Economic Report 2011
The Industry – UK-based with export capability
Over the past forty years, exploration for and development of oil and gas reserves in the UKCS have created an indigenous supply chain with an unrivalled range of products, services and expertise. The supply chain encompasses all companies – from operators to those providing the raw materials – whose skills are required in the finding and extraction of oil and gas. The capabilities of this extensive body of expertise continue to grow as new fields, with more difficult reservoirs, are developed and the operating lives of many mature fields in the UKCS are prolonged, in one of the most demanding oil and gas provinces in the world.
Traditionally, when speaking about the industry, most of the attention has been focused on the well known, major oil and gas producers that are recognised as household names, but they have been joined in recent years by a significant number of medium and small independents and exploration-only companies. While the major companies have always relied on the supply chain for much of their requirements, the newer and smaller companies rely to an even greater degree on contractors and suppliers to support their UKCS and, increasingly, their worldwide operations.
Figure 37 simplifies the complex domestic and global interfaces that currently exist within the industry. This home grown supply chain is capable of supporting activity primarily within the oil and gas industry, but has gradually extended – and continues to extend – its competence and expertise into other energy sources and other industries; it is perceived as a centre of excellence and is increasingly exporting its skills and products to many locations around the globe. The industry is always open to the introduction of new ideas and products and, accordingly, some goods and services to satisfy specific requirements are sometimes imported.
As an indication of the scale of the industry, there are about 120 companies registered with DECC as owning part of one or more of the offshore oil or gas fields in the UKCS, but there are almost 3,000 contractors and suppliers registered with FPAL1 and not all companies in the supply chain are thus registered.
The silent partner of contracting relationships within the industry has often been the supply chain which is a major contributor to the economy in its own right, providing not only highly skilled and well rewarded employment, but developing a range of new technologies in all areas of activity. The contractors and suppliers are also significant exporters of goods and services, estimated at £5-6 billion a year and supporting approximately 100,000 jobs, which has the added benefit of generating substantial tax revenues for the Exchequer.
As in other industries, the upstream oil and gas industry is well known for being cyclical in nature; activity is directly dependent on supply and demand which in turn changes in line with national and world-wide economic influences and oil and gas prices. Contractors and suppliers compete to be awarded work by operators and, of necessity, are forced to adapt quickly to increases and decreases in activity within the industry, while remaining internationally competitive.
When oil and gas prices fall, it is even more important for the industry to remain cost-efficient. In many economic activities this may mean a reduction in staff numbers, but in the oil and gas industry, as in other technology driven industries, it is essential to retain highly skilled staff because the next upturn can come along very quickly. Contractors and operators alike, therefore, seek better value by the elimination of waste, for example, by using standard rather than bespoke processes and contracts, where appropriate.
