Over the last four years since the collapse of the oil price and the resulting downturn in activity, much has been made of the oil and gas industry’s ability to withstand whatever troubles it is faced with. The phrase “survival of the fittest” has often been heard in company office discussions to indicate that only the strong will be able to endure the challenges currently being experienced.
The term was originally borrowed from Victorian anthropologist Herbert Spencer by Charles Darwin and introduced into the fifth edition of his book On the Origin of Species regarding the natural selection of animals. However, by “fittest” Darwin was not referring to physical condition. Instead, he meant “better adapted for the immediate, local environment”.
Why do I mention this? Because a new survey on the economic state of the North Sea suggests companies are demonstrating the same Darwinian determination to remain relevant by adapting to their conditions – rather than trying to cling on to their old strengths in changing markets.
The findings of the 31st Oil and Gas survey, conducted by Aberdeen & Grampian Chamber of Commerce in partnership with the Fraser of Allander Institute and KPMG UK, was of 90 UK operators and contractors employing approximately 55,000 people. It revealed more than half of the respondents (52%) reported an increasing demand for their products and services in non-oil and gas projects, with a further 25% actively pursuing work outwith oil and gas. Only 11% said they had no plans to further diversify.
More and more North Sea oil and gas businesses are seeing opportunities in activities such as decommissioning – an area where the UK is well positioned to become a global specialist – and renewables. A total of 86% of businesses said they expected to be engaged in decommissioning activity in the medium term while the survey also recorded the highest proportion of contractors since 2016 anticipating involvement with renewables projects in the near future.
Furthermore, 49% of companies suggested they were working to reduce their carbon footprint or develop low carbon solutions. The latest evidence of this has been the development of an agreement on carbon capture, usage and storage (CCUS) between a group of North Sea stakeholders – under the title of the North East Carbon Capture, Usage and Storage Alliance (Neccus) – and the Scottish Government. The alliance will drive plans for carbon capture and storage at the St Fergus Gas Terminal, near Peterhead, with reports that the £275 million Acorn CCS project is expected to be fully operational by 2024.
Further good news for oil and gas is that contractor confidence in activity in the UK’s waters is growing. The survey found businesses continuing to exhibit resilience in the face of ongoing uncertainty. The recovery in the value of production-related activity in the region is increasing, with 43% of contractors reporting a boost to the value of activity and more than half expecting the value of work to continue to grow.
Such confidence supports recent research from consultancy Rystad Energy that final investment decisions (FIDs) could be reached on up to 38 new UK offshore projects by 2022, representing more than $22 billion in investment. As part of this growth, Rystad expects the engineering, procurement, construction and installation (EPCI) market to grow by 65% over the next three years, with the subsea and seismic markets each growing by 35%.
There is every reason, therefore, to believe that there is still much to play for in the North Sea as we look towards 2020 and beyond. But it will be the fittest companies in the Darwinian sense that will have the best chance of surviving.
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