In its 2016 annual report, UK Oil & Gas, the leading representative body for the UK offshore oil and gas industry, highlighted the pain that the supply chain is feeling (the 2017 report is due, but not yet available). In a graphic that sums up UK activity (opposite), it reveals that such companies have seen an average fall in revenues of 30% over the preceding two years.

Brent Crude’s high of more than $140/barrel seen during July 2008 became about $33 in December that year, bounced back to nearly $128 in March 2012, fell a little and moved up and down until it hurtled off a cliff in July 2014. It dropped from $113 to a January 2015 figure of $47, then continued down, falling below $30 in January 2016. It is now hovering around $50. Looking ahead, the report notes: “The fall in five-year forward crude prices from $80-85/barrel in 2013-14 to $55/barrel today provides a measure of the market impact of the emergence of low-cost US tight oil production [shale-derived oil] as a new price-responsive source of non-OPEC supply and the relaxation of US crude export controls.” The five-year forward price was just over $51, as of mid-August.

On gas, the sector organisation says: “Gas prices in all major regional markets reached new lows in early 2016, within weeks of the trough in oil prices… European gas markets remain very well supplied.” Gas demand has fallen in the UK; from above 100 bcm (billion cubic metres) to 70 bcm in 2015. This has meant that the UK has been able to supply more of its own gas, reducing imports, but if the price remains in the range of 30-35 p/th, Oil & Gas UK says: “This recent trend of greater self-sufficiency will not be easy [to maintain].”

In its 26th regular survey of the sector, published in July this year, the Aberdeen & Grampian Chamber of Commerce (AGCC) says: “Sectors closely tied to the [oil and gas] industry, particularly elements of the manufacturing and service supply chain, have been badly impacted.” But on a more optimistic note it adds: “The global economic outlook is healthier than it was six months ago. Economic activity is picking up with a long-awaited cyclical recovery in investment, manufacturing, and trade.”


As to how those in the supply chain feel, it offers this: “Although we are now seeing UKCS [UK Continental Shelf] business optimism finally return to positive territory, with 38% of contractors reporting that they are more confident than they were 12 months ago, we must take note of the 52% who feel no different to six months ago. This tells us that, although green shoots are visible, there is still a way to go in seeing a recovery across the industry. Findings suggest that we may already have reached, or be close to reaching, the bottom of the downturn, with 78% either believing this has already happened or predicting it will over the next 12 months.”

Indeed, the survey reveals that, as at January 1, 2018, 42% expect their business to be growing while only 2% expect to be declining. “This is a vast improvement on the findings from six months ago, which suggested only 16% expected to be growing by January 1, 2017,” the AGCC says.

Part of this is that international markets are offering more positive opportunities for supply chain companies. The survey says that a there’s net balance of +46%, compared to the -6% recorded six months ago, on this front. The end of the bad times is now in sight, it would appear, although there is the added issue of Brexit (box, left) and the prospect of a second Scottihs independence referendum that could be having an impact on investment, the AGCC further observes.

In 2015, the UK produced almost 0.9 million barrels/day; UKCS reserves are put at 10-20 billion barrels of oil and gas by UK Oil & Gas. So there are several years yet of local drilling and pumping activity. Indeed, the sector body says: “If properly supported, our already world-class supply chain could double its turnover by 2035.”

And in July this year, the UK’s Oil and Gas Authority launched its 30th Offshore Licensing Round, focusing on mature areas of the UKCS. The is round offers 813 blocks, or part blocks, totalling an area of 114,426 km2 (28,275,280 acres). Open for 120 days until 21 November 2017, decisions are expected to be made during Q2 2018.

There have been some firsts during this year already that have tapped the UKCS’ reserves. In June, EnQuest said it had delivered the first oil from the Kraken development. In the same month, Repsol Sinopec revealed it had delivered first gas from the Cayley field. Of the latter, Deirdre Michie, chief executive of Oil & Gas UK, said: “This is the sixth major development to reach first production so far in 2017 and therefore another very welcome announcement, underlining our belief in the future of the North Sea and the resolve of operators to make the most of the opportunities it still offers.”

So, that’s today and the near term. A challenge for a date some years hence is the now regularly flagged push for an end to the traditional internal combustion engine-powered car. Bloomberg New Energy Finance predicts that by 2040, electric vehicles will make up 35% of the transportation market ( That appears to matter because in 2015, according to BP, cars accounted for 19 million barrels/day (mbd) of liquid fuel demand, a fifth of global demand.

Going broader, independent energy advisors Salman Ghouri and Andreas de Vries estimate ( that in 2015 the global vehicle pool took 42% of the total crude oil consumption of 93.0 mbd. And by 2040, depending on either a low or high electric vehicle uptake scenario, that could be cut by 5.4 (5.8%) or 38.9 (41.8%) mbd.


But BP is still pretty bullish on oil. In its recent Energy Outlook (, the company says that growth in vehicle numbers will see the global car fleet double over 20 years, from 0.9 billion in 2015 to 1.8 billion by 2035. That won’t double required oil because of better fuel efficiency, it says, but observes that the electric car’s impact is one tenth that of the efficiency-derived reduction in oil use – it anticipates 100 million electric or hybrid fuel cars in 2035 versus 2015’s 1.2 million.

BP’s 2035 scenario says that oil’s share of primary energy will be more than 28%, down from just over 33% in 2015, with total oil volume put at something over 100 mbd, so a little more than 2015. Gas is where the growth is, with global demand increasing by 45% between 2015 and 2040, satisfying a quarter of global energy demand by that end point, according to Exxon Mobil (, with increasing volumes shipped as liquid natural gas. Basically, the oil and gas business still has long legs.

Box item

Brexit fuels concern

Trade tariff changes will impact the UK oil and gas industry. Of the £61 billion of trade (a further £12 billion in services is excluded from this calculation), under the current regime this trade in goods has associated costs of around £600 million per annum, says UK Oil & Gas. Under worst-case scenario WTO rules for trade with the EU and the rest of the world, this will likely double to around £1.1 billion per annum, assuming trading behaviours remain unchanged. If the UK can negotiate minimal tariffs with the EU and improved tariffs with the rest of the world, the total cost of trade could fall by around £100 million per annum to £500 million.

On EU migrant labour, while only 5% of the sector’s workforce originates from EU countries, Oil & Gas UK says that one in two of these holds a managerial role and that these are often critical to projects. The organisation sent a letter to the Prime Minister earlier this year. (Full details of its case here:

First published in Machinery, September 2017