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Prosperous future for the Scottish energy supply industry:

First published in the Scottish Enterprise Energy Industries Review – April 2004.

It seems that the demise of the North Sea energy industry has once again been greatly exaggerated.  Today, despite the fact that our North Sea oil and gas supply and service industry has somewhat shrunk in size, there is considerable vibrancy in the sector, with great achievements both at home as well as on the export front. 

The success of our industry has been attributed to a number of key factors.  Innovation has always remained the cornerstone of the activities of the Scottish industry.  And yet, more than ever before, this innovation has not just been in developing new technologies and products, but coming up with new solutions to new problems.  The pioneering spirit of Scots has meant that they were often among the first groups of settlers in the United States, Canada, Australia, Africa and elsewhere.  Over many centuries, Scots have learnt how to adapt themselves and their environment, absorbing the best of the foreign cultures and ideas, and adding their own flavour of worldly realism, and ingenuity to any activity they have undertaken. Today, Scotland has become a truly multicultural society in which people of all races and colours live and work in harmony. 

Despite that, Scotland has never been complacent.  And that has been one of the success factors.  During the 1970’s, the search for new solutions enabled the Scottish industry to transform the international oil and gas industry, providing it with new technologies necessary to face the tough challenges of operating in the harsh environment of the North Sea.  The UK sector of the North Sea very quickly became the foremost development region globally.  But the Scottish industry never found it easy for long.  The low oil prices of 1980’s together with relatively high production costs meant that the industry had to develop new technologies and new working practices.  New ideas such as partnering, alliancing, cost reduction in the new era (CRINE) and others, were the outcome of facing a difficult reality.  These certainly caused much pain in the Scottish service and supply industry.   But out of these turbulent times, emerged a stronger, new supply chain. 

And yet the fundamental difference, perhaps, in the picture of the new oil and gas supply chain has been the emergence of a greater number of small and medium sized enterprises (SMEs).  Ironically, in the early days of the Scottish oil industry, the consensus in the public sector and the industry as a whole was that the weakness of the Scottish oil and gas cluster was partially due to the lack of large, indigenous multinational players.  The reality has been that the smaller players in the supply chain have often shown greater resilience and greater innovative imagination.  This innovative spirit has meant that SMEs have often been the seedbed of new technologies and new ideas.  In addition, many SMEs, having seen the threat of being disenfranchised in the domestic marketplace, shifted their emphasis to overseas clients.  

International competitiveness of companies, large and small, can be measured by assessing how successfully they have penetrated key overseas markets of their competitors.  Often Scottish businesses have had to operate in the home market of their competitors (particularly in the United States). 

The success of Scottish SMEs, at home and abroad, however, is not across the board.  Many SMEs lack the financial and human resource, as well as lack the management skills to enable them to maximise the benefits from the international opportunities available to them.  Again working with the public sector organisations such as Scottish Enterprise, it is possible to identify the necessary resources. 

It is to a great extent due to the restructuring of the supply chain that new expertise evolved in the Scottish oil and gas cluster.  The new capabilities have given rise to businesses that not only can satisfy the domestic requirements, but their technologies and expertise are increasingly exportable.   Although the business drivers might have been different in other oil and gas provinces, nevertheless, the momentum for restructuring of the industry has also driven national governments and national oil companies across the world to re-examine their own industry clusters.  For example, in examining the environmental legislation in the Gulf of Mexico, the Persian Gulf states of the Middle East, as well as offshore Nigeria we will find a great deal of consistency.  This has resulted in greater opportunity for Scottish businesses to promote their technologies and expertise in those overseas markets. 

The new challenges facing all of us on this planet include the safeguard of our environment and the protection of the ecosystem in which we all live and work.  New companies have emerged constantly in Scotland addressing these new challenges and the environment cluster within the energy industry, in particular has become another world-class centre of excellence.

 Although the focus of the industry has remained on the oil and gas industry, nevertheless the opportunities arising from the emerging renewable energy industry have not gone unnoticed.  Scotland has world-class experience in designing and building mini hydro-power stations.  Unlike the giant dam constructions, which have given rise to considerable ecological concerns, mini hydros are easy to install and have minimum adverse impact on the local environment.  And yet, they can be a very valuable source of power at local level.  There are enormous opportunities for Scotland to promote this technology in many parts of the world. 

Despite some public concerns in the recent years, I believe that harnessing energy from wind can be a very safe and effective way of generating power.  Scotland has made many contributions to both offshore and onshore wind power generations.  Other renewable technologies such as the biomass and technologies based on the use of fuel cells are being developed in Scotland.  There is little doubt that a major component of our future power generation will be based on hydrogen.  Scottish companies are busy developing technologies for purification of hydrogen as well as applications of fuel cells.

Nevertheless, for many years, petroleum will remain the primary source of fuel across the world.  However, as the centre of gravity of exploration and development has moved to different regions of the world, so have the centres of excellence for a number of technologies.  We have many indigenous as well as internationally owned companies in Scotland with world-class expertise in drilling, well completion, and subsea engineering.  These include multinationals as well as SMEs.  It is, indeed the presence of the smaller innovative companies that has encouraged many multinationals to base not only their European operation in Scotland, but use Scotland as the pivotal centre of excellence for their entire Eastern Hemisphere operation.  The stable economy of UK, together with a competitive fiscal regime and an excellent living condition has encouraged many multinational companies to base their operations in Scotland and thus contribute to the development of its economy.

But there are also new and so-called softer skills and capabilities that have emerged during the last few years; Skills that were relatively unknown in the past, and are based on our direct experience of operations in the North Sea.  Skills that take into account the technical as well as the commercial challenges that we have faced.  These new and emerging technologies and capabilities include:

Fundamentally the last of the emerging capabilities, namely education and training services, in my opinion, holds the key to the future prosperity of Scotland.   

As many of us travel around the world, in international exhibitions and conferences, one thing manifests itself, above all, and that is the fact that the language of technology, management and operation in the energy industry is English.  This lingua franca of the energy industry, together with over five hundred years of university education in Scotland, provides the ideal opportunity for our higher education establishments, as well as private businesses to seek new footholds around the globe. 

Scotland’s ambassadors currently live and operate in almost every country around the world, and they seem always to be willing to lend a helping hand to our businesses, introducing them to local companies and local customers.  Scottish Enterprise has done much to encourage and foster this relationship.  It is now up to our companies to pick up the challenge and use this valuable resource. 

Many continue to regret that Scotland has lost much of its heavy industries, particularly steel and shipbuilding.  Nevertheless, the emergence of new technologies and new industries has opened up plenty of new opportunities for the businesses based in Scotland.  In the words of Alfred, Lord Tennyson, recalling the thoughts of that other great mariner, Ulysses,

Tho’ much is taken, much abides; and tho’

We are not now that strength which in old days

Moved earth and heaven; that which we are, we are;

One equal temper of heroic hearts,

Made weak by time and fate, but strong in will

To strive, to seek, to find, and not to yield.

First published in the Scottish Enterprise Energy Industries Review – April 2004.

Article prepared by Kourosh Bassiti