Oil & Gas UK Activity Survey 2016

ACTIVITY SURVEY 2016

Impact on the Supply Chain

The UK’s oil and gas supply chain has grown significantly over the last decade in response to the increase in activity on the UKCS as well as demand growth for exports to the global sector.

In its latest review of the UK oilfield services sector, EY estimates that turnover rose by more than eight per cent per year from 2008 through to 2014 17 . This fuelled a boom in employment across the whole of the supply chain over that period. However, the sharp decline in investment and expenditure over the last 18 months has led to a severe contraction across the supply chain, the consequences of which will continue to be felt in 2016 and beyond. The supply chain has had to adjust quickly to falling demand for goods and services, as well as contending with a significant downward pressure on costs that is greatly affecting their margins. Figure 38 shows that turnover has fallen by around one quarter in 2015 with a further decline anticipated in 2016. The lack of new development projects on the UKCS has hit the engineering, procurement, construction and installation section of the supply chain the hardest, where a contraction of almost 50 per cent is anticipated by the end of this year. The future of the industry, and therefore the thousands of businesses and hundreds of thousands of jobs it supports, will depend on the sector’s ability to sustain investment through the downturn. The value of the supply chain’s contribution to the UK economy and the world-class expertise currently anchored in the UK are at stake. Many businesses will not be able to sustain falling revenues for much longer and, without a lift in activity, will inevitably have to focus resources in other sectors or look to migrate overseas. Actions the industry takes now will determine the future of the UK offshore oil and gas supply chain for many years to come.

Figure 38: Supply Chain Turnover

45

Seismic Drilling Contractors Well Services and Commodities Subsea Engineering, Procurement, Construction and Installation Maintenance and Operations

40

Forecast

35

30

25

20

15

10

Turnover by Supply Chain Sector (£ Billion)

5

0

2010

2011

2012

2013

2014

2015

2016

Source: Rystad Energy

17 http://bit.ly/EYoilfieldservices

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