While many services by well-focused suppliers will be challenging, the top contractors providing engineering, procurement, construction and installation (EPCI) services – which earned around $55 billion in 2019 from the oil and gas industry – will find it easier to apply their competencies towards the green shift.
Around $90 billion, or 40% of the revenue from the top 50 players in the global service market, could potentially be replaced by energy transition projects, such as clean energy infrastructure and renewable energy production development services. However, the supply chain industry must also look to avenues outside of the energy transition to stay afloat,
...explains Rystad Energy’s Head of Energy Services Research Audun Martinsen.
In terms of market opportunities, most traditional oilfield service suppliers are looking to expand into low carbon segments, meaning technologies or services aiming to reduce or prevent emissions from oil and gas extraction and production.
This can be done by offering more efficient operations and digital solutions. This is a space where most suppliers, regardless of current exposure in the service market, have a role to play.
Another emerging market within the energy transition is clean energy infrastructure, where suppliers can provide services to support blue and green hydrogen infrastructure, carbon capture and storage, or energy storage in general.
A third option within the energy transition is to supply the end-to-end development and operations of renewable power generation itself, for example by developing solar power plants, wind parks offshore and onshore, and geothermal energy.
The solar energy supply chain is highly fragmented and has become essentially out-of-box, yet the wind market offers great potential for offshore contractors to support the development of offshore wind.
However, the risk and investment required for expanding into other energy markets beyond oil and gas will not be feasible for all oilfield service providers.
In terms of growth opportunities, the clean energy market represents a fast-growing industry. The installed capacity of all utility-scale global renewable energy assets has doubled every fifth year since 2010, and will total 1000 gigawatts (GWAC) in 2020, comprised of 600 GWAC of onshore wind capacity, 284 GWAC of utility PV capacity and 34 GWAC of offshore capacity.
By 2025, we expect this number grow by at least 50% to 1500 GWAC, potentially reaching 1800 GWAC of global capacity in our high case.
Due to economies of scale and cost deflation, operator’s investment towards asset development will grow slower than capacity, but still much faster than the O&G market.
In Europe for instance, investments in offshore wind will exceed offshore O&G investment as soon as 2022. Geothermal energy is also getting broader attention in the market, especially in Europe.
Similarly, the skillset of the maintenance, construction and installation segment is applicable to the emerging energy infrastructure market and to renewable energy production in general. This segment is also expected to win big in as the oil and gas market recovers, as the segment has a major focus on LNG development, which many E&Ps have favored in recent years.
The energy transition is likely to be more challenging for well-related services, such as rigs and well services, even though geothermal energy – a potential consumer of these services – is gaining momentum around the world.