Despite oil prices slumping to their lowest price since 2009, the global energy and resources consulting market has grown 6% to $14.7 billion, accounting for 13% of the $115 billion global consulting industry.
In 2012 companies and governments worldwide spent approximately $13.1 billion on consultancy in the field of energy and resources, reveals new data from analyst firm Source Information Services (Source). In 2013 spending grew to $13.9 billion, driven mainly by high demand for technology and operational improvement services. Twelve months down the line the market’s growth has accelerated, picking up to 6% in 2014, taking total spend on energy & resources consultants to an estimated 14.7 billion. Efficiency and cost cutting services were most in demand, with demand for technology and M&A services also playing a driving force as companies look for ways to respond to challenging market conditions.
The US, which is worth more than $50 billion, almost half of the entire industry, makes up just under half the entire energy & resources market, and in 2014 grew nearly 10% to $6.8 billion. An active utilities sector, a large and demanding energy sector, and newer areas like shale exploration, all of which created opportunities for consultants, were the foremost drivers. “The health of the North American market is keeping the overall global picture buoyant,” comment the analysts.
Europe represents approximately one third of the global marketplace*, with the UK one of the largest markets, harbouring just under 6% of global fee income. UK-based consultants have in particular seen demand from cost cutting and efficiency projects – the cost of extracting oil from the North Sea is relatively high compared with other markets around the globe, presenting consultants with an opportunity to help bring that cost down. Long planning cycles also helped to keep consulting work on an even keel and the market grew 6.1% to $816 million in 2014 as a result.
Across the globe, regulation is shaping as an increasingly important rationale behind consulting work. The need to adhere to the rising maze of (international) standards is on the rise, and compliance is increasingly complex, with all parts of the energy and resources industry seeing an increase in the number of regulatory requirements. As a result the financial management and risk consulting service line has grown 13% to $3.24 billion in 2014. The authors highlight that it’s not just about meeting deadlines and being compliant, it’s also about reducing the cost of compliance, about process and technology, and even about business strategy.
Another in-demand area is customer excellence. Clients are increasingly turning to management and IT consultants to help them work through what these changes mean for them; many are focused on customer-centric transformation, enabled by the vast wealth of data now available to them. Most are still in the early phases of planning major initiatives however, with the upside that consultants can charge good rates and that pipelines for the coming years are forecasted to remain healthy.
The largest service areas in energy & resources are technology and operational improvement. The former, which spans from IT advisory to IT implementations and IT architecture work, is estimated to represent 30% of the market, while the operational improvement domain takes around 24% of the cut*.
Looking ahead, the analysts believe that consultants, in sync with the industry’s broader ecosystem (which has to date seen 250,000 jobs slashed), are likely to start feeling the effects of low oil prices. So far the low oil prices haven’t caused many clients in the energy sector to slash consulting spend yet, but it is having an impact on where consulting demand is coming from, both within client organisations and globally. In 2016, the tide is forecasted to turn, and growth is expected to decelerate.
Utilities, currently valued at $3.4 billion, is expected to be the stand-out sub-sector going forward, thanks to new competition, regulation, green technology, and smart metering. Smart meters in particular will have a big impact on the European sector as the EU has mandated that 80% of customers should have a smart meter for their electricity by 2020. In Italy for instance the government has already implemented electric smart meters and is now working on the gas roll out, while UK officials are pushing for all households to have one by 2020.
* Data based on Source’s previous report of the energy & resources consulting landscape.