How Asset Finance can help further Power the Scottish Energy Sector

In 1965, BP made the first offshore discovery of gas in the North Sea. This discovery marked the beginning of exploration in the southern North Sea, where further gas and oil fields were subsequently discovered. The industry grew rapidly and by the mid-1980s, there were over one hundred installations producing millions of barrels of oil and gas daily. British self-sufficiency in oil and gas, once considered impossible, became a reality. With the glorious granite city of Aberdeen its oil capital. In fact, Scotland with a population of c. 5.5m, or 8.4% of the UK total, still accounts for over 80% of the UK’s oil and gas production today.

The oil and gas industry understandably, therefore, plays a central role in the UK economy, for various reasons, but especially for north of the border. About 280,000 jobs are supported by oil and gas production, most of which are based in Scotland. Whilst on average the UK makes around £12 billion a year in the export of oil and gas to the rest of the world. Additionally, the tax revenue on this industry contributes significantly to the public purse.

 

What challenges is the Scottish oil and gas industry facing?

 

In recent years, the cost of production for oil and gas has been increasing, impacting profitability and competitiveness, whilst price volatility and price reductions have often put pressure on revenues. The oil and gas industry has also come under significant scrutiny, as global focus has increased on greenhouse gas emissions, climate change, and preservation of animal habitats and migration pathways. Especially in light of several accidental oil spills that have garnered the attention of the mainstream media. Further highlighting the devastating effect such events can have on ecosystems.

Meanwhile like many parliaments, the current UK government has pledged to reach net zero by 2050, although the current political landscape in the UK looks set to change. So, as for many sectors, there is arguably additional uncertainty for the oil and gas industry. Especially given the Labour party are intimating they would oppose all new oil and gas licensing if they win the General Election. This has understandably led to some rig owners, which currently operate in the UK, to consider looking for work in other markets such as the Middle East, Brazil, Southeast Asia and the US Gulf. 

The North Sea Transition Deal, agreed in March 2021, outlines a blueprint for harnessing oil and gas heritage to achieve net zero emissions by 2045 for Scotland and 2050 for the rest of the UK. Key objectives include net zero production emissions, safeguarding existing jobs, and creating 40,000 new jobs in areas like carbon capture and hydrogen production. However, because these are largely untested technologies, critics remain sceptical.

A move towards electric vehicles, heat pumps, Hydrogen and various forms of renewable energy, will reduce Scotland’s reliance on oil and gas. Wind power is the country’s fastest growing renewable technology, more than doubling its renewable electricity generation over the last decade. The total offshore wind energy potential here, if it can be effectively harnessed, is estimated at 40GW, enough to power every home in Scotland in Scotland for the next 17 years.

Whilst some progress has clearly been made towards The North Sea Transition Deal, significant investment will be required to tread a fine line between protecting jobs and the economy, whilst doing the right thing for the environment.

 

How can the sector overcome these challenges?

 

The pressure is on for the energy sector to become more sustainable, increase efficiencies and decrease costs, and investment is the key to making this happen.

Asset finance can give companies access to capital without diluting their equity; vital in helping them to fund new development, exploration and product diversification. Importantly it allows the energy sector to also reinvest in low carbon technology and other projects, to help make the transition to net-zero easier.

Digitisation offers the chance for energy companies to modernise and capitalise on efficiencies which will stand them in good stead for the long term and is significantly benefiting the oil and gas industry by enhancing efficiency, reducing costs, and improving safety. Technologies like big data, analytics, sensors, and control systems allow for the automation of tasks that are expensive, hazardous, or prone to human error, and reduce the amount of downtime. They also provide the opportunity for real-time visibility throughout the supply chain from point of origin to point of delivery.

For example, BP are using digitisation to reach their net zero goals in a number of ways including CO2 modelling and ‘digital twins.’ A digital twin is a virtual representation of a new process or facility, used to understand and predict how it might perform in practice. This allows the company to simulate and optimise a product or process before any money is spent on its actual production, very useful as a test bed for greener new developments.

Asset finance can also help energy businesses fund the expansion of their supplier bases through multisourcing (sourcing goods and services from multiple suppliers within the same country, rather than from a single source) or multishoring (using multiple suppliers from different countries) to mitigate the risk of supply chain disruptions. It can also provide much needed funding for new product lines or ranges, and diversification of the workforce where skilled labour is in short supply and allows companies to ensure that existing infrastructure (such as wells, pipelines, and refineries) remains in excellent condition which is essential for profitability. Critical for those industries that are heavily reliant on machinery and tech to operate efficiently.

 

At home in Scotland

 

Enness Global have recently strengthened their own operations in Scotland, with the appointment of Tamara Crowson as their new Head of Scotland. Adding to Enness’s existing finance expertise, including corporate financing for the energy industry. To find out more about our experience in this sector, or more generally for finance support in Scotland, please contact either Tamara Crowson or Scott Monks our Head of Corporate Finance.