What a year for the energy industry. The last time the industry has been the centre of global attention in such a manner was perhaps during the oil crisis in 1970s. Russia’s invasion of Ukraine in February spiked oil prices, sent gas prices to record highs, and squeezed global energy supplies.
This crisis has focussed nations on the urgent need for energy independence, including utilisation of domestic resources, and diversification of sources of energy. All the while, clean energy projects are being planned or executed in large numbers around the world, albeit not without challenges.
Globally, there are plenty of opportunities in oil and gas, and renewable sectors, while we can expect to see growing opportunities in the nuclear, hydrogen, carbon capture, offshore wind, and other sectors, that our members can tap into given their existing capabilities. While the capabilities in the supply chain exist, what has become clear over the course of the year is that the capacity within the supply chain to deliver these new clean energy projects, needs to be developed.
The UK based supply chain has developed world class capabilities due in no small part to the North Sea hydrocarbon resources. Despite highs and lows over the course of the decades, the area has provided numerous and almost constant opportunities for the supply chain. However, recent government announcements, including raising levies on profits of energy operators, risks flight of capital, harming the UK’s supply chain companies in the process. Major operators have already announced plans to reduce capital expenditure in the North Sea on the back of this tax. This is certainly not helping with ramping up domestic energy supply as part of energy security ambitions.
The case is different in nuclear, the capabilities in the UK are certainly there to deliver, but the capacity is not enough. The government support of Sizewell C nuclear plant, however, is a step in the right direction as it will help the supply chain flourish within the UK and develop the capacity needed to meet future nuclear generation projects. The government’s plans to fund the development and design of Small Modular Reactors (SMRs) and Advanced Modular Reactors (AMR) is another positive step for the supply chain in the UK.
Hydrogen has its own set of challenges led mostly by the fact that we expect supply of the commodity to exceed demand, which was a key finding of our global Hydrogen Report released this month. Still, the supply chain has plenty of opportunities to work in hydrogen, including manufacturing electrolysers for green hydrogen, which is currently concentrated in the UK, which is a leader in this area, and Europe. Europe is also a leader in hydrogen projects—namely the Netherlands, Germany, and the UK—but we also see projects in Australia, North America, South America, and Asia. We have projects in all these continents being tendered as early as the first half of 2023.
Of course, the above are important geographies for supply chain companies to consider targeting and with more projects entering the tendering stage, this is a unique opportunity for businesses to consider the hydrogen business in its different stages—from construction of equipment and plants to production and transport. Hydrogen also presents companies working in oil and gas with a relatively easy market entry, given the transferability of both skills and equipment into this industry. This, in fact, speaks of the need to be colour blind in classifying hydrogen. We need to stop looking at whether hydrogen is grey, blue, pink or green, and instead focus should be brought to the different stages of the industry’s lifecycle, including production, transportation, storage and usage, which can lead to a better understanding of the hydrogen supply chain across these levels.
With offshore wind, there is a massive pipeline of projects coming up globally, with more than 140GW due for installation by 2035, according to EICDataStream, and that doesn’t include upcoming leases and planned targets. For the supply chain to catch up with these projects there must be fundamental changes, starting with building the capacity to deliver the equipment, such as turbines, inter-array and export cables, etc., and then move to speeding up the process of installing turbines and transporting them.
Carbon Capture, Utilisation, and Storage (CCUS) is another industry that requires a robust supply chain to meet demand growth. An EIC report released last week suggests CCUS supply chain needs to exponentially expand its existing capacity to meet expected supply of projects. Our data shows that more than 200 CCUS projects have been announced globally since 2020, and that capital expenditure in the industry is expected to almost double, from the current level, to $41 billion by 2035.
Relatedly, and as part EIC’s efforts to support supply chains across the energy industries, we conducted a mapping exercise of the UK’s carbon capture supply chain capabilities in the UK. The exercise, carried out in collaboration with our members and other stakeholders, revealed that there are more than 2,800 UK companies which are involved or can contribute to CCUS industry at different levels.
If anything, we are presented here with a picture that encourages hard work and innovation to develop the capacity to meet the global pipelines of clean energy projects, particularly in offshore wind and nuclear. Taking this approach will certainly give supply chain companies a competitive advantage and ease market their market entry.
Moving fast matters. 2023 is already offering myriad opportunities for the energy supply chain across the globe. In hydrogen, for example, new contracts are expected to be awarded in Oman while more electrolysers will come online out of plants in Spain, Denmark, Germany, and China. At least 24 hydrogen projects are expected to reach final investment decision in 2023 and 2024, globally. In floating wind, new auctions and tenders for projects will be open across the globe, including in Portugal, Germany, and Norway, to name a few. The next two years are expected to see final investment decisions made on dozens of energy projects, dominated by the renewable and oil and gas sectors.
EIC analysts are working hard to keep you up to date with global opportunities and challenges. We already have in the in pipeline several reports coming up early next year, including on upstream oil and gas, biofuels, and comprehensive OPEX, covering different sectors across the globe, as well as country reports.
Neil Golding
Director of Market Intelligence at the Energy Industries Council (EIC)