A balancing act: Oil, gas and energy transition

The crucial role of oil and gas in the UK’s energy transition and supply chain cannot be overstated. Around 83% of the country’s energy supply chain relies on oil and gas, but a sizeable portion of these companies – around 45% – have diversified into renewables and net-zero technologies. This trend highlights the critical role oil and gas plays in supporting the transition to a greener energy future. It also reveals an important and rarely acknowledged reality: there is, in fact, one integrated supply chain serving the entire energy industry. Understanding this interplay is crucial for both policymakers and industry stakeholders as they navigate the complex path toward sustainability.

Oil and gas fuelling new sectors

Despite the increasing focus on cleaner energy, hydrogen and carbon capture are still in their infancy. EIC data reveals that only 3.5% and 2.7% of supply chain companies are currently involved in these sectors, respectively. This suggests substantial potential for growth in these areas. However, the supply chain’s capacity and capability are under strain, with delays in net-zero projects more often linked to policy and funding gaps than to inherent constraints. Oil and gas companies, armed with transferable expertise and financial resources, can and already are playing a significant role in advancing these emerging sectors.

The importance of oil and gas expertise

The skills and capability developed within the oil and gas sector are indispensable for the advancing of new energy technologies. It is clear that the energy sector cannot successfully deliver innovative technologies without the foundational support provided by the oil and gas industry. Rather than demonising the oil and gas sector, governments, particularly in the UK, should explore how these businesses can be harnessed to accelerate the journey towards net-zero targets. However, EIC observes that oil and gas supply chain companies are, to some extent, being penalised as they make efforts to diversify into cleantech.

The semantics of transition

A key issue seems to be one of semantics. The Oxford Dictionary defines “transition” as “the process or a period of changing from one state or condition to another”. The reality is that businesses cannot immediately abandon their legacy operations. EIC members realise they need to undertake this transition all the way to net zero and are working towards that goal, but they will need all available support during the process.

Stifling UK policies

Globally, oil and gas remains a robust sector. EIC data on final investment decisions (FIDs) reveals a stark contrast between oil and gas projects and newer renewable technologies. As previously mentioned in this magazine, upstream oil and gas projects have an FID rate of 33.7%, compared to 4% for hydrogen projects and 0.1% for floating offshore wind. However, UK policies have left domestic oil and gas supply chain companies without sufficient opportunities at home, and they are unable to capture global opportunities due to a lack of government support.

The integrated approach

An integrated approach to policy is essential to enable the oil and gas supply chain to seize opportunities across different energy sectors in the UK. There are currently 1,344 energy projects in progress, with an estimated CAPEX of US$686bn across all sectors. Most investments based on commissioning up to 2030 are in renewables. However, the UK’s upstream oil and gas sector is facing challenges. As of July 2024, EIC data shows there are only 58 upstream projects in the UK, the lowest number ever recorded, with US$7.5bn having reached FID and US$26bn worth of projects under development. Notably, no new upstream projects were announced in 2024.

Supporting conventional and emerging sectors

It is crucial to allow supply chain companies to operate across both conventional and non-conventional energy sectors. If these companies are unable to take on oil and gas projects domestically or benefit from government support for international projects, many will face the stark choice of relocating or shutting down.

Recognising the ongoing importance of oil and gas while supporting the transition to renewable energy sources ensures that the supply chain can not only survive but thrive, contributing substantially to a sustainable global energy future.

By Mahmoud Habboush, Communications Adviser, EIC

We have seen companies struggle to access working capital, innovation and growth-related funding because, for the most part, their main business streams are still oil and gas. It does not matter that the projects they are seeking to diversify into, by investing and exporting, may be linked to renewables, decarbonisation or newer energy transition technologies; it matters only that their profits, or the profits of their customers, currently largely come from oil and gas – EIC Manifesto 2024

EIC members speak out

Adapt, diversify, collaborate John Roy, Director, Norco 

We are committed to ensuring that our expansion is not only profitable in the short term but also resilient and sustainable in the long run. Our people are our greatest asset, and their expertise is crucial to our success. We are committed to attracting, retaining and developing top talent in our specialist field. The oil and gas market is highly volatile, and our ability to adapt quickly to changing market conditions is a key factor in ensuring sustainable growth, along with diversifying our energy portfolio. While our core focus remains on critical power support for oil and gas, we are actively moving into supporting renewable energy projects such as solar and large-scale battery storage systems along with providing operation and maintenance services for hydrogen generation plants.

Simon Wynne, Head of ABB Energy Industries UK, Ireland and Azerbaijan

Policy instability is a significant contributor to delays in electrification in the North Sea, which poses a huge opportunity in terms of emissions reduction. However, we cannot just sit back and blame policy. At ABB we believe that while it is essential to work closely with government, it must be businesses that drive the energy transition. The scale of the challenge is enormous, and far too large for governments to tackle successfully on their own. We each have a role to play, small or large, to collectively drive progress towards achieving our energy transition goals.

Image credit | iStock | Iska Birnie Photography