EIC’s Survive & Thrive research, which examines the most popular growth strategies employed by energy supply chain companies around the world, is now in its eighth year.
The 2023 edition highlighted a surprise return to boom times, so we took the chance to probe further into boom dynamics in the 2024 edition, and the findings are startling.
For 2023, 78% of companies reported achieving record revenues.
For 2024, that jumps up to 96% of companies expecting to achieve record revenues.
Perhaps what is the most startling is that the average 2024 growth rate is so high, forecast to be 24%, across the 134 companies that participated in the research this year.
© Supplied by EICFurther cementing these feelings of boom times are the research findings around the typical ‘Survive’ strategies of optimisation, resilience and transformation, all of which were at record-low levels of activity in this year’s research, indicating that companies are instead investing with more confidence in ‘Thrive’ strategies to drive growth.
We might then have expected these high growth rates to result in a jump up in the popularity of the ‘Scale Up’ growth category, but that’s not the case yet. We certainly do expect scale up to feature more heavily in the next two years, as companies are expected to see year-on-year record growth rates to continue into 2025.
What has driven record revenue growth?
In the context of Survive & Thrive research, diversification is defined as “expanding existing capabilities into other sectors, such as moving beyond oil and gas, to also be active in offshore wind.”
This year, only 22% of companies chose diversification as a growth strategy, the lowest rate recorded since Survive & Thrive research started eight years ago.
The most popular growth strategies this year were Service and Solutions, Energy Transition, Innovation, and People and Culture.
Diversification down in the popularity stakes this year – why is this?
Diversification was most popular in the years 2018-2021, ranging between 38% to 49% of companies preferring it, as they learnt that they could no longer rely on a previously lucrative oil and gas industry and needed to find alternative revenue streams.
This did not mean they were exiting oil and gas. In fact, they were looking for additional revenue streams to provide them with insurance for the lean years while also delivering the options for real and profitable growth.
The renewable energy sector was seen in those years to be the market with the most promise. This vision was stimulated by policymakers making broad ambitious statements around the criticality of renewable energy growth, electrifying the power sector, and making great strides towards achieving net-zero goals.
Indeed, as a direct result of such policies and from a starting point in 1990, the UK went on to be the first G20 nation to halve its emissions at the start of 2024, and the world saw record offshore wind installations in 2023 too.
So why has the diversification strategy lost its appeal?
Firstly, many who looked at the renewable sector back then have now shied away from it, disappointed by the low profit margins, the lumpy nature of contract awards, the delays in final investment decisions, and the high levels of competition.
Secondly, the oil and gas industry has switched from being in a ‘lower for longer’ and ‘lower for ever’ crisis to now being in a long-term boom, luring companies back to its higher margins.
What can we learn from diversification origins and destinations?
About 87% of the companies in this year’s study that did diversify originated from the oil and gas industry, diversifying into other destination sectors.
As EIC’s Supply Map database details, the energy supply chain still heavily relies upon oil and gas, arguably too much, so this move from oil and gas to something else is logical.
Even in boom times, companies remember the oil downturn vividly and know that they must keep their options open.
Which destination markets catch the eye?
You might think that the number one destination market to diversify into would be renewable energy, and indeed you would be right, with 23% moving into wind, and flirtations with hydrogen too, overall totalling 26% overall.
However, policymakers will be disappointed that only 26% are moving into renewable/transition, meaning 74% prefer non-renewable markets.
The top five target destination markets, after green, start with oil and gas, as companies move back into hydrocarbons to harvest the lucrative and buoyant field of opportunities.
Marine is popular, as that sector looks to decarbonise, as are data centres and conventional power.
Pushed by surging demand, the latter now sees investors back into Combined Cycle Gas Turbines and LNG to meet growing population and power demand.
Water and nuclear also feature and, beyond those, companies are also looking at non-energy markets like steel, telecommunications and pharmaceuticals.
Overall, companies are diversifying from just four origin sectors into 18 destination sectors.
Companies clearly see a wide array of market opportunities to consider when looking to grow into new diversified markets, which explains why no single destination market dominates.
What is the impact of energy policy on diversification?
A worrying factor that may further accelerate diversification into non-energy markets is the trend in markets like th
e UK for more aggressive anti-oil and gas energy policies, hoping to force supply chains to move to greener energy pastures more rapidly.
This research has shown though that companies will most likely not do this and will instead exit energy altogether.
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