Energy sector has bright future despite oil crisis, North East firms told at Square One Law event
In the face of the worst oil crisis in decades there are still numerous reasons to look to a brighter future ahead, delegates to a North East energy debate were told. Peter McCusker reports.
The North East and the Humber are two of the few remaining areas where people still do, what my father would call ‘proper jobs’, Neil Etherington of Billingham firm Able UK told attendees at The Energy Debate on Teesside last week.
While it raised a chuckle amongst the 100-or-so delegates, his point was pursued by one panellist with roots less wedded to the region.
Gran Potter, an American with an MBA from Stanford Business School, has been based in the UK for almost a decade, and now works for Blue Water Energy, a London-Based private equity business specialising in oil and gas.
He said: “While there are going to be challenges over the next 6, 12 to 18 months, we are positioning ourselves for growth beyond that.
“The core competencies for the industry are here in the UK, especially in the North and the North East.
“The technical knowhow in the North East, which stems from it engineering heritage is second to none in the world. It’s what we as investors like about this region.
“There will be opportunities in oil and gas, decommissioning, or offshore wind and the core group of people with the skills to do those jobs are here in the region.
“They can add value, and have ability and expertise to operate in technically difficult conditions. This makes these skills in demand across the world and can create multiple opportunities for the region’s people and businesses.”
David Gascoigne, UK head of power & utilities at advisers KPMG, say that in the long-term he remains optimistic for the future of the energy and offshore sector.
Addressing some of the immediate industry issues he said: “Companies are having a tough time and we are advising many clients who have disputes with the supply chain.
“Supply chain companies need to make sure contracts are sound and management processes arehave to be all over that, whilst looking after working capital in the really short term, There is no getting away from the fact sales are down by 30% for some companies.
Then looking ahead he continued: “In the medium to longer term I am more optimistic. While there is some uncertainty over the Government policy at the moment we are reasonably clear about its policy over the next 20 years.
“It says 100GW of new power generation needs to be contracted by 2030. One-third of this – some 27GW will be renewable – there will also be new gas power stations and nuclear will be a big part of that.
“The Government is very clear about this. They are committed to new renewable generation capacity. The challenge is commissioning it and keeping the cost down.”
He went on to say there has been progress with offshore wind costs being cut by 20% and that this focus on innovation plays to the North East’s strengths.
However he raised concerns over how this would all be funded. “The cost is a drawback. The Government’s Levy Control Framework budget of £7.5bn is already over committed. It’s not going to be enough.”
He added: “UK generating capacity has long since paid for itself and it is going to cost substantially large sums to update and replace it.”
Iain Armstrong, equity analyst at Brewin Dolphin, said the oil services sector was suffering from ‘a hangover after an eight-year party’.
“The industry is cyclical, as we have witnessed over the last 60 years. In the past it was three years up but this time the upturn lasted for eight years and we may have a further three to four years of difficulties ahead.”
He believes Saudi Arabia’s tactic of trying to wipe out the US shale industry is failing with the US shale players adopting practices from the aerospace and automotive industries, such as Six Sigma, to rapidly cut their own production costs.
He highlighted the UK’s strength in the subsea industry – as demonstrated by Total’s Laggan Tormore field which came on stream last week, and features 80-mile subsea tiebacks to an onshore Shetland Isles gas station.
He continued: “These UK skills sets are world-leaders and in great demand in other offshore basins in Brazil, North Africa and the Middle East.”
He added: “Do not get too pessimistic, the long term demand is still there. Transport is the largest market and the demand is growing in the emerging markets. We are not yet at the stage where electric cars will dominate the market.”
The Energy Debate: ‘What Does the Future Hold?’ took place in the Grand Marquee at Wynyard Hall organised by Square One Law in conjunction with Brewin Dolphin, KPMG, NOF Energy and Tees Valley Unlimited.
He said this is the result of the period of heavy investment which pre-dated the oil price crash, although he believes the ‘worst affects’ have yet to be felt on the North East supply chain.
He believes supply chain companies should look to explore less affected and developing geographies such as the Middle East, South America, Africa and the Gulf of Mexico, as well as new sectors.
“The precision engineering and offshore skills of the supply chain companies can help our residual engineering business expand into new sectors such as automotive or renewables – offshore wind and nuclear – as they require the same skill sets. There is pressing need for innovation and cost savings and these should be viewed as an opportunity.”
While much has been made of the need for standardisation and simplification in the energy sector Mr Etherington said efforts to mimic the sterling efforts of the UK automotive sector may be misplaced.
“Everything takes 10 years in the energy sector – and the Government does not get involved in designing cars.”
He believes the industry has to learn to wean itself off subsidies, and focus more on local content.
“It cannot be right that the largest wind farm development in the UK is receiving a £4.2bn subsidy. The sector cannot have a blank cheque.
“All of the components are being made somewhere else and if there is not a meaningful return in terms of jobs and investment what is the point? Other than clean energy. We should find a way of enforcing rules on local content.”
Despite the tanking oil price the overall feeling was that the ingenuity and inventiveness of the North East – hewn from our legacy of doing ‘proper jobs’ – will see us through the current downturn.