It’s not long since Subsea UK CEO Neil Gordon and his team moved out of Aberdeen’s Science and Energy Park and Bridge of Don to Surf City (aka Westhill) to immerse themselves in the world-class subsea community that has made its home there these past few years.
For Gordon this is important as relocation will make it easier to rub shoulders with member companies on a daily basis and to chew over issues, not least the role of government in promoting the success story.
“The subsea industry ticks all the right boxes with government; it tells a good story and it’s creating lots of jobs,” says Gordon. “They’ve (London) asked what, if anything, they could do for an industry that’s so successful.
“I said they should be helping. It’s about backing a good horse because the returns are going to be very strong.
“After all, they’ve been wondering where economic growth is going to come from. Why invest in industries that are never going to deliver the returns that subsea does, or indeed the wider oil and gas industry.”
Gordon takes comfort from the fact that London seems now to value the North Sea, with policy now focused on maximising recovery from the UKCS.
He appears encouraged too by the growth in maritime renewable, though many existing subsea firms active in the oil and gas space don’t yet see opportunities in renewables.
“Yet there are companies that until now have only been in renewable but which now want to get into oil and gas, and vice versa,” says Gordon. “The technologies are much the same . . . cable laying, transmission of power, surveys, construction challenges and, eventually, operations and maintenance.”
Gordon is excited by the way in which Subsea UK members have been gaining traction globally, often in challenging markets such as Brazil.
“Government . . . Scottish and UK . . . is trying to encourage exports; there is a realisation that oil and gas, and especially the subsea aspect, is very valuable. Not only that, we have an industry that’s going to be here for a long time.”
The current UK capability commands around one third of the global subsea market. But is it growing?
“We’re updating our figures to get a refresh on where we are now compared with three years ago and where we want to be (as an industry) in three years.
“Sample surveys suggest there has been strong growth over the past couple of years. But there has also been a lot of acquisition activity . . . the larger companies buying up the smaller ones, which have suffered through not being able to access the finance needed for growth.
“I would say that growth is still running around 10-15% annually. But what we need to get a grip on over the next few years is what companies need to grow their business. How do we make sure that they do?
“The really big work opportunities are deepwater in places like Brazil, which has huge potential. But like anywhere with huge potential there are massive risks too.
“A number of the bigger companies have come under pressure in Brazil, where local content is of course is a big issue. Small companies don’t necessarily have to have a direct presence in somewhere like Brazil and may be able to secure work through the first and second tier contractors, who will in any case be sub-contracting out a lot of work.
“There are good success stories; however, there are also companies that have been trying to get into Brazil for quite some time. But they find that the bar is set too high.
“Similarly, in West Africa, there are significant challenges too. Fortunately, many of the decisions for West Africa projects are made in or come through the UK, so it’s easier than Brazil.
“We haven’t looked at East Africa yet, though it’s on the radar.”
There are also places like Australia where, according to Gordon, there’s a lot of activity going on with loads of money being thrown at the likes of the Gorgon development and Shell’s floating LNG project.
However, with prospects of a massive shale gas bonanza, including in China, this begs the question as to what is the long-term prognosis for gas prices. And that could impact the subsea sector.
This means that subsea companies need to think carefully about where and how they place themselves in the market.
Gordon: “We’re currently preparing a series of market reports in co-operation with Scottish Trade International. We recently completed one on Brazil and we’re just finishing off Australia where there are five or six big projects happening simultaneously. West Africa is next. We’re looking at updating these every 12 months.”
Turning to the question of supply chain ownership, an issue that the Energy team feels strongly about, Gordon admits that it’s “quite small” for subsea.
“The number of companies bought up by overseas investors is quite high. And if you look at major vessel owners, apart from Bibby, they’re primarily foreign-owned.
“However, the strength of the UK is not who owns them, rather it’s the way in which it attracts the big companies as a place to operate from,” he claims.
“This (UK) is the hub of knowledge, skills, some of the technology and so-on. This is where many of the decisions are made and where the major subsea equipment manufacturers such as GE choose to build the systems.
“Don’t forget, GE moved the HQ of this part of their business from the US to the UK because this is where things happen.
“The challenge for the long-term is ensuring the relevance of UK as a strong hub as competition develops worldwide, not least in Malaysia and of course Brazil.
“The US Gulf of Mexico has long been a subsea hub, but it hasn’t experienced the sort of growth in subsea expertise as has been the case here.”
And so back to politics and whether the value proposition of subsea, let alone wider offshore energy, has sunk in.
Is Gordon really convinced that London has got the message; for example, energy minister John Hayes hasn’t been to Europe’s Energy Capital yet?
“They haven’t got the message yet, but I think they’re getting it. Charles Hendry was getting on with the job well and it is so unfortunate that we lost the continuity that he brought.
It’s like a game of snakes and ladders (with UK Government ministers). That’s disappointing.”
Subsea facts
o The estimated value of the subsea market in 2012 was in excess of £20billion
o We predict 100% growth in the next five years, taking us to £40billion
o The five top markets for UK-based subsea supply chain are the UK, Norway, Brazil, Australia and the US
o The UK subsea industry supports around 50,000 jobs and a recent Subsea UK survey said that the industry needed 10,000 more in the next few years to meet demand
o In terms of spread (O&G v renewables v defence) it is still predominantly oil and gas with less than 10% in marine renewables and defence. The marine renewables market is anticipated to grow, particularly in Europe
o There are approximately 800 subsea companies in UK, 250 of which are north-east based
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