CERAWeek 2015 - Sustaining Innovation through the Cycle

Daniel Yergin, Vice Chairman, IHS, chaired the Monday afternoon CERAWeek plenary session on "Sustaining Innovation through the Cycle." The panelists discussed the importance of innovation in the continued growth and development of the energy sector, focusing on the challenges and opportunities of maintaining innovation through the current downturn in energy prices.

Steve Bolze, President and CEO of GE Power & Water, discussed how innovation must be bolder, faster, and smarter during the downturn. With budgets shrinking, GE Power & Water is focused on bringing customers bold, game-changing products or methods to do more with their existing assets. To do this, the company is applying the "FastWorks" concept of product development to understand their customers and to develop products quickly to meet their needs. FastWorks operates by developing minimally viable products that may not provide a complete solution but allow customers to provide feedback early in the product development cycle. By locating multidisciplinary teams employing the FastWorks approach together with the customer, GE delivers smarter innovation through a collaborative process. GE Power &Water is also experimenting with bringing entrepreneurs in-house whose experience in developing new products will bolster GE's ability to execute the FastWorks process.

Muhammad Al-Saggaf, Acting Head of Shared Operations and Services, Saudi Aramco, emphasized the need for companies to innovate to remain industry leaders. Echoing many of Mr. Bolze's comments, Mr. Al-Saggaf enumerated the five characteristics he sees as critical to innovation: tenacity, boldness, collaboration, diversity, and vitality. Mr. Al-Saggaf said that diversity is particularly important, as true understanding of an issue requires examination from many perspectives. Mr. Al-Saggaf noted that all five characteristics require continuity, and that short-term retrenchment in research efforts has a negative impact on the ability of individuals and companies to innovate in the long term.

Shaikh Nawaf Al-Sabah, CEO, Kuwait Foreign Petroleum Exploration Company (KUFPEC), summarized his view on whether to sustain research on innovation by quoting former UK Prime Minister Margaret Thatcher during the Gulf War crisis: "Now is no time to go wobbly." Mr. Al-Sabah said that companies with strong balance sheets and ambitions to grow must follow their vision to prosper. Those that do not, he said, will be disadvantaged compared with their peers once the down cycle ends. Mr. Al-Sabah sees the new normal of oil prices to be below $100 per barrel in the near term. His view is that companies will need to make long-term investments that smooth the vagaries of the business cycle. Deferring costs or laying off people may make short-term sense; however, this destroys the long-term supply of people and infrastructure necessary to achieve the full potential of future developments. Therefore, Mr. Al-Sabah said that KUFPEC invests in long-term projects that have multidecade benefits. These projects have already benefited from the current downturn as the cooling effect of low oil prices has reduced the cost of drilling rigs and oil-field services.

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By Alex Klaessig April 20, 2015

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.