Investments in the energy sector challenged by supply shortages, lack of talent, and price risks

• Broad-ranging study by Inverto analyzes strategies in the energy sector for CAPEX investments
• Continuous project management and close supplier relationships are crucial to shape the future of energy supply

London, February 21. On-time and on-budget delivery, as well as profitability, are the key objectives in Capital Expenditure (CAPEX) projects in the energy sector, according to a new survey of 389 energy companies conducted by Inverto, a Boston Consulting Group subsidiary, specializing in procurement and supply chain management. However, these goals face significant challenges. Survey participants identified three primary issues that put investments at risk: supply shortages, talent gaps, and unpredictable price fluctuations.

The energy sector is experiencing unprecedented CAPEX demands as it builds the infrastructure required for the green transition. More than half of survey respondents anticipate their annual CAPEX expenditures to exceed €5 billion between 2025 and 2030. Opinions on long-term price trends vary, with roughly one-third of participants each expecting prices to increase, to decrease or to stay stable. Respondents are concerned about persistently long delivery times, as delays in project realization, due to late deliveries, often lead to unexpected cost increases of 10 to 35%.

Most companies recognize the critical role of their suppliers in completing projects on time and within budget. To mitigate supply chain risks and stabilize costs, energy firms are increasingly investing in long-term supplier relationships. The study reveals that 39% of companies are actively utilizing long-term agreements (LTAs) to encourage collaboration, while 38% are engaging in joint development projects or joint ventures. Additionally, 36% rely on strategic partnerships.

Mohamad Kaivan, Managing Director at Inverto, says: “Delays in critical equipment deliveries and unexpected cost increases are major challenges for energy companies worldwide. These pressures highlight the growing need for close supplier relationships, optimized demand management, and procurement experts who are capable of managing these tasks. Procurement teams should play a central role in CAPEX strategies to address these challenges effectively.”

Despite this, Inverto’s study finds that only 10% of global energy companies currently position procurement functions as leaders of CAPEX project portfolios. Meanwhile, 17% involve procurement during portfolio planning and 20% during the conceptualization phase. This leaves more than half of the surveyed companies assigning procurement only an operational role rather than a strategic one.

The traditional, more operationally oriented understanding of the role of procurement no longer fits in with the challenges of the ongoing energy transition and should therefore be redefined. This applies to all sectors of the energy industry. In addition to companies that are operating in electricity generation and distribution, companies in the oil and gas industry should also adapt to new market conditions.

While the supplier markets were largely stable in recent years and most product groups were relatively readily available, the strong global demand for components required for the transformation or expansion of electricity and gas grids is now often pushing suppliers to their capacity limits. “It is imperative to assign a central, strategically oriented role to procurement as part of the ongoing transformation and to face the challenges with a holistic supplier and product group strategy. Strategic supplier and innovation partnerships increase the chances of securing materials in the long term and avoiding supply bottlenecks,” advises Kevin Domnick, Principal at Inverto and one of the authors of the study.

Kaivan adds: “Companies should develop procurement strategies with their Procurement department at an early stage and regularly review possible synergies and market developments. Procurement experts can help to sustainably optimize the investment volume in investment projects.”

Methodology

The survey involved 389 companies from the UK, Germany, Spain, France, the Nordics, and the Middle East, collectively representing approximately €1 trillion in CAPEX expenditures in 2023, with an average spend of €2.5 billion per company. Participants included executives from energy producers, service providers, grid operators, and OEMs, such as hydrocarbon energy companies, as well as materials and process industries.

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