BY James McLean, ABN subsea features writer & director of subsea consultancy firm Zenocean
READING the latest Chamber survey and having witnessed several industry downturns, albeit never before with the impediment of something as wicked as Covid-19, the main thing that occurs to me is business confidence always takes a hammering and uncertainty always abounds.
The reality of the oil and gas market is that it is heavily compartmentalised where some companies can do okay, very well or extremely well, even through a downturn, whilst others can be caught in a state of suspension to standing on the edge of a precipice. It depends where they sit in the supply-chain.
Project lifecycles can be several years from inception to first production and therefore a postponed project can throw a schedule out and therefore cash flow, by 1-2 years or more.
A major issue now is that major export infrastructure is nearing end of useful life, and any delays to new production coming on stream can directly impact cessation of production dates, and precipitate early decommissioning.
The industry never fails to demonstrate however that it is hugely resilient and out of crisis comes diversification. The renewables sector offers certain opportunities to oil and gas players where in some cases there are clear and direct transferable skills.
It is the case that graduates coming on to the jobs market have always seen the boom bust nature of the industry and perhaps chosen the apparent safety of the I.T. or biotech sectors – just two examples.
At or during a downturn, shareholder pressure sees rates and headcount being cut, then shortage of talent upwardly impacts day rates and costs soar. It’s a case of history always repeating itself – the cycle goes on.
The late Matt Simmons continually warned industry that the balance between oil supply and demand was very much narrower than the International Energy Authority would have us believe. If he was correct, then importantly, reserves replacement is crucial.
This year has seen exploration levels collapse as a result of Covid-19 as well as the spectacular oil price collapse a few months ago, but European exploration performance has actually improved.
The UK became the first major economy to set a target of net zero emissions by 2050. The Energy Integration Project began in 2019. The project purpose was to explore how different offshore energy systems – oil and gas, renewables, hydrogen and carbon capture and storage, could be co-ordinated across the UK Continental Shelf for environmental and efficiency gains, including identifying technical, regulatory and economic hurdles. Huge opportunities must exist as a result.
The Chambers’ findings suggest skills are most frequently cited barrier to diversification, as well as access to funding and the cost of R&D. There is nothing new here.
I think opportunities always emerge out of diversity. I would suggest:
Brexit – whether we voted for it or not – opportunities to embrace different (our own) working practices, will hopefully drive growth.
Climate change diversification – will change behaviours and create opportunities.
Net zero targets – Carbon Capture will drive diversification and require new skills.
Healthy supply chain – we always need one – diversification will help feed this.
Partnerships and Collaborative relationships – the Chamber advocates ‘working in partnership to support industry’ – a prerequisite for ensuring there is a stable market for UK Plc. If we encourage a strong supply-chain and create world class companies, then UK headquartered companies can not only service their local market, but export their skills internationally when markets and Covid permits.