Ready and Willing - How Scotland’s offshore supply chain can win from the energy transition

By John Pearson, COO at Petrofac

There are two golden rules of industry transformation: change is inevitable, and many people resist change. However, after a year in which all norms have been turned on their heads, there is no doubting that the North Sea energy supply chain has a genuine desire and motivation to embrace both net-zero carbon and the broader energy transition.

The societal benefits are understood and very well supported. The transition also provides a second growth horizon. We are prepared to learn and grow as we have done in oil and gas over the last half century. As co-chair of the Oil and Gas Authority’s Supply Chain and Exports Taskforce, and as a part of the Strategic Leadership Group for the Energy Transition, my strategic focus, along with my colleagues, is clear: to ensure that the UKCS supply chain realises its full potential in contributing to the world’s first integrated net-zero energy system in the North Sea.

The single biggest confirmation of the scale that transition offers, was articulated in the North Sea Transition Deal. Announced in late March, it aims to deliver between £14-16 billion of activity in decarbonisation, hydrogen and CCUS. The commitment to the supply chain includes voluntary UK content of 50% in new transition projects (and new decommissioning projects) as well as a 30% UK content commitment for technology spend. This deal really is a big deal.

We all know, however, that even the best plans and frameworks are only the starting point, and we all have to pull together to bring the potential to life.

For the supply chain, it’s about developing the right technical standards, taking what we have learned in oil and gas and overlaying that with quality and safety standards appropriate for renewable and low carbon projects. The industry’s technical expertise will of course be critical to the transition.

For Petrofac, in the UK we have committed to achieving Net-zero by 2025. Our strategy is threefold: reduce emissions; transform and maximise energy efficiency by adopting new technologies; and actively support our stakeholders in their net-zero journeys.

We’re also actively supporting our clients to transition to new energy economies.  The relevance and transferability of our expertise is well demonstrated on the Acorn Project – Scotland’s ambitious CCS and hydrogen programmes – where we are supporting the project team to establish the same best-practice project management and reporting tools that would be deployed on any major CAPEX project.

Ensuring that the UK is viewed as a good place for energy companies to anchor their resources will be key to the sector’s long-term success. It may have become fashionable for the UK supply chain to talk about avoiding the mistakes made in the wind space, but it’s also true. The UK has created the world’s most active offshore wind market and installed the most capacity globally, but it has lacked in the infrastructure and cost competitiveness required to secure the CAPEX opportunity.  Learning from those lessons, the Government is actively driving an initiative to develop the HCCUS supply chain in the UK and realise its export potential. We must take a proactive approach to plan what we need, develop a globally competitive proposition, and anchor key capability to the UK.

Making it real

There are three clear steps to making this real at company level, especially for SMEs in the supply chain.

The first – and most fundamental – is that government must continue to collaborate with Industry to create robust policies and a regulatory and fiscal environment that makes projects viable. A good start has been made with the government’s ‘10-point plan’ which is expected to create up to 250,000 jobs. However, the investment levels outlined don’t yet tally with the UK’s ambition and we need greater clarity on the economic incentives. We can have all the policy we want, but the reality is if we don’t deliver the right number of low carbon projects by the right point in time, the UK won’t achieve its Net-zero target.

Industry bodies and the Taskforce are progressing step two. They are making the opportunity visible, supporting us to take legacy oil and gas expertise and point it towards new projects. Bodies like the EIC are doing a fantastic job helping the supply chain get to know a whole new set of customers. For example, the Scottish supply chain still has a long and valuable OPEX opportunity to pursue in the wind space. By 2030, operations and maintenance in this area will be as big as it is now in oil and gas and we need to take advantage of that opportunity.

At company level, I would assert there is more than enough market information on the key elements of the transition. We can tell there’s a wall of work coming. Granted, we do not quite know what order these projects will land in, but we almost don’t need to know yet.

The third step is to put our best foot forward; by evaluating and building our skills base, understanding the applicability of vendor products and services, and filling in the gaps.

Future Energy Mix

We should also recognise that, for the supply chain, achieving net-zero and maximising economic recovery are not mutually exclusive. Instead, the two activity sets work in absolute support of each other.

Yes, the energy landscape is evolving, but oil and gas will continue to play a key role in the future energy mix – oil and gas still provides 75% of our needs in the UK. Our job is to support its delivery in a sympathetic and clean manner. On Petrofac’s projects, decarbonisation is an inescapable theme. We are minimising carbon intensity in the initial design and engineering phase, pursuing innovative renewable applications in construction, and driving new efficiencies in operation and maintenance.

A new era for the energy capital

Aberdeen in particular has a unique chance to leverage its skills, technology expertise and industrial base as the “new energy” sector grows. I’m confident the supply chain will evolve in size and scale as demand increases.

Recent investment in port infrastructure and the creation of Aberdeen’s Energy Transition Zone provide scope to create something of a ‘one stop shop’ and will undoubtedly help attract future investment, putting the city and its supply chain expertise at the forefront of the transition.

For these reasons, I remain positive about the role the supply chain will play in the medium term and also in Energy Transition. But there will only be a medium-term if the supply chain survives the short term. That’s why the Task Force has weighted its focus on real-time initiatives that support the visibility of activity that ultimately supports us all to stay profitable, retain jobs and the skills required to deliver the transition.

As an industry collective, we’re looking at how to stimulate activity in well plugging and abandonment, viable brownfield projects that have slipped down the capital discipline list or can’t attract cash, ensuring maintenance isn’t deferred for too long, and opportunities for training.

Our skills are hugely relevant to the future low carbon energy mix and as I’ve said before, there is no issue with interchangeability. But we must protect our capability and capacity through the downturn. In the support of the transition, the Task Force recognises it has a responsibility to sustain the supply chain in the here and now. We’re actively working to stimulate activity, generate visibility of work, create a simple and frictionless tender process, and championing 30-day payment plans.

These changes transforming the offshore industry are inevitable but also refreshing. I am confident that – through a combination of investment and infrastructure, innovation and ingenuity – the Scottish offshore supply chain will prove to be as much of a force in sustainable energy in the next century as it has been in hydrocarbons over the last 50 years.

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