Written evidence submitted by Energy Industries Council (NRG0004)

Introduction:

The EIC was established in 1943, initially starting in coal, over the years we have embraced new technologies as they emerged, nuclear, gas, wind, solar and more recently hydrogen and carbon capture. Our members operate in all these technologies and a core part of our role is to represent the voice of the supply chain. We also provide our members with the tools they need to prosper, invest and grow, domestically and internationally.

Our members are active across the whole value chain from top to bottom and we represent all legacy and emerging energy sectors (including oil and gas, renewables, petrochemical, marine, Transmission and Distribution, biomass, sustainable aviation fuel, energy from waste, nuclear, power, hydrogen, carbon capture and energy storage).

The EIC proprietary databases track global energy projects and assets, and supply chain capabilities in five major energy hubs. Through these we help inform decision making for our members and provide insights to policy makers.

We organise 130 events each year to connect our members with the world’s project decision makers and every day we engage with our members globally and work with them to deliver for them. We ensure they are best placed to help win business and achieve our Net Zero targets.

Because our members are active in more than one technology, and usually more than one country, we are uniquely placed to highlight global trends while also focussing on the micro level of the supply chain. And we know this is an area commonly overlooked when making energy policy.

It is our role to advocate for our members and for the global supply chain. What we see in the UK over the past five years has led to the shaping of our policy asks. We need to enable the supply chain to diversify and compete, and we need to recognise the skill which they can bring to the worldwide stage.

1. What impact will the UK Government’s approach to net zero have on Scotland’s oil and gas industry?
1. What state of readiness is the oil and gas sector in for the net zero transition?
2. Is the scaling up of the clean energy sector keeping pace with the decline of jobs and investment in the oil and gas sector, or does the UK Government need to do more to close this gap?

Our members are working across numerous technologies and have competing demands across them. This complexity is exacerbated when there is no coherent plan and engagement with the supply chain to ensure new policies work for them, and when different regions and sectors focus on their narrow goals rather than the larger goal, that is, the needs of the integrated supply chain.

The Energy Profits Levy, while seen as a tax on operators, also has a knock-on effect in the supply chain. If projects stall and costs increase for our members, the only currently buoyant and viable energy sector, oil & gas, in the UK will not deliver. We will see reduced activity, greater diversification away from the energy sector altogether (losing capability and capacity) and a move away from the UK to other countries.

Those working in the oil and gas sector are the backbone of the energy supply chain’s capacity, capabilities and jobs, and consequently are also the best platform to build on, for net zero and renewables supply chains.

In simple terms, one does not happen without the other. There is not one good supply chain (e.g. renewables) and another bad supply chain (e.g. oil and gas), as some policies imply. There is only one increasingly integrated energy supply chain.

82.9% of the UK’s energy supply chain is reliant on oil and gas (source EICSupplyMap). And 72.3% of that oil and gas supply chain is diversified into renewable technologies. Only 2% of our UK renewables and net zero supply chain grew out of non-oil and gas capabilities. But UK policies assume, and encourage siloed supply chains, which is hurting, not helping.

As of September, the UK Energy supply chain employed 600,000+ people, one in 55 jobs and generated £200bn+ revenues to the UK treasury, 9% of UK GDP.

The FID data[1] underscores the fact that for newer technologies, we lack the mature and regulated processes that exist in established industries. Upcoming FID-dates are unclear and often delayed, economics and risks are high, and investors are increasingly risk averse. This results in less certainty for the business as well as less certainty that the project will develop as anticipated. This lack of certainty hurts the supply chain.

As we can see the sum of the value (millions U.S.D) shows where investment is coming through – and where we are lacking.

There is no clear energy roadmap, or dashboard, which plots out full timescales of all the projects across different technologies and regions. Such a tool would greatly help the supply chain, as well as investors and policy makers, to identify credible timelines, bottlenecks, capacity and skills shortfalls, and would signpost critical investments needed to build supply chain capacity in the right place at the right time.

Alongside this the available funding for ‘Green’ technologies’ is high, but the supply chain can be penalised because, for many, the bulk of their business is still in oil and gas.

Finally, demand is not yet certain. There is no clear five-year cycle of business which can be planned to, it is not clear what should be invested in and at what point. Companies have found themselves in the position of bidding for work just to have dates pushed out meaning other opportunities are lost.

To close this disparity between aspiration and reality more needs to be done by the Government. We need to join up all these conversations to ensure that there are jobs, and other industries, to transfer into. At the moment the oil and gas sector is being let down in terms of where they go next.

2. What UK Government interventions will be necessary to maximise the ability of oil and gas workers to find jobs in clean energy?

As discussed above there needs to be projects, certainty and a joined-up approach to ensure that there are jobs in clean energy. We need to have a discussion around pay and requirements and lose the mentality of what is ‘bad’ and what is ‘good’ in terms of energy jobs.

3. Are Scotland’s energy industry and associated supply chains well-placed to transition to clean energy generation or is more support needed?

As discussed above, Scotland’s energy industry and associated supply chains are well-placed, and indeed currently are transitioning. However, we do let them down in terms of available finance, their project capability and where they look to next. We are seeing many diversify out of oil and gas altogether due to the difficulties and move instead into defence or pharmaceuticals.

When compared with the UK the data below[2] will help illustrate these points and that the impact is felt not just in Scotland, but throughout the UK.

4. What actions should the UK and Scottish Governments take to ensure the necessary generation and transmission infrastructure to support the development of Scotland’s renewables sector?

Our members are global, but this is a snapshot of what they are asking for. Taken from our Net Zero Jeopardy Report, soon to be released, we interviewed the Chief Executives from several companies on Net Zero targets and aspirations.

What they needed to transition, to support renewables, to ensure that the transmission and distribution infrastructure was in place was the following:

Participants largely agree that reaching net zero requires coordination across policy, finance, governance, infrastructure, and public awareness.

Energy supply chain executives asked governments for clear, consistent, and legally binding climate policies. Policy and regulation asks, which constituted about 59% of requests of governments, also included governance-related requests.

One executive sounded an alarm bill making a direct link between policy and capital allocation, which in the views of many energy companies, one of the most fundamental issues when it comes to the real-world impact of policy: "We need mechanisms that create certainty for businesses to invest in green technology. Without stable policies, it's very difficult to justify the capital expense."

Executives called for cross-government and cross-party cooperation to ensure alignment across political terms, with specific clarity on targets and interventions to achieve these goals. One participant said that the “will and willingness” to achieve workable results from working with other parties, “That’s their highest priority. Politicians say we must, but they’ll have to negotiate with other parties to reach conclusions and that’s another level from the real intent.”

For many executives, depoliticising the net zero agenda was a priority as it ensures that policies remain steadfast despite government changes.

They also spoke of the need for mandatory legislation and stronger regulatory frameworks to drive decarbonisation which are now under threat due to lack of stringent enforcement mechanisms. One executive said, “My one request to the government would be to introduce legislation and regulation that make sustainability mandatory. Too much remains optional, and meaningful change requires enforceable rules.”

Governments should also work together a global level to ensure presence of aligned standards and emissions benchmarking.

Furthermore, they recommended simplifying and accelerating regulatory processes, including licensing, to create more supportive environment for investment in Greentech.

But for them the bottom line when it comes to policy is the need for decisive long-term strategies to build confidence and commitment among stakeholders.”

5. How should GB Energy work with the Scottish Government and other Scottish bodies to identify appropriate funding and other mechanisms?

As stated repeatedly throughout this report, policies, conversations, stakeholders and governments need to be much more aligned on outcomes and processes and be aware of the integrated nature of the supply chain.

There are issues with the funding mechanisms for our SME communities, and once they transition into Large, instead of helping them be competitive and deliver for the UK, we penalise them even more.

Our members are keen for their issues to be understood and dealt with, the EPC community is very different and the small, family run, legacy oil and gas company is struggling.

A request to engage throughout the supply chain, at all levels would be required here in order to properly understand constraints and resolutions.

8. Can the UK learn lessons from international examples about how to effectively manage Scotland’s energy sector transition?

Our members are clear that no country has yet got it right in what to do, but they are clear on what needs to be done, perhaps learning where we can be better is more important.

To keep our workers and skilled people we need to have a clear pipeline of work, dates and cross-sector understanding of blockers and where the crunch will come.

Long-term cross-party agreement is imperative to provide business stability and trust. If we look to the US, we see the work and opportunities which were lauded under the Inflation Reduction Act. Many companies are now uncertain on the future of that mechanism under a different political regime. But, to make use of IRA these companies turned down work in other regions. The UK is at risk of seeing that same scenario play out and we are keen to maintain the supply chain capabilities in the UK and Scotland. 

Denmark and Norway are two countries who are still supporting and investing in their oil and gas industries, as well as other technologies. They also don’t just talk about doing things, they are progressing projects at pace.

The lessons are what not to do, don’t cut off the just transition. Don’t stop oil and gas. We cannot deliver a transition without stability – and that means working with the oil and gas industry and appreciating the supply chain and how it works.

Conclusion:

In conclusion, we are hurting the energy supply chain by forcing the oil and gas sector to a swift end. Instead of working with the industry and understanding how it integrates, how the impact on the operators of taxation flows down to the supply chain, and how, why and into what technologies the supply chain is transitioning into, we are hindering their growth.

We are asking for GB Energy, and all governments and departments to work closer together with an integrated approach and to engage more with the SME community who are delivering in the energy sector.

January 2025