FROM ‘BLACK GOLD’ TO ‘HUMAN GOLD’ A Comparative Case Study of the Transition from a Resource-Based to a Knowledge Economy in Stavanger and Aberdeen Sachi Hatakenaka, Petter Westnes, Martin Gjelsvik, and Richard K. Lester MIT-IPC-06-004 July 2006 The views expressed herein are the authors’ responsibility and do not necessarily reflect those of the MIT Industrial Performance Center or the Massachusetts Institute of Technology. FROM ‘BLACK GOLD’ TO ‘HUMAN GOLD’ A Comparative Case Study of the Transition from a Resource- Based to a Knowledge Economy in Stavanger and Aberdeen# Sachi Hatakenaka*, Petter Westnes**, Martin Gjelsvik**, Richard K. Lester* July 15, 2006 MIT IPC Working Paper 06-004 #This research was partly sponsored by the Research Council of Norway, and we wish to acknowledge the support and encouragement provided by Kari Kveseth and her colleagues at the Council. The authors are especially grateful to Wei Gao of the Industrial Performance Center for his invaluable contributions to this research.We would also like to thank Knut Aam, Virginia Acha, Kourosh Bassiti, Ole Andreas Engen, John Finch, Maiken Ims,and Gunnar Nerheim for their insightful comments on earlier drafts of this report. Any errors are of course the responsibility of the authors. *Industrial Performance Center, MIT **International Research Institute of Stavanger. 1 Table of Contents TABLE OF CONTENTS ....................................................................................................................................2 LIST OF FIGURES .............................................................................................................................................5 EXECUTIVE SUMMARY .................................................................................................................................6 1. CONTEXTS ................................................................................................................................................12 1.1. INTRODUCTION .....................................................................................................................................12 1.1.1. The Local Innovation Systems Project .......................................................................................14 1.1.2. Oil and Gas Development in the North Sea Province...............................................................16 1.2. ANALYTICAL FRAMEWORK ..................................................................................................................19 1.3. RESEARCH METHODS............................................................................................................................25 2. OVERVIEW OF THE NORTH SEA PROVINCE..............................................................................26 2.1. ABERDEEN AND STAVANGER – GENERAL COMPARISON ...................................................................27 2.2. NCS AND UKCS – RESOURCE COMPARISON......................................................................................30 2.3. THE OIL AND GAS INDUSTRY IN STAVANGER AND ABERDEEN ...........................................................32 2.3.1. Operators......................................................................................................................................33 2.3.2. Main contractors..........................................................................................................................35 2.3.3. Integrated service companies......................................................................................................36 2.3.4. Service/supplier industry.............................................................................................................37 2.4. SIMILARITIES AND DIFFERENCES: WHY A STAVANGER-ABERDEEN COMPARISON MAKES SENSE....38 3. COMPARISONS OF PERFORMANCE OUTCOMES......................................................................39 3.1. OPERATING COST COMPARISONS .........................................................................................................39 3.2. INNOVATION COMPARISONS.................................................................................................................40 3.2.1. Use of new technology.................................................................................................................40 3.2.2. Patenting ......................................................................................................................................41 3.3. COMPARISON OF EXPORT PERFORMANCE/ORIENTATION ....................................................................43 3.3.1. Market...........................................................................................................................................44 3.4. COMPARISON OF DIVERSIFICATION EFFORTS.......................................................................................44 3.5. OUTCOMES OF OUTMIGRATION AND ACQUISITIONS............................................................................45 3.6. CONCLUDING REMARKS: KEY DIFFERENCES IN ‘PERFORMANCE OUTCOMES’ BETWEEN STAVANGER AND ABERDEEN................................................................................................................................................46 4. EXOGENOUS CONDITIONS ................................................................................................................48 4.1. GLOBAL INDUSTRY DYNAMICS ............................................................................................................48 4.1.1. Global policy environment..........................................................................................................49 4.1.2. Global consolidation ...................................................................................................................49 4.1.3. Oil prices ......................................................................................................................................50 4.2. LOCAL GEOLOGIC CONDITIONS ............................................................................................................50 5. POLICIES AND INSTITUTIONS..........................................................................................................52 5.1. NATIONAL GOVERNMENT POLICIES .....................................................................................................52 5.1.1. Research and Technology Policies in Norway ..........................................................................53 5.1.2. Research and Technology Policy in the UK ..............................................................................56 5.2. LOCAL GOVERNMENT POLICIES............................................................................................................57 5.3. FINANCIAL INSTITUTIONS.....................................................................................................................60 5.4. CONCLUDING REMARKS .......................................................................................................................61 6. LOCAL INNOVATION CAPABILITIES.............................................................................................63 6.1. LOCAL INNOVATION CAPABILITIES: INDUSTRY...................................................................................63 2 6.1.1. Operators......................................................................................................................................63 6.1.2. Integrated service companies......................................................................................................67 6.1.3. Service/supplier industry.............................................................................................................68 6.2. LOCAL INNOVATIVE CAPABILITIES: HIGHER EDUCATION AND RESEARCH ........................................70 6.2.1. Role of government ......................................................................................................................72 6.2.2. Institutional responses.................................................................................................................74 6.2.3. Relationship with industry...........................................................................................................78 6.2.4. Contribution in education ...........................................................................................................79 6.2.5. Contribution in research .............................................................................................................83 6.3. CONCLUDING REMARKS: LOCAL INNOVATION CAPABILITIES ............................................................92 7. PATENTING IN STAVANGER AND ABERDEEN ...........................................................................93 8. INDUSTRIAL DEVELOPMENT PROCESSES................................................................................101 8.1. LOCALIZATION....................................................................................................................................101 8.1.1. Establishing the oil capital: Stavanger ....................................................................................101 8.1.2. Establishing the oil capital: Aberdeen .....................................................................................105 8.2. UPGRADING/DEEPENING - NORWEGIANIZATION VS. FULL AND FAIR OPPORTUNITY.......................107 8.2.1. Norwegianization.......................................................................................................................107