- Two fifths of firms report plans to accelerate their diversification post-CV19
- Around half expect to recruit new talent in the next 12 months
The latest data on the UK oil and gas industry shows the sector is on the cusp of dramatic transformation as it recovers from the impact of the coronavirus and positions itself for a low carbon future.
Significantly, 75% of contractors anticipate moving into renewables work over the coming three to five-year period, the highest level recorded since the question was first asked in 2015. On average, they believe oil and gas will account for less than three quarters of their business activity by 2025 – down from the current average of 86%.
The 33rd Oil and Gas survey, conducted by Aberdeen & Grampian Chamber of Commerce’s Research Chamber in partnership with the Fraser of Allander Institute and KPMG UK, paints a picture of fragile optimism and strong leadership among businesses operating in the sector.
The findings, which cover the six months to April 2021, show contractor confidence in the UK Continental Shelf (UKCS) has significantly improved from a net balance of -76% reported six months ago to +6%. This is a welcome rise from the expected forecast reported six months ago where 58% of contractors expected the outlook to worsen.
When combined with almost half (49%) of contractors saying they plan to hire new talent in the coming year, the research shows that the industry remains resilient and proactive in embracing change.
The challenges faced over the past year are however reflected in the reduced level of reported activity in production and exploration work. The net balance reported for production related activity of -15% indicates a continued overall decline, although this has eased from the -47% reported in 2020.
Looking beyond the UKCS, over the past 12 months optimism in the international oil and gas sector has increased for more than half of contractors (54%) with just 13% reporting a decline. The net balance of +41% in contractors’ current international confidence is up significantly from the -61% reported six months ago and above the 10-year average of +27%. This upward trend is expected to continue over the coming year.
The research also shows the sector is continuing to drive UK exports forward and is focusing on growing markets, with 69% of supply chain companies looking to up investment in developing new markets across this financial year.
When asked about plans to reach net zero, around a quarter of firms (27%) have set their own carbon neutral target with 3% already having achieved it and almost two-fifths (38%) indicating that whilst they are committed to being carbon neutral they have not set a deadline for achieving it. For those that have, ambitions range from 2030 to 2050 in terms of completion.
The report also indicated this type of target is becoming part of procurement processes, with 37% of firms expecting to evaluate their suppliers’ carbon footprints when awarding or renewing contracts. Firms cited a range of reasons for committing to reduce their emissions, with 56% citing environmental concerns, 51% seeking to increase their sustainability or longevity as a company; and 50% driven to improve perceptions of their own business.
Following the end of CV19 pandemic and removal of lockdown restrictions, 83% of firms say they will be considering a more flexible working policy with 80% considering replacing some face-to-face activity with virtual equivalents. More than two-fifths (44%) said they will be accelerating their diversification away from oil and gas and 43% will be exploring a reduction to their office footprint.
Martin Findlay, senior partner at KPMG in Aberdeen, said: “As we emerge from the pandemic, we’re facing a new set of climate-related challenges, driven by policy makers and an increasingly impatient public. With that in mind, it’s incredibly reassuring that our survey found contractor confidence in the UKCS has significantly improved from -76% six months ago to +6% today.
“The common misconception is that oil and gas is the cause of much of the climate crisis we face, when it’s actually often the driving force behind a potential renewables revolution. 75% of contractors interviewed for the survey told us they’re likely to become more involved in UKCS renewables work over the coming three to five-year period. That’s the highest level recorded since the question was introduced in 2015. Contractors also told us oil and gas activity would account for less than three quarters of their business activity by 2025 – down from the current average of 86%.
“The industry is on the cusp of transformation and much of our findings reflect the collective sense of anticipation. It certainly feels that in Aberdeen we are heading towards the ‘new normal’ after a long period of reliance on carbon-based energy sources.”
The survey also asks about the key factors influencing UKCS activity and the actions firms are taking in order to retain a competitive advantage. The level of demand is the most pressing concern for contractors, remaining a very important concern for the majority (75%).
Shane Taylor, policy manager at Aberdeen & Grampian Chamber of Commerce, said: “The survey results showcase a sector that is gearing up to deliver the energy transition in practice but one that is doing so from a relatively fragile position, both in terms of confidence and activity, as it looks to rebuild from the enormous challenges faced in 2020 and the market disruption driven by the pandemic.
“Given that the majority of our fieldwork predated the announcement of the long-awaited North Sea Transition Deal in late March, we expect the outlook to strengthen as government and industry look to invest in the sector’s pivotal role in achieving our net-zero ambitions.
“Not only is it clear that firms in the sector are taking steps to cement their commitments, it also seems likely that fast-movers in this area will be able to gain a real competitive advantage as net-zero ambitions become a more tangible part of the procurement process.
“These substantive changes to the way firms operate may well be just as transformative as their wider diversification efforts to local economies. In particular, the significant shifts in office usage and ways of working make it clear that the Chamber’s wider asks for a business rates review, reflecting the impact of the pandemic, need to be taken forward by government to reduce upfront costs and ensure that it’s attractive for firms to take up office space and invest in town and city centres.”