Rystad Energy Advocates Strategic Procurement Amid Evolving Energy Sector Dynamics

As nations aim to reduce carbon footprints and geopolitical tensions intensify, governmental involvement becomes crucial in bolstering emerging industries and local supply chains. This shift, while increasing procurement risks, demands a delicate balance of risk management between governments and industries to foster robust supply chains. To thrive in the dynamic energy sector, Rystad Energy strongly advocates for companies to prioritize their procurement functions, while governments enhance their trade intelligence and support industrial markets.

Procurement plays a pivotal role in shaping supply chain strategies, emphasizing both cost efficiency and sustainability. This involves comprehensive market analysis, adept negotiations, and continual monitoring to optimize efficiency and mitigate expenses. A well-crafted procurement strategy holds significant potential for energy companies seeking cost reduction, carbon footprint minimization, and sustainability promotion.

Compared to oil and gas exploration and extraction, low-carbon resources present lower associated risks. While uncertainties prevail in oil and gas output expectations, capacity remains the primary risk for low-carbon resources. Additionally, renewables often benefit from fixed-offtake agreements covering over half of their projects, providing locked power prices for specific durations. Unlike fossil fuel extraction, renewable projects, developed nearer to end-users, mitigate political and geopolitical exposure.

Despite reduced risks in renewables, geopolitics still exert influence, particularly due to the dominance of a select few countries in low-carbon supply chains. Procurement risks in renewables outweigh those in oil and gas, demanding nuanced management by companies transitioning into renewables.

Fluctuations in cost formation within solar, wind, and battery technologies have been observed in recent years, driven by events like the Covid-19 pandemic and ongoing conflicts. These have caused supply chain bottlenecks, surges in costs, budget overruns, delays, and financing challenges for renewable projects.

Supply chains in oil and gas equipment and services are more fragmented and geographically diverse, unlike renewables, which face concentration risks from fewer suppliers, particularly in China. This concentration amplifies procurement risks, necessitating vigilant risk management.

While specialized supply chains can offer cost advantages, they also pose challenges, susceptible to disruptions from natural disasters, unexpected events, or geopolitical tensions. Governments must grasp sector-specific challenges and risks to guide corporations through these complexities and ensure success in the global arena.