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Survey Report

Energy Supply Chain Risk Report 2023

March 24, 2023

WTW surveyed 100 senior decision makers in leading energy companies globally, to understand their supply chain risks and challenges, their organization’s approach to risk management and what future supply chains will look like.
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Learning the lessons of disruption

The supply of energy has never been as critical, or contested, as it is today. The question of how we heat and light our homes and run our transportation — and how much it costs — is at the centre of economic, political and social discussions.

Urgent action is needed to guarantee affordable supplies today and enable the transition to clean energy tomorrow.

But the supply chains that underpin both these objectives are struggling to meet demand.

Project times are lengthening and costs spiralling as companies compete to get the raw materials and equipment they need on time, putting future plans at risk.

How are energy businesses adapting?

To find out how the sector is navigating this challenging landscape, we surveyed 100 risk and supply chain leaders in sub-sectors including upstream oil and gas, downstream power generation and renewable energy.

How do they see the supply chain landscape? What are the main challenges and risks they face? What are they doing to overcome obstacles and try to build resilience? And what will the supply chains of the future look like?

Risks and uncertainty are growing

The risks that energy and power companies are concerned about in their supply chain reflect uncertainty and volatility in the sector as a whole.

Shortages, delays, price inflation and geopolitical instability were all top of mind for respondents to our survey. Wider external factors such as cybersecurity and supply chain sustainability were also leading concerns.

Critical shortages

Shortage of raw materials (39%) was named as the biggest supply chain factor expected to impact businesses over the next two years.

Construction delays, which are linked to shortages, were also near the top of the list.

As we’ve discussed, the loss of one source of raw materials or equipment can delay work and hold back activity, which is costly at a time when the energy business is generally highly profitable.

Economic risks

Economic uncertainty emerged along with inflation and rising costs as the leading factors underlying supply chain risks, ranked by 32% among their top concerns.

This may reflect escalating project costs, which in some cases have increased dramatically even before the work starts.

Rising costs and volatile energy prices can influence projections of income and growth, potentially reducing the scope for future investment.

Geopolitical risk

This was among among the factors thought to have the greatest impact on supply chain risks, rated by 56% as medium and 23% as high impact.

Along with the massive disruption to oil and gas supplies, the Ukraine conflict has also cut off a major source of lithium needed for transition technologies.

Other potential sources of minerals in African countries are compromised by conflicts and human rights abuses.

China has production capacity to supply up to 60% of global demand for mass-manufactured clean energy technologies1, so tensions between that country and the West could pose a risk to supplies of critical equipment and components.

Cyber risks

Contractors, suppliers and equipment manufacturers in the energy sector are increasingly digitalizing and automating their processes.

On major projects, they may all share the same systems, adding potential entry points for malware into sensitive equipment.

These trends may explain why cyber risks were believed to have the most profound effect on supply chains, rated by 62% as medium and 29% high impact.

Climate change

More than half (54%) placed climate change and environment among the top global trends affecting supply chain risks.

This may reflect concerns over the impact of extreme weather and drought on the resilience of energy infrastructure and supply chain, the need to decarbonise operations and production processes, as well as concerns about progress towards a low carbon future.

The supply chain needs to deliver with greater speed and innovation if the world is to make a successful transition towards clean energy.

ESG

Like other sectors, the energy industry is under mounting regulatory and public pressure to source responsibly and sustainably.

Much more effort is going in to make sure that activities such as oil extraction and raw materials mining are not tainted by exploitation or abuse.

In our survey 87% said that ESG is a specific selection criteria when selecting new supply chain vendors, while 82% said sustainability was a key goal for their supply chain.

Almost half (46%) named ESG among the top global trends with the greatest influence on supply chain risk.

Pandemics

Though we may be past the acute disruptive impacts of Covid-19, the risk of a new strain of the virus, or a new unforeseen pandemic, seems to be still front of mind, topping the list of global trends with the greatest influence on supply chain risks at 58%.

4 key findings

67% of businesses said that losses related to the supply chain had been higher or much higher than expected over the last two years.

39% named shortage of raw materials are as being among the biggest supply chain factors expected to impact their businesses over the next two years, topping the list of concerns.

84% said they have made at least some improvements in their approach to supply chain management in response to the pandemic.

83% cited a lack of insurance solutions as being among the greatest challenges to addressing their supply chain risks over the next 3 to 5 years.

Securing energy supply into the future

The energy sector is highly reliant on its supply chain to build, install and operate the critical equipment and infrastructure needed to power the world into the future.

Those dependencies will only increase as the business of hydrocarbons and thermal power transitions to renewables over the coming decades.

On that journey, the industry faces difficult supply chain challenges, from shortages of raw materials and critical minerals shortages to capacity constraints and a lack of alternative sources and suppliers.

Our survey shows that businesses are working to overcome these problems and considering a range of strategies to increase resilience.

However they’re hampered by an inability to get hold of enough accurate data on the supply chain to manage their risks.

Working more closely with suppliers as partners can help companies understand their supply chains better and address these risks.

Diagnostic mapping and monitoring tools, together with analytics can help to visualize, quantify and assess risks across the supply and in specific locations.

WTW has an experienced team of experts with the tools and competencies to help clients understand their supply chain vulnerabilities and align their production with financial risk.

We can also help you manage and transfer risks, for both property-related and pure economic losses, helping you build greater resilience against future shocks.

Download your report

To learn more, download your free survey report by completing the short form at the top of this page.

Contact

Nicki Tilney
Head of Construction, Power and Renewables, Asia

Footnote

1 Policy priorities to address supply chain risks

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