Anoil field worker looks at oil well heads on a well pad at an oil sands operation near Conklin, Alta.TODD KOROL
Oil companies around the world are slashing costs across the board to cope with the plummeting price of their key commodity.
Those costs include spending on innovation through research and development (R&D), investments that for years have helped companies in the sector find more efficient ways to run their operations.
Cuts made to R&D today could slow innovation in the longer term, but experts say companies have little choice since the price of oil slipped by more than 50 per cent in the past six months to below $50 (U.S.) per barrel.
"It does not make sense for a company this year to expand R&D, or even next year," said Wajih Ahmed Choudhury, a Texas-based senior oil analyst with Thomson Reuters.
In fact, he said it could be another three or four years before oil companies start pouring money back into R&D, assuming oil recovers.
"Unless we see some geopolitical event, or some crisis happen that drags oil back up again, I don't expect companies to be investing heavily in R&D," Choudhury said. "They have to run a leaner machine."
He said oil companies have made a lot of progress with innovation in recent years, driven by R&D spending.
"They will reap the benefits of that now," as they look for way to cut more costs, he said.
Greg Stringham, vice president of oil sands and markets at the Canadian Association of Petroleum Producers, said there is pressure on companies to cut budgets, including some R&D programs.
Stringham said some long-term R&D spending programs may be reduced, alongside projects that are being deferred amid the slump in oil prices. However, he said research dedicated to both reducing costs and environmental impacts is expected to continue.
An example is technology used to reduce steam in an oil sands operation, which means lower fuel costs and fewer emissions.
"While lower oil prices are causing everyone to review the nature of all of their costs … companies see there is important R&D that is focused on cost savings and environmental reduction that is continuing on," he said.
One example is Talisman Energy Inc.'s Bigstone Plant Waste Heat Recovery Unit in Alberta, designed to transfer waste heat produced by gas turbine compressors and use it to heat liquids required to process gas. The process helps the company reduce its fuel gas consumption.
Another is at the University of Alberta, where the Imperial Oil-Alberta Ingenuity Centre for Oil Sands Innovation is studying how to separate the bitumen from the oil sands with little or no water use.
Stringham said the Canadian oil sands industry is also collaborating through organizations such as Canada's Oil Sands Innovation Alliance (COSIA), to reduce costs, improve productivity and reduce its environmental footprint.
COSIA said its 13-member companies have shared 777 technologies and innovations valued at close to $1 billion.
"Companies are doing a much better job of sharing their technology," Stringham said, which also helps them to manage R&D spending.
A Thomson Reuters review of oil sands research papers indexed in the Web of Science scientific archive also shows the number of papers published has increased since the last recession.
Top research areas included engineering and energy fuels, while The University of Alberta and The University of Calgary are the most prolific.
Joseph Doucet, dean of the Alberta School of Business at the University of Alberta, expects companies will cut R&D program strategically in the coming months.
"They will be thinking about it differently," now that prices are much lower, said Doucet. "$120 oil gives you the luxury of blue-sky thinking that $45 oil doesn't."
For instance, he says a $1 million R&D budget may be allocated differently than it would have during last year's budgeting process.
He too expects spending to continue on methods that help companies reduce costs, which have been rising in recent years for everything from energy and raw materials to the price of labour.
Innovation focused on reducing environmental risk is also important, Doucet said.
In the meantime, he says the university plans to continue its work on oil sands innovation.
"It remains a really fertile environment in which to do research and ask all kinds of questions – because there are so many questions to ask," Doucet said.
"There are so many challenges, but the good news is that, over the last 30 years, we've made tremendous strides in terms of being able to produce more effectively, use less water, emit fewer greenhouse gases, reclaim land more quickly … Things are getting better."