UK supply chain flourishes on record investment

Aug. 5, 2013
The oil and gas industry is the UK's largest industrial investor, providing hundreds of thousands of skilled jobs, exports, and tax revenues for Britain.

Mike Tholen
Oil & Gas UK
London

The oil and gas industry is the UK's largest industrial investor, providing hundreds of thousands of skilled jobs, exports, and tax revenues for Britain.

What's more, the sector is enjoying a period of strong growth. Last year saw record investment of £11.4 billion in new production, and the government and industry see this rising further to over £13 billion this year.

In total, oil and gas production companies have just under £100 billion of capital investment in their business plans. With 70% of investment typically spent with UK based suppliers, this is good news for the prospects of manufacturers, engineering firms, and consultants based across Britain.

The supply chain itself makes a significant and growing economic contribution. Its expertise is in strong demand internationally, boosting the number of jobs in the UK supported by the industry to 440,000 in total. Contractors pay £6 billion/year in corporate and payroll taxes.

In short, the offshore oil and gas sector plays an important role in maximizing the potential of the region's hydrocarbon resource bringing benefits to the UK's economy and long-term energy security, as well as developing the technical expertise which is in high demand globally.

With a tax regime that is working to promote further investment in oil and gas production, the UK economy as a whole is well-placed to reap significant rewards across the supply chain.

Potential of the industry

If oil and gas demand were satisfied through imports, it would be at significant extra cost to the economy. We are fortunate, therefore, that up to 40% of the UK's resource, supplied from our own reserves, still remains to be extracted.

Latest figures show oil and gas produced in the UK's waters meets 68% of the country's demand for oil and 58% of its demand for gas—over half of Britain's primary energy needs. Oil and gas will continue to be in demand as they are estimated to likely satisfy 70% of energy needs well into the 2040s, underlining the need to make the most of the natural resources around the UK.

Supply chain prospects

More than 40 years of exploration and production operations in the UK have resulted in a supply chain that offers a unique array of products, services and expertise, developed in one of the world's most challenging offshore environments; physically and economically.

The contractor community, which now generates £27 billion a year in total revenue, has capabilities across the oil and gas life cycle including in seismic surveying, exploration, engineering and design, fabrication, production, maintenance, and decommissioning.

Operating in a mature province has meant that Britain's oil and gas industry has developed expertise to extend infrastructure life and maintain asset integrity in particular. Companies are now working on ground-breaking programs right across the industry, pushing the boundaries of technological innovation. The industry's strengths in this area will enable it to effectively manage aging in all types of assets and export knowledge to an international market.

The UK is also at the forefront of finding cost effective ways to develop oil and gas and maximize the recovery of hydrocarbons, advances in subsea technology being just one example.

Some 70% of new UK developments make use of subsea technology, and according to Subsea UK, it's a sector of the supply chain now worth £8.9 billion. UK based companies now dominate the world-wide stage with 45% of the £20 billion global market and 66,000 jobs are supported across Britain. Moreover, the sector could grow to £11.1 billion revenues by 2016.

The UK's advanced and robust health and safety and environmental management regimes have also supported development of the well services sector, which grew by 10% to £1.9 billion revenue last year.

In fact, the expertise of Britain's service sector is internationally renowned and in growing demand around the world, with exports of around £6 billion/year. This undoubtedly helped towards the sector's 17% growth in revenue last year according to a recent report from Ernst & Young.

Heading in the right direction

Following constructive engagement between the industry and government, senior political figures have provided several signals of support.

The expansion of tax allowances, the provision of certainty on decommissioning tax relief, and the publication of the UK and Scottish governments' industrial strategies for the oil and gas sector are important milestones and will support economic activity across the country for many decades.

Record investment of over £13 billion is forecast this year, sustaining growth across the supply chain and reinforcing the industry's already significant contribution to the UK economy.

Such success, however, does not come without challenges. A steady and growing supply of highly skilled people is needed to continue to drive innovation in the industry, enabling ever more difficult reserves to be recovered economically.

Finding a sufficient number of skilled people is routinely cited as companies' biggest challenge. A lack of awareness among the general public about the industry's economic and technological contribution and the exciting careers it offers can prove an obstacle in this endeavor.

The industry is working towards finding the people required to apply leading technologies which will improve the efficiency of operations and to call a halt to the production decline of recent years.

Also, in order to raise awareness and understanding of the oil and gas industry and better map its contribution across the UK, Oil & Gas UK recently launched a campaign, "Energising the Nation's Future," supported by the UK government.

Oil & Gas UK is encouraging those who work across the industry to get involved in the campaign by registering their interest at its web site (energisingthenationsfuture.co.uk), mapping their location and relationship to the sector, and sharing their experiences.

This input will help build a new picture of the industry's UK-wide network of skilled workers and celebrate the breadth of the supply chain supported by the sector, so that understanding of what it offers and contributes improves.

The future of the industry

As an industry, it has never been more crucial that together, we convey the exciting and very rewarding careers on offer so that the economy can continue to benefit from the country's oil and gas reserves for many decades.

For the UK offshore oil and gas industry to grow and develop its technical expertise, it must also continue to maintain and enhance its robust safety and environmental regime and business environment in collaboration with government.

As the leading representative body for the UK offshore oil and gas industry, Oil & Gas UK membership comprises the full range of enterprises that are active in our industry from super major oil companies to small and medium-sized enterprises.

Our aim is to strengthen the long-term health of the industry by maximizing recovery of the UK's oil and gas resources, ensuring a sustainable future for the supply chain, and raising public awareness of the contribution it makes to the economy and energy security.

The UK offshore oil and gas sector is an exciting and growing industry, with companies of all shapes and sizes playing their part in its growth and development. There is much work to be done to ensure the industry can meet its full potential and Oil & Gas UK is proud to play its part in that aim.

Oil & Gas UK is the leading representative body for the UK offshore oil and gas industry. It is a not-for-profit organization, established in April 2007 but with a pedigree stretching back over 40 years.

The author

Mike Tholen is economics and commercial director for Oil & Gas UK. He seeks to foster a business environment that sustains the competitiveness of this mature oil and gas province. Particular responsibilities within the oil and gas industry trade body include fiscal and energy policy and regulatory affairs. He is actively engaged with HM Treasury and DECC on the future of the UK oil and gas fiscal and regulatory regime that will be critical to delivering the full potential of the basin. Before joining Oil & Gas UK he worked with Shell for 20 years, latterly holding a variety of commercial positions including economics and planning manager for the upstream UK gas business and offshore infrastructure manager in the Netherlands.