Offshore Energies UK (OEUK) has warned that more action is needed from both government and industry to support supply chain companies in sustaining oil and gas activity, while helping to build low-carbon future energy systems.
The industry body's new report called on government to provide a stable regulatory and fiscal framework to give the supply chain a predictable business environment to continue investing in the UK’s energy security.
The report encompasses the hundreds of firms of all sizes providing products and services operators require to run North Sea oil and gas installations.
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 that during 2022, these companies helped the UK oil and gas industry contribute £28bn gross value added (GVA) to the economy, while also claiming that over the next decade, this sector plans to spend over £200bn, providing jobs for over 200,000 people.
“Through engaging with our members and feedback from two surveys, we know these companies face major headwinds on a number of fronts.
“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 and storage, and hydrogen production.
In 2021, the UK 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 OEUK support the jobs of around 80% of the 200,000 people employed by the offshore sector.
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.”
Based on the industry’s Supply Chain Principles, which set out what good procurement behaviours look like, the research pinpointed areas where the sector can improve, including the prompt payment of invoices, fair allocation of risk and reward between buyer and supplier, plus openness to supply-chain-led innovation.
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.
“Failing to act now means we will see investment, equipment and resources being diverted overseas, so the race is on.
“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 Working as One survey took in firms of all sizes, from oil and gas operators, major contractors and small to medium enterprises (SMEs), which collectively represent 98% of total production activity on the UK Continental Shelf.
It found that supply chain contract margins are being eroded by inflation, with the Consumer Prices Index (CPI) rising to 11% in 2022.
The research also revealed that 81% of companies suffered higher administrative costs following Brexit.
And almost all OEUK supply chain members reported up to 20% increase in operating costs since early 2021.
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