KPMG continues to be proud of our sponsorship of the Energy Transition Survey and I hope you enjoy reading this, the 39th edition of our temperature check on the North-east Scotland region, its businesses and its future.
Once again, the survey has been a collaborative effort led by the Aberdeen & Grampian Chamber of Commerce in partnership with KPMG and ETZ Ltd and aims to give you a snap-shot of the energy sector’s current mood and invaluable insights into its ongoing transformation. The long-running nature of this survey, however, means that it also offers an extremely extensive dataset examining the resilience of the sector and the region through historical crises, showing us the potential for recovery and growth, even in the most challenging times.
This edition tells us that the majority of companies remain optimistic about the long-term future of Aberdeen and its place on the world stage as a major energy hub. They still expect continued revenue and profitability growth beyond 2024, indicating that businesses are generally pivoting successfully as production activity decrease in all territories.
The majority of respondents expect to need further UK headcount to drive these increases in revenue, and there appears to be every confidence that this is required well into the future. There’s some evidence of returning confidence that the right skills can be acquired in the long-term, even if immediate recruitment concerns remain largely unchanged.
The survey notes decarbonisation as an increasing factor in their activities. Decommissioning work remained relatively static in the UK, but companies saw a boost in such activities beyond the UK Continental Shelf (UKCS). The starkest insight in this area however, and the point that should give us all greatest pause, notes the continued decrease in confidence in the specific future of UKCS and a widening gap between this outlook and the overseas activities outlooks reported.
The optimism expressed by the majority of firms is seemingly born out of an expectation that future growth is likely to arrive from the international arena. Issues such as the 2024 general election, UK political instability in the last year, UK tax policy and overall UK market uncertainty understandably weigh very heavily on the minds of those who responded, outstripping concerns over the oil price for the first time.
In relation to this uncertainty of direction and focus, we saw the Scottish Government roll back on their target to reduce Greenhouse Gas (GHG) emissions by 75% by 2030 as “out of reach”. This came off the back of Scotland missing eight of its annual targets, making the legal obligation for the 2030 goal unachievable according to the Climate Change Committee (CCC).
This difficult climate is seen as a significant barrier to the speed of UK diversification to renewable energy and is closely tied to the investment decisions being made in this area every day. Profitability and Return on Investment (ROI) have long been concerns in this survey when pivoting to renewables, and so it’s perhaps obvious that the speed of transition slows under the weight of such uncertainty. It’s also telling that initiatives such as the Just Transition Fund and the Offshore Wind Supply Chain Fund, specifically created to support renewables growth and secure local jobs are not well understood by the businesses they are intended to benefit.
To me, this says that there is more we can all do to educate and to seek education, in order to access funding that has been specifically earmarked, and to further drive and support an innovative mindset in our region.
With this in mind, and as someone with a personal focus on assurance and reporting, I note the further erosion of those businesses who agree that their external transition credentials are critical to long-term success.
Although more businesses have deadlines attached to their stated net zero strategies than previously seen, 43% of businesses either still didn’t have a net zero strategy or were unaware of whether such a strategy existed. Fewer businesses have any intention to accelerate current strategies, which tallies with a “wait and see” approach. I’m a firm believer that we can only drive improvement in what we can quantify and track and it’s great to see that 95% of those who did have a strategy in place still felt that progress was being made.
The transition is an everyday reality, and our local ability to drive its speed will determine whether Aberdeen remains at the forefront of innovation and development, or risks falling behind. At the same time, the UK election and its associated rhetoric is creating uncertainty that will stretch into 2025 and our survey respondents are clearly saying they believe its negatively impacting the UK industry.
Overall, it’s a picture of local businesses confident in their skills and abilities, and increasingly applying them beyond our shores. It’s clear that, before investing in the UKCS, everyone just wants to know which way the wind will blow. Waiting is wasted time on the global stage though and it’s critical that Aberdeen remains focussed on securing its prime position in the transition.
View the full report here.