As a result of a project to map the UK oil and gas supply chain, Oil & Gas UK this week released two reports. The first report: the economic contribution of the UK upstream oil and gas supply chain shows that the UK supply chain is a £35 billion industry, based on 2012 figures from businesses registered with Companies House.
The second report: the UK upstream oil and gas supply chain – market intelligence provides additional information on the size and composition of three selected sub-sectors namely: engineering, operations, maintenance and decommissioning contractors (EOMD); drilling and well equipment design and manufacture (DWEDM) and marine and subsea contractors and equipment (MSCE).
Oil & Gas UK, with the support of the Department for Business Innovation and Skills (BIS), the Department for Energy and Climate Change (DECC) and the Scottish Government, last year commissioned professional services firm EY (formerly known as Ernst & Young) to undertake this project. EY examined over 3,000 companies actively involved in the supply chain, with over half (1,585) of those companies identified as UK registered, with at least 50 per cent of turnover generated in the oil and gas sector and with 2012 accounts filed with Companies House. Those 1,585 companies form the basis of both reports. Given the range of sources consulted in this process, this is believed to be a strong representation of the UK’s upstream offshore supply chain.
The economic contribution of the UK upstream oil and gas supply chain report also reveals a strong export market, with a rise in the export activity of UK businesses. In 2012, exports made up 42 per cent of the £35 billion turnover for the upstream supply chain, a percentage which has remained fairly constant over the last five years.
Business Development Director at Oil & Gas UK, Stephen Marcos Jones, leads industry participation in the UK’s Oil and Gas Industrial Strategy. Jones commented on the potential to deliver huge economic benefit for the UK over the coming decades:
“Both the Scottish and UK Governments recognise that to stay as a global leader, we need to continue to work together to promote our advantage in the oil and gas sector and increase exports, helping to create jobs and growth. Just over half of the companies featured in this project are based outside Scotland and we are seeing very strong regional centres, in particular in the East of England, the North East and London, which act as hubs for fabrication, servicing the southern North Sea and commerce respectively.”
Additionally, the reports outline that the number of people directly employed by the supply chain increased by over 21,000 between 2008 and 2012, with the supply chain sector now employing some 200,000 people in total.
The announcement coincides with the one year anniversary of the UK Government’s Industrial Strategy for the oil and gas sector. The Industrial Strategy is the collective responsibility of Government and Industry Council and can be found here.
Business and Energy Minister Michael Fallon said:
“The UK’s oil and gas industry is a UK success story – contributing £35 billion to the economy and directly employing over 200,000 skilled jobs. We now have a very clear snapshot of the breadth and depth of the upstream supply chain.
“It’s encouraging to see that over 40 per cent of those companies surveyed are exporting their expertise abroad, and this is set to grow. Together through the UK’s Industrial Strategy, government and industry are creating the conditions to ensure that businesses are best placed to take advantage of emerging opportunities and compete successfully on the international stage.”
Scottish Energy Minister, Fergus Ewing MSP added:
“This piece of work clearly highlights the huge contribution that the oil and gas sector makes to the economy now and will continue to make in the future.
“As the report notes, given the history of the UK North Sea development, it comes as no surprise that Scotland dominates the UK geographic footprint of the UK upstream oil and gas supply chain.
“Increasingly, our companies are embracing the major opportunities in the oil and gas supply chain, winning lucrative contracts to export products and services from Scotland. This is the first time the scale of the oil and gas supply chain both domestically and internationally has been available in such detail.
“We have many creative and innovative companies capable of identifying growth opportunities in overseas markets, and with Scottish companies already operating in over 100 countries, it is clear that we will be continuing to make a significant contribution to this global industry for many years to come.”
Gordon Ballard, Chairman of the Oil and Gas Industry Council and UK Chairman, Schlumberger explained the significance of the reports:
“£35 billion in turnover marks a real achievement for our industry. In 2012, exports made up 42 per cent of the £35 billion turnover for the upstream supply chain, a percentage which has remained fairly constant over the last five years. The completion of this project is a real milestone for the sector and for the strategy, resulting in the most thorough piece of work ever undertaken to quantify the economic contribution of the oil and gas supply chain to the UK, and provide the market intelligence behind it.”
In addition to demonstrating that the UK upstream oil and gas supply chain generated more than £35 billion of turnover in 2012, data also shows that turnover increased by £11.4 billion between 2008 and 2012, with an increase of 290 companies in that same period.
This growth had been driven by the rise in capital investment on the UK Continental Shelf (UKCS), which stood at £11.4 billion in 2012, in real terms, the highest for three decades. This pattern may be set to continue as 2013 saw record investment of £14.4 billion and Oil & Gas UK’s 2014 Activity Survey forecasts around a further £13 billion of capital investment in 2014.
The accompanying UK upstream oil and gas supply chain – market intelligence report notes that the UK is a recognised world leader in offshore oil and gas developments, with the expertise developed providing a competitive advantage for UK companies competing internationally. Despite this fact, the report identifies a number of common sub-sector threats and constraints – the most prevalent of which was attracting and retaining experienced personnel.
Alex Milward, Oil & Gas Advisory Partner at EY, commented:
“The reports outline the significant opportunities facing the UK oilfield services industry, but identify certain barriers that must be overcome if growth is to be sustained in the sector. Crucially, the attractiveness of the UK as a place to do business must be maximised. Steps must also be taken to realise domestic and international demand for oilfield services and to promote the industry to new talent.”
In detail, the report finds that UK demand for EOMD services will be driven by decommissioning and international opportunities and limited greenfield and brownfield late life development and operations. The report also predicts that the cost of drilling will rise in the UK, resulting in minimal growth in the footage drilled, with future DWEDM demand being driven by development wells rather than exploration and appraisal wells. The report also notes that one particular area of demand is Enhanced Oil Recovery (EOR) despite only two major EOR programmes currently being underway. According to the report, the international market for DWEDM products is projected to rise significantly over the next five to ten years.
Finally, the report claims that the type of activity expected to drive the majority of future MCSE UK offshore demand is linked to late life development and operations, noting that new independent E&P companies will extend production life, with decommissioning and international demand predicted to grow in the future.