Inflexibility in the development of North Sea oil

Abstract

Collingridge has predicted that technologies with high capital intensity, large unit size, long lead time, and high infrastructural requirements will be inflexible, difficult to develop, and prone to very serious error. Early North Sea oil fields exhibited all these characteristics and were subject to major development delays and cost overruns. Developers were protected from the adverse consequences of these by the fact that the peak output of most early fields coincided with the very high oil prices of the late 1970s and early 1980s. This was not, and could not have been, forecast at the time of development and was therefore fortuitous. Net present value calculations demonstrate that many fields would have produced suboptimal returns if the scenarios considered likely at the time of development had materialized. Collingridge and James have also argued that inflexible technologies are associated with centralized decision making, concentrated expertise, and a strong supraorganizational sense of mission and that their interaction creates a systematic bias against smaller-scale, more modular technical alternatives. This too has been true of North Sea development, which was historically dominated by a few large multinational oil companies. The independents, who are associated with more flexible technical solutions, have had until recently only a marginal role. The authors conclude that a more sophisticated understanding of physical and organizational inflexibility is essential for good policy and has implications for the general debate about the relative efficacy of governments and markets in the area of technology.