).
When the first offshore oil reservoir (Guaricema) was found at the end of the 1960´s there was no domestic expertise to develop it. The first production systems were fixed platforms, in shallow waters (30 to 50 meters deep). Petrobras hired international expertise to develop these reservoirs but the company promoted the acquisition of technological capabilities to operate offshore. Additionally, the development of a domestic network of equipment and services suppliers received closed attention from Petrobras management (de Oliveira, 2009). Indeed, international suppliers were required to provide technology transfer programs and Petrobras engineers were involved in the development of oil reservoirs (Freitas, 1993).
Geological data suggested similar oil reservoirs were likely to be found in the deeper waters of Campos basin. To speed up the domestic oil supply, the government invited international oil companies (IOCs) to take risk in exploring the Brazilian continental shelf. Although they would be obliged to eventually transfer oil reservoir operations to Petrobras, several operators were interested in exploring the Brazilian offshore (de Oliveira, 2012). Meanwhile, Petrobras changed its focus from the downstream to the upstream (Furtado, 1998).
Petrobras received unconditional support from the Brazilian government to increase its oil domestic supply, despite the need to undertake large technological risks (Ribeiro, 2009; Moraes, 2013)9. Petrobras was able to find several oil reservoirs in the Campos basin but the IOCs were less fortunate. They would have to go through the Petrobras learning curve of the Brazilian geology. Eventually, the IOCs lost interest to operate under the production sharing regulation proposed by the Brazilian government.
In 1977, Petrobras had the first experience with the semi-submersible platforms at a water depth of 120 meters (Enchova). A fixed platform was envisaged but the distance to the Brazilian shore (100 km) was operationally difficult. Petrobras opted for a floating production system, an opportunity for the company to be part of a small group of pioneering companies using semi-submersible drilling platforms converted to production units. Petrobras performed the conversion with the assistance of the Swedish company Gotaverken Arendal (GVA), a partner of Kerr-McGee in North Sea projects (Ortiz Neto and Shima, 2008). National shipyards were contracted to install the converted platform in Enchova (Petrobras, 2005).
8 A small oil reservoir was found near the shore of Sergipe at the end of the 1960´s. Between 1968 and 1975, six offshore fields in the Sergipe Basin, four accumulations in the Campos Basin, two fields in Potiguar basin and two fields in Alagoas basin were identified (Freitas, 1993). 9 In order to accelerate the oil output, “ more expensive equipment were usually used” (Ortiz e Shima, 2008) Moreover, “we put the platform in place while we were drilling and producing oil to achieve production targets. That we will never do again” (Ex manager of Petrobras in Moraes, 2013, p. 126).
The creation of the Superintendence of Exploration and Production (Supep), in 1979, marks a turning point in Petrobras´ offshore activities. Floating platforms were used the North Sea to collect information to assist the development of oil reservoirs. Supep suggested that these platforms were the best option for the development of the oil production in the Campos basin as their use would accelerate the oil production required by government, anticipating the cash flow needed to finance the company’s investment program. Moreover, these platforms would put marginal fields into operation at a lower cost plus they could be reused elsewhere (Furtado, 1998).
Between 1977 and 1983, 14 SPAs were implemented by Petrobras (Freitas, 1993). In 1985, the early production systems (EPS) were responsible for 42% of the Brazilian crude oil production and floating platforms became the standard practice in the Brazilian deep offshore. Petrobras established a close collaboration with the international network of innovation suppliers and adaptation of their technological concepts to the Brazilian offshore conditions was crucial for the success of this movement (Morais, 2013; Rocha, 2011).
In the mid-1980s, Petrobras identified large reservoirs in deep waters. Freitas (1993) argues that these findings represented a divide in the company’s technological strategy because it raised the expectation that it was indeed possible to provide domestic self-sufficiency to the Brazilian oil consumption. However, new technologies were needed to operate at water depths over 400 meters. Petrobras´ management saw the opportunity to use the government support to obtain self-sufficiency to take larger technological risks, which, in turn, could prompt its technological leadership in the deep offshore explorations (Furtado and Freitas, 2004). With no shareholders or regulatory constraints, Petrobras´ disposition to take large risks offered a unique opportunity for the cluster of innovators associated with Petrobras to test new technological concepts. The Brazilian offshore became a large offshore innovation laboratory, leading to technological awards obtained by Petrobras at the Offshore Technology Conferences (Salies, 2004)
In a reassessment of its decision to adapt foreign technologies to the Brazilian oil context, Petrobras launched, in 1986, a multi-institutional program (Procap 1000) to assist the company development of the Brazilian deep offshore10. Procap 1000 encompassed the redesign and improvement of a range of equipments used in floating production systems enabling their operation at depths up to 1000 meters11. Its main purpose was to extend the use of floating production systems for increasingly deep waters. Procap 1000 “was undoubtedly an important choice made by the company to build a technological trajectory based on floating production systems (Furtado, 1998)”.
The Swedish engineering company GVA was again subcontracted but this time only for the conceptual design of a semi-submersible drilling platform and the GVA concept was detailed by Petrobras engineers (Furtado and Freitas, 2004). Petrobras coordinated the development of these core technologies with the support of its network of international and domestic suppliers. It is important to remark that the incremental innovation strategy used to extend the
10 Procap 1000 was followed by Procap 2000 and Procap 3000 in order to develop technologies for deeper waters. 11 The floating production systems basically consists of a floating unit (semi-submersible or ship) that has a processing plant, the needed control systems, flexible risers , flowlines , wet christmas tree (WCT), manifolds and tanker for oil storage (Freire, 1986).
floating production system for deeper waters was not dissociated from the search for radical innovations such as the multiphase pumping for instance.
Unfortunately, the financial constraint imposed by the Brazilian economic reality at the end of the 1980´s forced Petrobras to shelf the idea of introducing radical innovations at the semi-submersible platforms. The company opted to move to lower risk technological solutions. Nevertheless, the technological knowledge gained was decisive to overcome the many challenges posed by the deep water oil production. Indeed, Petrobras became able to install and operate marine production systems with a wet completion without the use of divers.
From the 1990s, Petrobras began to use the Floating Production Storage and Offloading (FPSO) platforms adapting aged tankers. The first FPSO was put in place to explore oil in the North Sea in 1993 but these were unsuitable to operate in seas susceptible to storms, such as the Gulf of Mexico. However, the FPSOs are relatively easy to operate in mild environmental conditions as that in the Campos Basin. The FPSOs large storage capacity and their lower cost, especially when aged tankers are used, were the main appeals for Petrobras. The company took advantage several of its aged crude carriers (VLCCs) to convert them to FPSOs. In a few years, Petrobras became the oil company in the world with the largest number of FPSOs in operation (Ortiz Neto and Shima, 2008).
4. Is Pre-Salt a Technological Divide?
So far, Petrobras adopted an incremental technological strategy to move forward its exploration to deeper water. Indeed, improvement and refinement of the floating production system was preferred to radical innovations. “Somehow the Brazilian oil company adopted this technological trajectory for lack of choice. Scarce of financial and technological resources associated and facing the imperative need to increase domestic oil production, Petrobras had no option but to improve the system that was operating” (Furtado, 1998, p. 19).
However, after the discovery of the pre-salt oil reservoirs, Petrobras evaluated the possibility of using new offshore production systems. Despite the enormous economic potential of the reserves located in this new oil frontier, the number of technological obstacles (such as logistics, geology and environmental protection) to be overcome to enable hydrocarbon production is significant.
Petrobras is evaluating the feasibility of using the dry tree system as tension leg platform (TLP) or spar buoy platform (SBP) concepts not yet used in Brazil. Another possibility examined by Petrobras is the use of separation, reinjection and subsea pumping technologies that would eliminate the need of platform. In this case, the oil production will be sent directly to shore.
We identify three main technological trajectories that Petrobras could follow in the coming years:
• Continuity: to move forward into the floating production system technological trajectory adopted in the Campos Basin, characterized by the use of wet completion system, flexible risers and FPSO or semisubmersibles platforms;
• Intermediary: to start the use of platforms operated with dry completion, such as TLP and SBP using rigid risers;
• Subsea to beach: radical innovations such as multiphase pumping and laser drilling that would enable the elimination of platforms.
These technological trajectories have quite different risks and potential benefits associated to them and this choice, we believe, will not be solely determined by the pre-salt technological challenges. Brazilian regulations and the difficulties that the fracking technology will face to be used globally both should impact the decision making process of Petrobras.
4.1. Continuity Trajectory of Innovation
So far, the technological selection context within which Petrobras has been moving so far was favorable to opt for the floating production system. Indeed, the Brazilian government was prepared to offer large incentives to speed up domestic oil production; domestic regulation protected Petrobras from facing IOCs´ competition until the end of the early 2000’s (Morais, 2013) and geopolitics favored the search for oil outside the troubled Middle East. There were no economic barriers for Petrobras to access the various oil technological systems available worldwide and its cluster of innovative suppliers provided the necessary set of incremental (and a few radical) innovations needed to move forward the FPSO trajectory.
At the end of the 1990´s, the Brazilian regulation changed to open space to the IOCs. Many IOCs rushed in, adopting a partnership with Petrobras as a preferred strategy to explore the Brazilian offshore. This strategy would speed up their learning process regarding Brazilian geology and the FPSO technological trajectory. Meanwhile, Petrobras started to search worldwide for offshore opportunities where the company would be able to explore its FPSO expertise (de Oliveira, 2010).
This scenario suggested that a technological trajectory developed in Brazil could become worldwide dominant12. However, the discovery of several the supergiant oil reservoirs in the pre-salt radically changed this scenario. The Brazilian offshore oil regulation was changed again to give to Petrobras the leading role in the pre-salt oil development. A new state-owned company (PPSA) was created to supervise Petrobras´ operational and investment decisions in the pre-salt. PPSA is expected to guarantee that Petrobras and its partners will respect the government local content policy that intends to increase the domestic supply of equipment and services to the oil companies.
Petrobras then created a master plan for the integrated development of the pre-salt pole of the Santos basin (Plansal). This plan indicates that, after the acquisition of the data needed to start the development of the Lula reservoir, Petrobras intends to develop it in two phases. The first phase (1A) will run until 2017 and aims to achieve 1 million barrels/day production. It should further extend the floating production system technological trajectory, although a few radical innovations may be needed. During this phase, eleven (11) FPSOs will be installed,
12 Procap 3000 research focus was on innovation that would reduce the FPSOs costs and would improve its productivity (Ortiz, 2006).
three of them will be pilot and another eight (8) will be definitive identical platforms. The second phase (1B) should start in 2017 and aims to increase oil production to1.7 million b/d, by 2020. In this phase, Petrobras envisages the massive use of new technologies, especially designed for the pre-salt conditions (Agência Petrobras, 2009) 13.
Petrobras main focuses are the exploration of economies of scale (the reason for the 8 identical platforms) and its commitment to the government local content policy (de Oliveira, 2012). FPSO building costs is poorly related to water depth, they are easy to remove and can be reused in other reservoirs. Their large storage capacity is particularly relevant in the short and medium term because it avoids heavy investments on pipelines needed to transport the oil from pre-salt platforms to shore. Moreover the construction of eight (8) identical platforms is a clear indication for the government (and the Brazilian network of Petrobras suppliers as well) that Petrobras is fully committed to the government’s local content policy.
However, it seems that there are limitations to use the flexible risers at the pre-salt water depth, limitations that are likely to make the use of FPSOs unlikable. The R&D arm of Petrobras argues that the use of a new technology configuration (lazy-wave buoys) can solve these problems. In this configuration, intermediate steel structured buoys are installed below the surface and distributed in a central section, reducing the stress caused on the pipers by waves and sea currents (Figure 1). The intermediate buoys relieve the effort on the platform top caused by the weight of the riser and reduce the movement of its point of contact with the seafloor. This technological configuration was recently put in place successfully by Petrobras at the Lula reservoir (Petrobras, march 2014). Nevertheless, it is believed that that the lazy wave configuration is complex and it increases the costs of manufacturing and the installation of the flexible risers.
Figure 1 Laze Wave Configuration
Source: Takafuji (2010).
The major disadvantages of the FPSOs is that they require high cost flexible risers and that eventually they reduce the oil recovery rate of the reservoirs as well. However, the Petrobras management considers that continuity in the FPSO trajectory can benefit from over two
13 Operation at 300 Km from shore; drilling through a 1000 m of salt; harsh geological conditions, very large amount of CO2 production; sea water environmental protection etc.
decades of technological learning. Indeed, a former director of exploration and production at Petrobras pointed out in our interviews that the company engineers are risk-averse, a circumstance that inhibits the adoption of new technological systems.
4.2 Intermediary Trajectory of Innovation
In the 1980´s, new platform models emerged, aiming to compete with wet floating production system, such as the TLP and the SBP platforms14 and these became more widespread in the Gulf of Mexico and in the North Sea. A striking component of these models is that they use tendons to anchor the platform to the seabed, a solution that gives a high vertical rigidity to the platform (Figure 2).
Figure 2
Figure (a): TLP Figure (b) Models of SBP Source: (Larceda, 2007).
It is generally accepted that the practical limit for a standard TLP is about 1,800 meters (Williams and Leverette, 2009). Its record depth was reached by Conoco Phillips, in 2004, in the Gulf of Mexico (Magnolia), anchored at 1,433 meters. It is argued that the TLP would be a very expensive option because it is too large and difficult to be handled at pre-salt depths that exceed 2000 meters.
14 The first TLP was installed in the Hutton field in 1984. The first Spar Buoy platform was used in the Gulf of Mexico as well but in 1996.
The SBPs are formed by a vertical and deep cylindrical hull (up to 200 meters) with a mooring system based on spreading anchors and moorings lines. The SBP geometry allows a considerable range of motion but only slight vertical movements. There are three types of SPP: the classical, the cell and the truss (Figure 2). With this type of platform, Shell set a world offshore record (Perdido) at 2,450 meters water depth, in 2010. However, the cost of this platform (US$ 3 billion) is much higher than the FPSO platforms, even for those using new hulls15.
It is suggested that TLPs and SBPs both offers economic advantages compared to FPSOs, for the exploitation of the pre-salt reservoirs. They use less costly rigid risers and the dry completion systems are easier to control and to do interventions in the wells16. Moreover, the Christmas trees, when placed on the platform, are safer and do not need expensive and remotely operated vehicles (ROVs) for routine operations. Another advantage of the TLPs and SBPs is that they can have a permanent drilling rig on top, enabling the drilling of new wells and increasing the oil recovery rate of pre-salt reservoirs17. Researchers at CENPES call these technological systems “factories of wells in the middle of the reservoir”. This is particularly relevant for the development of reservoirs with small porosity and low permeability like Iara (a pre-salt reservoir).
However, SBPs would delay oil production in the pre-salt, jeopardizing Petrobras‘ need of fast cash flow to develop its pre-salt reserves. In parallel, this decision would compromise the government’s aim of quickly increasing domestic oil production to minimize Brazil’s deficit in the balance of payments as well. Although the movement to the SBP intermediary trajectory seems to offer no major technological difficulties, it can hardly provide the short term economic results that Petrobras and the government are looking for. Therefore, the dry completion system is likely to remain only a niche technological strategy in the Brazilian pre-salt.
4.3. Subsea to beach Trajectory of Innovation
The subsea to beach technological trajectory would lead to the full subsea handling and treatment of the fluids coming out of the oil reservoir. Efficient subsea fluid separation, reinjection and pumping technologies are essential for its success. The equipment installed on the seabed can either pump the crude oil and natural gas to shore, using a multiphase pumping system, or can be sent them to a platform installed in shallow waters. Figure 3 offers an illustration this radical strategy that would enable Petrobras to break out from the FPSO lock-in18.
Since the 1980s, all major oil companies started their technological search for subsea processing. Their main focus has been submarine fluid separation and multiphase pumping (Furtado, 1998). Petrobras R&D sees the pre-salt as a great laboratory for these new
15 To illustrate this difference, Petrobras signed a US$ 1.3 billion contract, in early 2010, for the construction of the FPSO P-63. Even if one considers that P-63 will be installed at a depth of 1,400 meters, there a significant cost difference between the two projects. 16 Conversely the installation of manifolds and wet Christmas trees (extremely heavy equipments) in the pre-salt will be complex and expensive because of the depths of the reservoirs. 17 The FPSO needs a mobile drilling offshore unit (MODU) to be called in, an extremely expensive operation. 18 The list of new technologies that have to be operational to give birth to this rupture is long (Albuquerque, 2007).
technologies. Accordingly, Petrobras signed a US$ 200 million contract with FMC for the development of a large scale prototype to be used in subsea fluids separation. Petrobras R&D believes this technology will be of great value not only for its use in the pre-salt but also as an enhancer for the recovery factor of the post-salt oil reservoirs as well.
FIGURE 3
SourceÇ http://www.odi.com/news/art/SubseaDataIntensiveNetworks.jpg
Indeed, the share of water in the fluid flow to the platform increases gradually to the detriment of the oil flow. Because the FPSO has a limited capacity to process fluids, its oil output decreases to accommodate the processing of an increasingly large share of water19. The FPSO solution for this problem is the closure of low oil flow wells and the opening of new ones. However this is a costly solution because the FPSOs do not have permanent drilling rigs. The processing of fluids in the seabed will “turn water into oil”. This trajectory would offer a solution to the problem of the high share of CO2 that will come out from the pre-salt reservoirs as well. The separation of CO2 in the seabed (followed by its re-injection in the reservoir) increases their oil recovery rate and it avoids environmentally damaging emissions. 19 Data released by Petrobras recently indicated that the fast decline in its oil production is the result of the processing of a large amount of water in the Campos reservoirs (Exame, 2014).
Petrobras joined a cluster of oil suppliers that are actively searching for technologies that will move the processing of the oil production to the sea bed. The company substantially increased its investment in innovation taking advantage of the large budget available for these activities, created by the Brazilian oil regulation (figure 4)20. Petrobras R&D perceives the future of the offshore oil production in the subsea processing.
A former director of Petrobras goes further. He believes the continuity and intermediary trajectories will slash the historical technological dynamism of Petrobras, killing an historical opportunity for Brazil’s industrial development. From his point of view, Petrobras will remain a follower of technological trajectories developed elsewhere while the seabed to beach trajectory will put Petrobras in the driving seat of the cluster of innovations for the deep offshore. He believes that the supergiant oil reservoirs of the pre-salt are sufficiently appealing to attract the suppliers (and their research laboratories) to a successful partnership with Petrobras.
The list of suppliers and oil companies that decided to develop extensive research activities in Brazil seems to confirm this view. At the moment Petrobras’ large suppliers – Halliburton, Schlumberger, Baker Hugues, FMC and General Electric have installed important research labs in the University of Rio de Janeiro technological park close to Cenpes - the Petrobras research lab. Others multinational companies like Siemens, V&M and TenarisConfab are intending to install their research facilities in Rio research park. Other companies like Aker and Cameron are building their research facilities in Curitiba and Campinas respectively.
Despite the euphoria with the subsea processing technologies, these technologies are still in the experimental stage. Moreover, Petrobras indicated that the Phase B of the Plansal has been postponed. The FPSOs will remain the company’s technological choice in the near future. It is unclear why the company decided to change its original plan but one can hint that the radical change in the oil market triggered by onshore fracking as a main competitor for the “seabed to beach“ trajectory has had a large impact on the Petrobras´ technological strategy.
Indeed, onshore fracking created a new technological trajectory that is challenging for the offshore trajectory in general and for the pre-salt in particular. Although this new technological trajectory is costly, it demands lower upfront financial resources as compared to the FPSOs. This is a substantial advantage in the current context of a financial market extremely risk-averse that is looking for stable regulatory situation. Operating in the North American regulatory stability, the onshore fracking major technological barrier is public acceptance of its environmental risk (Krupnick, 2013) but it is worth remarking that the environmental risks of the pre-salt are not negligible as well. The competition between the two technological trajectories (“onshore fracking” and ”seabed to beach”) is just beginning but it seems to have reduced Petrobras enthusiasm to adopt radical innovations already.
20 The Brazilian regulation requires the oil producing companies to use at least 1% of their revenues of their large oil reservoirs in technological research and development.
5. Conclusions
After the oil embargo of the 1970´s, Petrobras took advantage of domestic regulations, the geopolitical situation of the world oil market and the open access to the global offshore innovation process to develop the its offshore oil production. Eventually, Petrobras managed to be on top of a large cluster of offshore suppliers that supported its niche regional technological trajectory. Petrobras monopolistic power and the mild environment of Brazilian offshore were key elements for the success of its incremental floating production system technological trajectory. Although alternative concepts (using dry Christmas trees, for example) were developed for other regions of the world, the FPSOs became the dominant system for the Brazilian offshore.
The discovery of pre-salt supergiant oil reservoirs generated strong optimism concerning the future Brazilian oil supply, both domestically and internationally (IEA, 2013; EIA,2013). The growing political tension in the Middle East suggested that the pre-salt reservoirs would move the world search for oil outside that politically troubled region. The Brazilian continental shelf, geologically similar to the continental shelf of West Africa, should be the laboratory for the innovations needed to move the oil industry to the new oil frontier opened by Petrobras at the pre-salt.
Petrobras indicated that the company was prepared for radical innovations, necessary to deal with the technological barriers of the pre-salt reservoirs. The company organized an extensive program of cooperation with universities and research institutions, Brazilians and international, and duplicated the capacity of its research center (CENPES). The cluster of oil innovators that supported Petrobras through the FPSO technological trajectory saw the opportunity to participate in the development of a new offshore technological paradigm (seabed to shore), working with a risk taking company. They established R&D laboratories in Brazil, to assist Petrobras’ search for radical innovations expecting to have access to the large regulated fund available at ANP for domestic R&D. Meanwhile, Petrobras reversed its internationalization process (started in the1990’s after the liberalization of the Brazilian oil market), and gave priority to its domestic activities in order to rapidly develop its pre-salt oil production.
The Brazilian government announced a radical change in the regulation for the pre-salt, adding a third selection driver to the Brazilian technological trajectory. The break-out of the Petrobras floating production system lock-in had a greater chance to be successful (Dolsma & Leydesdorf, 2009). However, it was essential that the new regulatory arrangement was inductive of an innovation avenue of radical innovations that would lead to the seabed oil processing to be competitive with the floating production system.
Unfortunately, the pre-salt regulation was not oriented to an evolutionary pattern of radical innovations that would lead to seabed to beach trajectory. Indeed, the new regulation main objectives are to maximize the government’s oil revenues while pressing for import substitution of offshore equipment and services (de Oliveira, coordinatori, 2009). Moreover, the pre-salt regulation offers large room for the government interference in the decision making process of Petrobras, reducing its autonomy to take technological risks.
These new regulations were disappointing for the IOCs but they did not reduce the interest of the international cluster of Petrobras´ innovation suppliers in the pre-salt. The company is at the forefront of the floating production system technological trajectory and it has a track record as a technological risk taking company, a fundamental attribute to move forward any innovation process. The position of single operator suggested that the technological selection context that led Petrobras to the niche floating production system technological trajectory was recreated, at a time when a more complex technological trajectory adventure could become global because of expected large economic returns.
The 2008 global economic crisis and the emergence of the onshore fracking technological system blew up this expectation. The Brazilian government started to arbitrate Petrobras management decisions to handle with the country macroeconomic difficulties, deteriorating the company financial performance. Eventually, Petrobras was forced to retreat back to the incremental innovations along the floating production system trajectory in order to minimize financial risks.
We can expect a fierce battle between the offshore and the onshore for the technological capabilities of the global cluster of oil innovators in the foreseeable future. It is unclear how the cluster of innovators that so far has been supporting Petrobras will react to the company retreat to the floating production system. The complexity of the Brazilian regulation for the pre-salt exploration does not authorize optimism for the success of the pre-salt in this battle.
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ANNEX 1 – Pre-Salt location Map
Source: ANP (2010)