UK supply chain key to £200 billion turnover for Oil & Gas sector

By Dale Benton
One of the greatest industrial success stories to come out of the UK has unveiled a plan to gain a profit of well over £200billion over the next 2...

One of the greatest industrial success stories to come out of the UK has unveiled a plan to gain a profit of well over £200billion over the next 20 years, all through supply chain.

The Oil and Gas Authority, established to regulate, influence and promote the UK oil and gas industry to maximise the economic recover (MER) of the UK’s oil and gas resources, has identified that its supply chain is crucial in achieving MER UK and maintaining a strong competitive advantage.

And a small turnover of around £200billion over the next 20 years.

To achieve this, the authority has unveiled the Supply Chain Strategy.

Supply Chain Strategy

The Supply Chain Strategy is a shared vision between the OGA and the industry for United Kingdom Continental Shelf’s (UKCS) supply chain to 2035, to grow the UK service sector’s share of both the domestic and global market.

The main goal of the strategy is to promote a new way of working across the oil and gas lifecycle, sustaining growing exports, reducing imports and anchoring activities and expertise in the UK.

The report states that the UKCS is known to be one of the most technologically advanced and diverse oil and gas basins with a successful; record of accomplishment over the past 50 years for pioneering new solutions.

The three pillars of truth: £200billion by 2035

For the strategy to achieve such a strong turnover it will be dependent on three conditions.

Maximise the economic potential from the UKCS by:
- Making cost and efficiency improvements to unlock additional investment
- Creating new business conditions between operators and the service sector where risk and reward are appropriately balanced
- Increasing UK service sector share of domestic work from 50 percent to 65 percent
- Collaboration through regional and multi-operator work campaigns

Anchor the service sector in the UK by:
- Leveraging funding and expertise to maintain and build technological advantage in the UK
- Maintaining and developing a skilled workforce, bringing forward a new generation of trainees
- creating a portfolio of diverse new work, including a special focus on offshore decommissioning and low carbon products
- Providing a platform for the industry to contribute to the new UK Government Industrial Strategy process

Double the accessible international market share by 2035 by:
- Identifying and promoting accessible and growing international openings
- Using the UKCS as a base to develop new technological solutions and to match them to potential export markets
- Working with government departments and trade associations to prepare UK companies to exploit new and developing markets

The supply chain secret to strong successes gone by

How important a role does supply chain play in the success of the oil and gas sector? Well, the UK oil and gas service sector had a peak annual turnover of £40million in 2014.

40 percent of that turnover was generated through exports and the supply chain supports approximately 80 percent of the UK’s oil and gas jobs and generates significant value throughout the UK.

That’s how important.

Running risks

When planning any strategy, risk has to be involved in conversations right from day one. The UK service sector is not without its strategic difficulties, be it lack of clarity of investment plans, worsening supply-demand balance and competition from lower-cost countries.

The biggest supply chain risks that must be addressed for the strategy to be successful include:

Low oil prices and high costs have reduced domestic and export demand. There is also low visibility and access to international opportunities.

Loss of UK capability and capacity as well as a lack of access to finance. This has resulted in supply being constrained to cost not value led operations.

The significantly reduced demand has cause an inability to attract new investment, reduced ongoing investment and a risk of losing key parts of UK supply chain.

There is a high cost base in the UKCS as well as a reluctance to adopt best practice. As a result of this, there has been reduced investment and confidence which lowers overall competitiveness.

Cost and efficiency is key to becoming competitive, regardless of oil prices.

UK’s role in global supply chain

The report highlights that the global technology, equipment and services market accessible by the UK is estimated to be around £440 billion. This is also expected to grow throughout the period to 2035 when it reaches £500 billion.

Big money.

It is estimated that the UK’s current share of this market is 3.7 percent, with the vision for that to increase to 7.4 percent by 2035.


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