Falling confidence in the UK’s business environment could put £450 billion of North Sea economic growth by 2040 at risk, new research from Offshore Energies UK (OEUK) has warned.
The body’s 2024 Business and Supply Chain Outlook report calls for policymakers to make the UK’s energy sector an attractive place to invest.
OEUK market intelligence manager and Business Outlook report author Ross Dornan told Energy Voice: “We have an exciting opportunity in front of us, to grow our energy supply, grow jobs and cut emissions. We’ve got the people and the companies to do it, but we need the investment to make it happen.”
With the UK moving towards a general election, OEUK warned that unstable energy sector policies undermined confidence in the stability of the UK’s energy sector.
“We’ve had four tax regimes in two years and are staring at the possibility of a fifth by the end of this year,” Dornan said.
OEUK warned that windfall taxes, previously levied in the wake of rising energy prices, are no longer warranted as prices fall. Retaining and extending them make it difficult for companies to plan investments and raise finance. They also reduce cash flow, and with it, reinvestment opportunities.
“What we’re asking for is more stability, a more joined-up policy and a longer-term outlook, because that’s needed to give companies more confidence and certainty to move things forward.
“The issue is we have a global race taking place and if the UK doesn’t make an active choice, we could lose out on that.”
Attracting investment
The UK is increasingly competing against European countries and the US to attract international investment in its energy sector. With these countries ramping up offshore energy projects faster than the UK, OEUK warned supply chain resources are leaving the country for more certain and competitive project pipelines.
“How does a company have the confidence to greenlight a potentially multibillion-pound investment when they don’t know what the tax regime is going to look like by the end of this year, let alone when their project comes onstream in two or three years or mid-life cycle in ten years?” Dornan said.
The report also warned that tier 1 contractors made significantly higher number of late payments, despite offering longer payment terms.
The OEUK report said that around of third of payments are not made on time within a 30-day terms, with Tier 1 contractors as the main culprits.
© Supplied by OEUK“We need bills to be paid on time,” Dornan said. “If not, it stretches companies’ cash flows and tends to be pushed down the supply chain to companies that can’t afford it.”
In addition, OEUK calculated that companies have around £30bn of capital opportunities planned until 2035. However, it noted that £20bn of this has not been approved yet, which could go into boosting the UK’s North Sea economic growth.
“The bulk of this is because of the economic viability of the project,” Dornan said. “Opportunities are becoming more difficult to get across the line and it’s getting more difficult to secure the capital.
“Within an uncertain landscape, if we don’t have the good policy conditions then the likelihood of realising that opportunity gets smaller.”
International market
Beyond the £450bn of UK North Sea economic growth lies an even larger prize for UK companies – an international market worth more than £1.1tn by 2040 across hydrogen, carbon capture and storage and floating wind projects.
“If we get things right here, we can compete internationally,” Dornan said. “We won’t just build the energy transition projects here, we’ll build energy transition projects around the world.”
According to OEUK’s report, the existing UK oil and gas supply chain already has 60-80% of the capabilities needed to develop these new energy technologies.
In particular, Dornan pointed out strengths in the UK’s subsurface capabilities and its maintenance and integrity sector. The country’s rigs stack can also be used to develop CCS projects.
These need to be maintained by ensuring investments in oil and gas, providing projects to bridge the gap between now and the transition to renewable energy projects.
“If we lose those rigs by moving them to another country, we’re giving them the opportunity to develop CCS capabilities that could have been based here in the UK, so we need to retain them,” he said.
Dornan also noted that there are multiple opportunities for the UK to scale up its capabilities, such as fabrication.
“We won’t be fabricating lots of turbines here, but we can assemble them and get them ready to take them offshore,” he noted.
“Assembling offshore plants, like substations carbon capture plants, hydrogen plants is a great opportunities, and supply vessels is a perfect example where we’ve got great capability, but the amount of capacity required into the future is huge.
“We need to think carefully about what we want to be known for in the UK, we’re known for great engineers, really innovative companies, let’s build on that.”
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