Shale gas SMEs fear being squeezed out


A newly formed trade association is calling on the Government to ensure SMEs benefit from the multi-billion pound shale gas supply chain opportunities on offer

● Shale gas supply chain SMEs could be worth £18bn and create more than 35,000 jobs

● SMEs crucial to success of shale gas and other forms of energy extraction in Britain

● Trade body formed to save smaller companies from being edged out by larger, multinational

The Onshore Energy Services Group, which launches today, was created to advance the interests of British SMEs that provide support services to the onshore oil and gas

The group believes there are three key reasons why small companies need to play a big role if shale gas, and other forms of energy extraction, are to be a British success story:

Firstly, job creation: Small companies are much more likely to recruit and train new people as they grow to meet additional demand for their products and services.

Secondly, costs: For onshore oil and gas to be commercially viable, well costs need to be kept to a minimum. Existing supply chain SMEs offer all the right capabilities, but can deliver them more flexibly and at a lower cost.

And, thirdly, tax revenues: Small British companies, that pay their taxes in Britain, will contribute more to the Exchequer than overseas companies or larger UK rivals with more complex tax structures.

But it is worried that, without coordinated action, there’s a real risk that the supply chain will come to be dominated by large overseas companies that fly their people and equipment in, and their profits home with them.

OESG Chief Executive Lee Petts said: “Britain is a nation of hardworking SMEs that, together, make up over 99% of all businesses. They are responsible for around 60% of UK employment and nearly half of all sales revenue, and so are clearly already crucial to the economy.

“We want to see British supply chain SMEs, especially in the communities where shale gas extraction takes place, grow and flourish alongside the developing onshore oil and gas industry just like they have in the aerospace sector, where small British firms are responsible for over 55% of all civil aerospace sales in Europe.

“If SMEs in the supply chain that supports onshore oil and gas could replicate this success, and claim 55% of the prize predicted earlier this year by Ernst & Young, they could one day be responsible for over 35,000 jobs and more than £18 billion in spend.”

In a policy paper produced to accompany the launch, the OESG highlights that 78% of Britons trust small businesses, and that their prevalence means that most people will know someone that either owns, runs or works in an SME – factors the OESG feels are vital to acquiring public acceptance.

To ensure that British SMEs win their fair share of the supply chain opportunities on offer, the OESG is calling for the use of supply chain actions plans, such as those now used in offshore wind as part of the Contracts for Difference subsidy regime, and for the exploration tax breaks announced last year by the Chancellor to be linked specifically to local, British supply chain content.

Without specific support, SMEs like PR Marriott, a drilling company based in Derbyshire that employs nearly 150 people, will find it almost impossible to recruit and get ready for shale gas.  Jonti Hobday, the boss at PR Marriott, explained that the focus of his company is now overseas: “There’s so much uncertainty for us in the UK right now that we’re afraid to invest here.  We’ve got no choice but to find work in places like Africa just to keep our lads busy, when what we’d really like to be doing is taking on more young people and growing our business in Britain.”

Commenting on the launch, Matthew Hancock, the Minister for Business and Energy, said: “Local communities and local businesses should benefit from the production of oil and gas in their area. We will work closely with this new trade association to ensure that all businesses in the supply chain can benefit from the huge opportunities that onshore production could bring in terms of more jobs and prosperity.”

However, European rules currently prevent the Government from specifying minimum levels of UK supply chain content.  Matthew Elliott, Chief Executive of Business for Britain, said: “Energy policy is a perfect example of where the EU can return powers back to member states, thereby allowing national governments to decide themselves how best to meet overall emission targets. Poorly designed policy and unrealistic targets have conspired to help push up energy bills and put jobs at risk, but failed to open up the market to cross border trade. The spiralling cost of energy in the EU is harming our economy, hobbling industry yet failing to protect the climate as emissions are exported to nations with fewer environmental safeguards.”

To find out more, download our launch policy paper here.