In the UK, it is estimated that energy companies generate revenues of more than £90bn from domestic and international business and employ 600,000 people.
The UK is seen as a world leader in the exploration of oil and gas and the development of carbon management systems. Conventional estimates point to this rising to £200bn and one million employees by 2030.
The North East is a hotbed for skills and expertise in this sector where there are an estimated 15,000 companies involved in the energy supply chain, employing approximately 66,000 workers.
British goods and services have an excellent reputation in the energy industry and the North East boasts a wealth of expertise in finding, developing and extracting oil and gas. This market-leading expertise has been developed and honed over the last 40 years in the extraction of oil from the hostile waters of the North Sea. Coupled with this, the region’s deep-rooted engineering expertise has also seen it develop an international reputation in the field of renewable energy.
By its nature, the energy sector is a global business with opportunities in virtually every corner of the world. For this reason, exporting is firmly embedded in the strategies of most companies involved in supplying goods and services to the sector. Whilst more than half of the value of the North Sea’s oil and gas reserves are yet to be extracted, up to 24 billion recoverable barrels with a potential wholesale value of £1.5 trillion, companies are mindful of the need to develop new business around the world to ensure continued long-term growth. A magazine could be filled listing every global business opportunity that exists in the energy sector.
However, I have tried to select a few to give a brief flavour of the many developed and emerging markets that present companies in the sector with short and long-term growth potential.
For all goods and services, the United States is the region’s top export market with annual exports in excess of £2bn. Whilst this is a relatively mature market, the USA remains a key export opportunity for the region’s energy sector, followed by other markets such as Norway and Brazil.
Other markets that have moved up the export rankings and provided new opportunities for local companies in recent times include India, Venezuela, Kazakhstan and South Africa.
And longer-term, even more exciting opportunities will develop in countries such as Iran – estimated to have the world’s 3rd largest proven oil reserves.
This is roughly 10% of the world’s total proven petroleum reserves. At 2006 rates of production, Iran’s oil reserves would last 98 years if no new oil was found. For the first time in a decade, the leader of Iran attended the World Economic Forum in Davos.
The press reported that Hassan Rouhani was relaxed, laughing and talking incessantly about his “active foreign policy” to achieve his “economic goals”. Of course there is some way to go with negotiations for a workable trade deal, but this is a longer-term opportunity that North East businesses should be mindful of.
Whilst on the subject of ‘more challenging’ but potentially lucrative opportunities for the region’s companies, it’s worth mentioning that the International Energy Agency highlights Iraq, with its huge oil reserves, as the country that could be the single largest contributor to global production growth.
The Agency has reported that Iraq plans to boost its capacity to produce oil to 9m barrels a day (bpd) by the end of the decade as Baghdad rushes to rebuild its economy, which is still shattered by war and internal conflict. Development of this opportunity needs further investment, in infrastructure, sustainable water management, and the robust legal and financial frameworks that investors and suppliers would expect.
More immediately, Australia appears to be one of the biggest growth markets and has been tipped by NOF Energy as the hottest of the future export markets.
In February, UKTI will be sponsoring a trade mission for North East companies to Western Australia (WA) to coincide with the region’s Australasian Oil & Gas Exhibition. This will be the 3rd trade mission to WA in the last 18 months: a reflection of the strategic importance this market holds for the North East exports. The oil and gas boom is tipped to add about 20 per cent to Australia’s growth over the next 13 years, with more than half of that to come from WA.
As with other overseas markets, British expertise is highly regarded in the Australian energy market. Coupled with significant infrastructure projects, Australia has emerged as a key export opportunity for the North East for all aspects of the energy and extraction supply chain.
Other exciting opportunities are developing in countries such as Angola – Africa’s fastest growing economy. Angola vies with Nigeria to be Sub-Saharan Africa’s biggest oil producer, producing on average 1.65m barrels per day in 2011. Angola’s oil and gas sector is a long way from saturation point where opportunities exist throughout the supply chain and on the periphery such as in training, where there is very little provision of vocational and competence training throughout the sector. The country’s labour pool has a very low skill set and companies need to invest heavily in training to meet Angolanisation and local content requirements. The sector is also calling for transferable recognised industry qualifications and standards.
With regards to export opportunities in the renewable energy sector, equally exciting developments are taking place. Following the Fukushima Nuclear Power Plant disaster in March 2011, countries in Asia are now looking at renewable energy as a serious provider of their energy needs. Japan, for example, is looking to embark on major shift in the make-up of its energy-mix and is aiming at a 25% target of renewable energy (offshore wind, solar PV and biomass).
Japan has 54 nuclear reactors, of which 52 are currently offline. Japan’s energy needs will peak in the summer and a shortfall is expected. Japan is also looking at electricity sector reform (generation and distribution); this may offer potential opportunities to UK business.
Elsewhere in the region, the Philippines’ government sees the growth of the renewables as essential for national energy security. Transporting fuel and transmitting energy throughout the Philippines – an archipelago of 7,107 islands – is expensive and it’s not surprising that the Philippines has the highest electricity rate in Asia. The country could be considered a world leader with 30% of its power coming from renewable sources and the first in Southeast Asia to invest in large-scale solar and wind technologies.
Whilst there is much to be excited about the wealth of energy sector opportunities around the world, relying too much on raw economic indicators such production growth, can lead a business to make some poor decisions. Any company’s capabilities and resources need careful examination to ensure it is suitably equipped to tackle these, generally more challenging, long-haul markets. Soft skills, such as language or cultural affinities, can be particularly helpful tools for success in the markets already mentioned. And strong business relationships at the right levels, which are sometimes even more important than in the developed world, can boost a company’s chances of success. But again, developing relationships in far-away countries takes time and costs money. A lack of familiarity, language barriers or distance can derail any company’s attempts to access a new market.
But, when you get it right in more challenging markets, the rewards can be immense.