Editorial

Supply Chains: challenges and opportunities for the energy sector in 2022

Supply Chains: challenges and opportunities for the energy sector in 2022

By Sarah Louise Howell, Vice President, of Gastech

The predominance of complex, internationalised supply chains is one of the defining characteristics of the global economy in the 21st century. When economists talk about globalisation, they are in part talking about the interconnectedness of the world’s economic trade, thanks to the ability for supply chains to link countries together. Cobalt mined in the Democratic Republic of Congo becomes a battery in China, Superconductors made in Korea are fitted into cars made in America.

Global supply chains have opened up enormous opportunities for innovation, not least in the global energy sector, which, with its transcontinental pipelines, and fleets of LNG-carrying ships, is composed of an intricate web of supply chains.

Criticism of supply chains, and globalisation more broadly, has tended to focus on the neglect of domestic industries and commercial activity in favour of cheaper suppliers overseas. However, the impact of the global pandemic, and the crisis in Ukraine, is now causing some industry commentators, both in the energy sector and its partner industries, to question the reliability and integrity of the global supply chain system. 

The pandemic laid bare the vulnerabilities of many industries, with a report from Accenture suggesting 94% of Fortune 1000 companies saw supply chain disruptions from COVID-19. For many companies, one of the key lessons from the pandemic was to step up efforts to relocate the production of critical resources closer to end-customers. Now, some commentators believe the crisis in Ukraine will push industries further in this direction – not least the energy sector, which is facing heavy disruption in the new Zero Russian Gas paradigm.

The debate across the globe now centres on how best to meet this challenge: diversification and greater regionalisation are at the top of the agenda. With time and investment, new regional production centres will open up ‘shorter’ supply chains, which may in turn strengthen the resilience of numerous sectors.

In many cases, this is easier said the done. For renewables, China’s dominance of rare earth metals used in battery production and materials for solar panel production is causing headaches for policymakers in the West, South Korea and Taiwan’s dominance of high-end semiconductor manufacturing the same.

But in the gas sector, Europe’s geopolitical turn is presenting opportunities for the industry to drive supply chain resilience and diversification. For example, investments in the Eastern Mediterranean gas basin, alongside new LNG terminals to boost access to diverse global suppliers, could play a major role in rewiring and strengthening Europe’s energy supplies.

Major transformations in global supply chains will not happen overnight. Interconnectedness will inevitably remain central to the global economy over the next decade. However, the nature and shape of those supply chains may well undergo a transformation in the coming years.

At Gastech this year, how the global gas sector can become more resilient to supply shocks while contributing to net zero targets will be a key theme of the conference. As the industry’s leading forum, Gastech provides a unique opportunity for energy ministers and the leading players in the industry to map out ways to meet existing supply challenges and prepare for future ones.