Offshore Energies UK (OEUK) today warns that more action is needed from both government and industry to support supply chain companies in playing a critical role in sustaining oil and gas activity while helping to build the UK’s low-carbon future energy systems.
OEUK’s new Supply Chain report calls on government to provide a stable regulatory and fiscal framework which gives the supply chain a predictable and attractive business environment to continue investing in the UK’s energy security. It also asks government to work closely with industry to inform decision-making and policies which ensure suppliers have better visibility and certainty of opportunity and improve their ability to invest in technology development, skills and innovative ways to deliver a net zero future.
The report encompasses the hundreds of firms of all sizes providing the array of products and services operators require to run North Sea oil and gas installations and whose skills help ensure UK energy security. The report comes at a time when OEUK is urging the sector to develop and maintain strong business relationships with the supply chain with priority areas including fair allocation of contractual risk and reward and encouraging innovative ways of working.
Katy Heidenreich, OEUK’s Supply Chain and People Director said
“Our offshore energy supply chain is an amazing and strategic national asset. In 2022, these companies helped the UK oil and gas industry contribute £28 bn gross value added (GVA) to the economy. Over the next decade, this sector plans to spend over £200bn, providing jobs for over 200,000 people, as it expands low-carbon energy production.
“A world-leading, diversifying energy supply chain is developing, but through engaging with our members and feedback from two surveys, we know they face major headwinds on a number of fronts. Our sentiment survey revealed there’s a lack of confidence across the sector. Around a fifth of supply chain companies surveyed said poor visibility of the future UK projects is affecting their ability to plan and service activity both in the near and longer term, a problem that OEUK is working with industry to address.”
The report outlines how the UK’s energy supply chain ranges from major contractors with a global presence delivering integrated oilfield services to small-scale local firms with specialist capabilities. Many firms are evolving to support emerging energies including offshore wind, carbon capture & storage and hydrogen production. In 2021, Government recognised the supply chain’s critical role in the North Sea Transition Deal, which aims to accelerate the shift to a low-carbon energy mix, reduce greenhouse gas emissions and build a UK-based low-carbon supply chain with globally exportable expertise.
The businesses surveyed by the new report support the jobs of around 80% of the 200,000 people employed by the offshore sector. This supply chain is spread across the UK from Shetland to Southampton and Great Yarmouth to Morecambe Bay, with low-carbon energy hubs emerging in areas including Teesside and Humberside.
Katy Heidenreich commented:
“We are seeing businesses battling to control inflation and at a national level, we know Brexit has had an impact, making it harder to import and export goods and take advantage of business opportunities within EU countries. Most recently companies or all sizes in our sector have been hit by the uncertainty created by the increase of the energy profits levy (EPL)when we were already the most highly taxed industry in the UK.”
OEUK’s report includes feedback from its Working as One survey, which assesses how the sector is treating its supply chain. Based on the industry’s Supply Chain Principles, which set out what good procurement behaviours look like, the survey pinpoints areas where the sector can improve in areas including the prompt payment of invoices, fair allocation of risk and reward between buyer and supplier, plus openness to supply-chain-led innovation. All three of these comprise the focus of work groups OEUK has established to ensure industry addresses these issues.
Ms Heidenreich said:
“Our UK supply chain is critical to our efforts to deliver a carbon neutral basin by 2050 and our new report highlights the scale of the challenge ahead. Both industry and government have a vital role in ensuring this strategic national asset can continue to sustain current demand for oil and gas energy, while building the capability to deliver a home-grown low carbon energy economy.
“Failing to act now means we will see investment, equipment and resources being diverted overseas, so the race is on. We must ensure we work together to create an industry-wide solution to this challenge. We are stepping up our work with government to make sure the UK is competitive as a destination for manufacturing and investment and sharpening efforts to help ensure our supply chain captures at least half of the project activity ahead.
“Boosting our supply chain will enable us to develop engineering, manufacturing, services and technology expertise to support the evolving low carbon energy mix and create a globally competitive energy supply chain of international repute. The time to act is now.”
The report is available at https://oeuk.org.uk/product/supply-chain-report-2023/
-Input to the Working as One survey was provided by firms of all sizes from oil and gas operators, major contractor firms and small to medium enterprises (SMEs) which collectively represent 98% of total production activity on the UK Continental Shelf
-Supply chain contract margins are being eroded by inflation with Consumer Prices Index (CPI) rising to 11% in 2022.
-81% of companies suffered higher administrative costs following Brexit.
– Almost all OEUK supply chain members reported up to 20% increase in operating costs since early 2021.