Pressure on the UK’s energy supply chain is not sustainable. To remain competitive, the race is on to catch up with faster-moving countries, says Katy Heidenreich, supply chain and people director at Offshore Energies UK (OEUK).
Supply chain companies are the backbone of the UK’s offshore energy industry. They encompass companies of all sizes ranging from operators to large contractors delivering integrated oilfield services, and include small to medium enterprises (SMEs) with specialist capabilities.
Across the UK, these companies are delivering goods and services to oil and gas, wind farm, hydrogen and carbon capture and storage (CCS) project developers and driving advances in manufacturing and innovation.
In the East of England alone, our members include a broad mix including logistics and materials specialists, HSE providers, engineering consultants and geoscience experts, as well as operators and major contractors.
In 2022, supply chain goods and services generated almost £30bn gross value added (GVA) for the UK economy and provided jobs for more than 200,000 people across the country.
These companies in our supply chain continue to evolve to support low-carbon energy systems while also ensuring we have the fuel to meet our electricity, transport and heating needs.
Their contribution is immense, but OEUK’s supply chain members are under severe pressure, and we must help them build capabilities to deliver a home-grown energy transition. Our 2023 Economic Report said that total offshore energy spend could reach £200bn this decade in oil and gas, offshore wind, CCS and low carbon hydrogen.
Achieving the supply chain transformation required is only possible if we share a collective vision. That’s why we worked with Robert Gordon University to produce our Supply Chain Roadmap ‘Harnessing the Potential’ report. This sets out how the UK can support jobs, economic growth and innovation for the low-carbon future.
An important part of this Roadmap is the Supply Chain Spend Visibility Tool, which helps companies visualise future demand for their goods and services, and the investment that might be available to support their business cases.
This information is vital because recent surveys showed how little confidence businesses have in investing in future growth and the energy transition.
Last year, we published a report commissioned by the government to outline the potential supply chain opportunities in the emerging CCS sector. Our findings revealed that if urgent action is taken by governments and industry, CCS could be worth £20bn to the offshore oil and gas supply chain in the next 10 years, and £100bn by 2050.
The UK has most of the components necessary for a successful CCS sector: a big potential market for exports of technology and expertise; large industrial clusters; extensive gas transport infrastructure; and a good scientific understanding of the geological requirements needed for long-term CO2 storage.
However, our supply chain, although suitably experienced, is fragile, and the UK is at risk of losing it to more attractive opportunities elsewhere in the world if it does not secure a first-mover advantage.
Securing work like these CCS opportunities in the UK will benefit communities in Aberdeen, Inverness, Liverpool, North Wales, East Anglia, Lincolnshire, Yorkshire and Teesside. That’s where the existing offshore energy industry is well-placed to expand into new sectors, including CCS.
Within the industry we can also work better together. The supply chain’s health depends on sustainable contracting practices, and there’s considerable scope for improving performance in this area.
We have a framework called the Supply Chain Principles, which outlines ‘what good looks like’. These consist of 10 commercial behaviours that we developed with industry to improve practices in areas like fair allocation of risk and reward between customer and supplier.
We issue our Working as One survey to assess progress and drive continuous improvements in areas of concern. The priorities this year include promoting payment to suppliers on time, ensuring clarity of contractual terms and encouraging clients to be open to supply-chain-led innovation.
We are about to publish our ‘Procure to Pay’ Good Practice Guide, which tackles tardy payment, increases procurement efficiency and ensures consistency across the process.
As our industry transitions into low carbon energies we’ll need consistency across emerging sectors including offshore wind and hydrogen as well as CCS to ensure our supply chain is competitive.
We are starting work on sustainable contracting for offshore wind. Currently contractual risk is passed down to companies least able to take on such large liabilities.
Our industry needs to strengthen its commitment to driving earlier, more open, strategic engagement between operators and supply chain companies.
Through greater collaboration on demand planning, project scheduling and resource sharing, we can improve its competitiveness and ensure the resources are available for the supply chain to effectively support long-term energy supply. This is crucial if we are to make the most of the opportunity ahead.
In September, OEUK published its 2023 Economic Report, which revealed the UK must unlock £100bn of private sector investment so its supply chain and skilled workforce can build key projects to safeguard today’s energy security – and the renewable infrastructure to get the UK to net zero by 2050.
The report pinpointed the actions policymakers must take in partnership with business to get this investment moving and tackle the energy challenges facing the nation and its households.
It noted up to £80bn of offshore wind investment, of which OEUK members are helping to develop 13 GW of the offshore wind pipeline capacity by 2030. These projects alone require almost £30bn of private investment.
These are impressive opportunities; however, about half of this amount – £100bn – is waiting on Final Investment Decisions from businesses that need renewed certainty to sign off.
We are aware that we are in a global race for energy investment that is accelerating, and the UK must compete by making the most of its diverse homegrown industry, from oil and gas to offshore wind, hydrogen and carbon capture.
Globally, this is the lesson other countries have learnt. We must not get left behind.
Boosting supply chain confidence
For the supply chain to transform into new carbon energy, we ask the government to create an internationally competitive and level playing field to encourage supply chain innovation and sustained investment for a net zero future.
Within the industry, we need operators and clients to improve visibility and provide more certainty of the work ahead to help ensure the supply chain retains and invests in resources in the UK.
What businesses can do
Be proactive and motivated to seek reliable intelligence like OEUK reports.
• Get involved with trade bodies and raise issues.
• Engage with local MPs about the challenges and risks they face.
What's the biggest risk to the supply chain?
That we’ll miss this unprecedented opportunity to build on the bedrock of expertise in our world-class supply chain.
How do we address the risks?
Delivering OEUK’s Roadmap goal by 2030 is one of the ways we can enable our supply chain to accelerate the changes required to deliver net zero carbon emissions in the UK by 2050.
This is the sustainable future we are committed to building. One that recognises there’s no simple choice between oil and gas on the one hand and renewables on the other. It is not an and/or decision.
Private investment is therefore critical alongside government support so we can safeguard energy security and the homegrown jobs and the supply chains needed to build the low-carbon future here in the UK.
