Oil & Gas UK Economic Report 2015

Figure 23: UK Supply Chain Statistics by Sub-Sector

EY Supply Chain Study - 2013 Results

Support and Services

Total

Reservoirs

Wells

Facilities

Marine and Subsea

Turnover

£39.3 billion

£1.4 billion

£7.1 billion

£13.2 billion

£10.3 billion

£7.3 billion

Proportion of Total Supply Chain

~

4%

18%

34%

26%

19%

Percentage Exported

42%

57%

57%

33%

46%

34%

EBITDA Margin Average Wages (in sample)

13.1%

17.9%

13.3%

8%

11.1%

8.8%

£50,081

£51,140

£51,112

£49,122

£53,072

£47,957

Source: EY

6.5 Energy Security

A significant fall in the size of the market for oilfield goods and services is anticipated, reflecting the global decline in capital investment by most oil companies and the more immediate reductions in capital and operating expenditure on the UKCS. As a measure of the size of the change in the market, Wood Mackenzie estimates that the number of major project final investment decision deferrals represent over $200 billion in potential global capital spend. The ability to diversify beyond oil and gas may provide a buffer for those in the facilities, marine and subsea, and service and support sectors. However, most companies will be directly impacted and consolidation, through increased M&A activity, is likely as companies seek to become more competitive. As is often the case during a downturn, the drive to improve the efficiency of operations to tackle rising costs will differentiate companies (see Section 5 on pan-industry action to improve efficiency). It will be essential to sustain UK oil and gas production at sufficient levels to retain the country’s strong oil and gas supply chain capability. World energy demand is expected to grow by 32 per cent over the next 20 years, with oil and gas demand expected to grow by 28 per cent over the same period 10 , reflecting the long-term strength of the global opportunity for the sector.

Oil and gas provided 68 per cent of the UK’s energy requirements in 2014, as shown in Figure 24 opposite. The Department of Energy & Climate Change (DECC) estimates that there will be little change to this over the next 15 years. In the UK today, oil is predominantly (97 per cent) used for transportation, while gas is used primarily for space heating and power generation. Currently, just over half of the domestic demand for oil and gas is met by UKCS production, with the remainder imported. Indigenous oil and gas production is not only economically valuable, but also provides security of supply. The UK has been a net importer of oil and gas since 2004. Its import dependency sat at 48 per cent in 2014. By 2030, as demand for oil and gas remains but production declines, DECC forecasts imports to rise to 74 per cent.

10 Figures as reported in BP Energy Outlook 2035 , which is available to download at www.bp.com

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ECONOMIC REPORT 2015