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Rystad Energy’s energy supply chain report shows potential prize for the UK

18 April 2024

A new report published by independent research and business intelligence company, Rystad Energy shows the oil and gas sector’s supply chain possesses between 60 to 80% of the capabilities required to develop the UK’s low carbon energies, but targeted investment is vital to capture the potential of an estimated £150 billion opportunity. 

The research commissioned by OEUK is in a new report called ‘UK oil and gas supply chain and opportunities in the energy transition’. It aims to set out a clear path to inform key stakeholders of the breadth and depth of the UK oil and gas supply chain, its capability and capacity, plus its transferability and critical role in delivering Floating Offshore Wind (FOW), Carbon Capture Storage (CCS), and Hydrogen. 

Fresh data reveals the urgent need for strategic action to help supply chain companies seize the potential of a projected 4% yearly increase in spend (real terms) across offshore and onshore activity. Forecasts indicate this major growth phase will occur across the UK’s floating wind farms, new hydrogen schemes and carbon capture and storage projects from 2023 to 2040. Rystad Energy’s analysis underlines the successful delivery of these emerging low carbon energies will hinge on the existing oil and gas supply chain delivering into them.  

Katy Heidenreich, OEUK’s Supply Chain and People Director comments:   

“This report outlines the exciting opportunities a homegrown energy transition offers UK firms and their workforce to drive economic growth. It’s a reminder to policymakers and industry that if we can unlock supply chain investment, we can build world-leading businesses for the new markets that will underpin the low carbon energy systems of the future. 

“To seize these opportunities, we must nurture our offshore energy companies and their supply chains. We are in a global race for energy investment and the jobs this represents so we need long-term policies and a globally competitive tax system to make this happen. That means wider recognition of our supply chain’s strategic strengths and of the capital expenditure required for companies to scale up capabilities to secure this huge opportunity. Strategic investment now will prevent erosion of our world-class capabilities, which have a pivotal role in supporting the build-out of low carbon energies.” 

Sian Lloyd-Rees, OEUK Supply Chain Champion, said: 

“This analysis demonstrates the relevance of our oil and gas supply chain to the achievement of a successful energy transition. It provides a strong case for prioritising future investment in an existing capability to support achievement of the UK ambition for CCS, Hydrogen and Floating Offshore Wind (FOW). In addressing both near term deployment issues and strategic concerns about the potential export of supply chain capabilities, it provides invaluable data to help us work towards delivering a successful and smooth energy transition.” 

The report reveals urgent action is needed from government to tackle the decline in investment which has contributed to the scaling down of capital expenditure on UK capabilities in areas including engineering, fabrication, and construction. 

Rystad Energy’s analysis presents a compelling case for policymakers to collaborate with the offshore energy sector to create support systems. These would focus on maintaining UK supply chain capabilities to ensure they are ready and available to meet the anticipated surge in demand for new low-carbon energies as they become established. 

Published for this general election year, OEUK’s industry manifesto is calling for all parties to choose a homegrown energy transition built on stable long-term polices and fair returns for the UK’s offshore energy firms and their suppliers.   

Despite the UK’s early mover position, and sizeable investments into Fixed-bottom Offshore Wind which has benefited from government incentives, supply chain companies haven’t gained a strong foothold in the domestic market, evidenced by a low share of the major work packages in Engineering, Procurement, and Construction (EPC) and installation. With limited overlap in capabilities, equipment and assets in the oil and gas supply chain at only 21%, it has been difficult for UK companies to leverage early mover advantages, allowing international original equipment manufacturers (OEMs) and vessel owners to dominate the market.   

By comparison, in new energy segments like carbon capture and storage (CCS) and hydrogen, there is an opportunity to use the UK’s oil and gas expertise in handling high pressure volatile liquids and gases. Existing capabilities within the supply chain could support 84% of CCS spend and 80% of Hydrogen. With the industry’s heritage and experience of operating deepwater projects, it also has the capabilities to secure a potential 57% of the Floating Offshore Wind market.   

Rystad Energy’s data indicates that with the right investment environment, the UK’s offshore energy supply chain could benefit from a significant global export market in these three segments.  For hydrogen the accumulated forecast spend is around £590 billion and £470 billion for CCS between 2024 and 2040, representing much larger markets than those for Floating Offshore Wind market, which is valued at £100 billion. The supply chain also possesses significant design and engineering capabilities which, if invested in, could benefit from £125 billion of export opportunities over the same period. 

Fredrik Folmer Ellekjær, Partner at Rystad Energy remarks:

“This report has provided decision-makers with a fact-based, holistic and highly granular view of supply chain demand across energy verticals. The findings reveal that there is a significant call for the UK supply chain to scale up to meet domestic demand in most segments. However, not all segments are created equal. Retention of capacity in oil and gas segments in decline will be important to deliver CCS scopes and further development of UK capabilities on key enabling technologies in CCS and hydrogen will be needed to compete domestically and internationally.

Unlike oil and gas and Fixed-bottom wind, which has flexibility in offshore delivery modes, the new low-carbon energies will rely more on UK capacities, as a large share of the activity will be onshore or quayside. As such, scaling the supply chain is paramount to reaching government targets, as well as home-shore investments and secure export revenues. The outset to succeed is there with early mover advantages, a strong capability base and overlap with the existing supply chain.” 

The report is available from OEUK’s website here . 

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