The Scottish-based oil and gas supply chain industry posted an 8.3 per cent increase in sales in 2008/09, with revenues climbing to a record £15.4bn according to a new survey published this week by Scottish Enterprise and the Scottish Council for Development and Industry (SCDI).
This was mainly driven by international sales which grew by 15.1% to £6.56bn. International sales now represent over 40% of total revenue. Domestic sales grew by 3.8% to £8.8bn.
The Survey of International Activity in the Oil and Gas Sector 2008/2009 shows:
• Scottish based service/supply companies generated a record £15.4bn in domestic and international sales. This compares with total sales of £14.2bn in 2007/08.
• International activity accounted for 42.6% of the Scottish supply chain sales total. Ten years ago its share was only 27%. Subsidiary revenues increased by 22.2% and, having exceeded direct exports for the first time in 2006/07, are now £1.6bn higher.
• The North America and African markets together now account for over 50% of total international sales, up from 39% two years ago. North America is the top international market for total sales at 35%. The African market was the top geographic region for direct oil and gas sales, with sales exceeding the £1bn level for the first time.
• The top 5 total international markets combining direct and subsidiary exports were the United States, Canada, Angola, Russia and Norway. Canada showed a 48.5% rise in total international sales into the market. The top 5 international markets for direct exports were Angola, Norway, United States, Nigeria and the Arab Emirates.
• International sales activity from the oil and gas supply chain was reported in a record 109 different country markets, up from 103 country markets in 2007/08. Sales were recorded in markets as diverse as St Lucia, Ecuador, Malta, Bahrain and the Ukraine.
• The Power Generation sector dominates sales into non oil and gas sectors, accounting for £696.3m. Sales into the Renewable Energy sector increased from £10.8m to £17.9m in 2008 and are expected to increase rapidly in the future.
The year covered by this survey was one of unprecendented turbulence for the industry. After the oil price spiked to $140/bbl in the middle of the year, there was a steady decline of over $100/bbl to $36/bbl by the end of 2008 as the global economy entered into recession.
Commenting on the results, SCDI North East Manager Ian Armstrong said:
'In a challenging year, the Scottish-based oil and gas supply chain performed strongly. The growth in international sales was especially impressive and it is clear that over time the supply chain can be as important a wealth creator for Scotland and the UK as North Sea production.
'In recent years, many Scottish companies have successfully established their international presence by acquisition, joint venture or other means, often supported by senior management from the company's Scottish HQ. They are now competitively positioned to capitalise on growing global demand for energy including new opportunities such as unconventional gas and carbon capture and storage. Diversification into the renewable energy market is also likely to increase significantly as the offshore sector expands. This model of growth, internationalisation and diversification needs to be supported by government and emulated by new priority sectors if the Scottish and UK economy is to be rebalanced to higher exports.
'Two markets, North America and Africa, now account for over half of international sales. The record share for sales into North America reflects how active Scottish based or owned businesses are in the key oil and gas provinces of Gulf of Mexico, Newfoundland and in the Canadian oil sands business. Sales into Africa were particularly boosted by a major uplift of 72% from subsidiaries. There was also strong growth in sales into Latin America and Australasia, while sales into the former Soviet Union and the European Union declined.
'Considerable upheaval in the global economy in 2009 should be evident in the next survey, although the scope to shut down large-scale, often capital-intensive projects can be limited. It has been clear that the industry has moved quickly to try to tackle the issue of high costs across the supply chain, but also made a real effort to avoid unnecessary loss of manpower.
'This success has been nurtured in the North Sea and it is vital to anchor the supply chain in a sustainable and healthy domestic market. UK oil and gas can be a major source of energy and employment for decades to come. SCDI welcomes recent steps to incentivise projects and the positive announcement on West of Shetland gas fields. This direction of travel needs to be pursued by the next UK Government.'
Adrian Gillespie, Director of Energy and Low Carbon Technologies at Scottish Enterprise, said:
'It is encouraging that despite an uncertain economic climate, the Scottish oil and gas sector continues to experience growth in global exports and international activities. Supporting the sector to reach new markets has been a key activity for Scottish Enterprise and Scottish Development International and we will continue to work with the industry to explore global opportunities to help businesses grow.
'Equally, we recognise the continued importance of the UKCS oil and gas sector as a major employer in Scotland and it is vital that we continue to support and build a strong domestic and global supply chain to exploit future opportunities.
'Oil and gas remains a key strength for Scottish and UK economic recovery, with the potential of the industry not just to move to international markets but also to diversify and support the development of new sectors including marine renewables and carbon capture and storage.'