How supply chain companies can survive in the current energy market is one of the biggest questions in the world right now.

Although a complex issue, it is one which can be more easily understood through looking at how the UK fits into the global picture, the factors driving the change, and how this impacts the future of the North Sea and the potential for UK Shale.

Although harsh, the current environment will separate the wheat from the chaff in terms of strong businesses who can survive in the new, more challenging environment.

In the same way the financial crisis hit hardest the companies who were least prepared; the oil price will do the same.

Whilst global demand was high due to unrestrained growth in developing nations, the oil and gas industry found a constant state of equilibrium at around $110-per-barrel where operators across the world could do business.

Production costs were high, but the oil price was higher.

Within this environment new businesses were able to enter the market, raising significant capital backed by new technologies, which enabled previously inaccessible resources to be exploited.

US Shale was the perfect example. Production increased, supply overtook demand and prices fell almost 50%.

Although we commonly acknowledge the impact of US Shale as a major cause, the truth is, production from Saudi Arabia and the Middle East has never been higher, plus many emerging nations have also implemented huge investment plans to finance the future of their economies.

Add into the mix the recent nuclear deal with Iran, resulting in the removal of economic sanctions, and this returns the world’s third largest producer to the table.

If Iraq can find political stability it is estimated to overtake Saudi Arabia as the world’s largest oil producer by 2035.

Make no mistake, there is no sign of a slowdown in global oil production – quite the opposite, and demand has all but flat lined.

The world is in a giant chess game with nobody wanting to back down; staunch in the knowledge that if they pull back production somebody else will simply take their place.

Oil prices of around $50-$60 dollars are here to stay and this is the new baseline. We must adapt in order to survive.

So, what does this mean for the North Sea? The UK Continental Shelf (UKCS) does have challenges to remain competitive through maximising production efficiency and minimising cost.

Oil & Gas UK state, “cost reductions of up to 40% per barrel of oil equivalent must be achieved to secure a sustainable future for this basin”.

No mean feat for an industry, which was already a world leader in its field.

At present it is estimated that many UKCS operators are either losing money or making a marginal return, contemplating the decision to continue to make a small operating loss in the hope of a return to better days rather than be hit with a huge decommissioning bill and calling time on the development.

So is all lost? Should we stop delaying the inevitable? No, far from it.

From working with and speaking to many of the operators, rest assured we have some of the finest minds in the world working together and finding innovative solutions to the challenges we face.

Although there are challenges, new business models, new methods for collaboration and new thinking is transforming the industry, and fast.

Businesses who simply hoped to ride out the storm, operating as they did in 2014, will not last long.

They are in a new environment competing against the best in the world, competing against companies driving efficiencies and savings, in some cases saving up to 35% from identifying ways to do things better.

The mentality has changed to deliver simply what is needed in the most efficient way rather than the ‘gold plating’ of the past, always continually refining and improving business operation.

The UK supply chain is undoubtedly one of the best in the world, and now we need to prove it not only in our products and services, but also in the value we can bring to our global partners.

This changed environment will also have an impact on the prospects for our own embryonic Shale gas industry.

What worked in the USA with a rapid development of a whole new industry and the creation of thousands of new jobs, even with best endeavours may be a challenge in the current climate.

On a purely economic investment standpoint, putting aside the debate over transparency and the safety of ‘fracking’, the UK is in global competition for both time and resource with every country in the world, many with less tight regulatory regimes.

Investment into Shale is also in competition against every other form of energy technology and with investors wanting a high degree of certainty of a return from any investment, potential delays from public protest is a hurdle to overcome.

There is a huge potential upside, however, of having UK domestic oil and gas production from Shale within our shores, reducing the security of supply risk from being reliant on imports, to support the world’s fifth largest economy and 65 million people.

From our experience in related industries, we have the skill set to support a Shale revolution too; however businesses may be cautious to jump while there is still uncertainty around political and public support.

In summary, although the world is going through significant transition, the UK is a world leader in energy projects and will remain so for the considerable future.

Although our industry is being challenged by the new operating environment, our innovation and talent for always finding a way through will help support companies bold enough to learn something new and do things differently.

Source: www.chroniclelive.co.uk

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