Mitigating Risk in Offshore Energy Supply Chain Agreements

Supply chain agreements in the offshore energy sector have never been under more scrutiny. With disruptions ranging from the COVID-19 pandemic to geopolitical tensions, stakeholders are revisiting their contracts to better allocate risk and ensure resilience.

Identifying Key Risks

The offshore energy supply chain is inherently complex, involving multiple parties and jurisdictions. Key risks include:

• Delays: Shipping bottlenecks or manufacturing slowdowns can derail project timelines.
• Cost Overruns: Rising material and labour costs can erode profit margins.
• Regulatory Compliance: Changes in local laws or international trade restrictions can halt progress.

Structuring Risk Allocation

A robust contract can mitigate these risks by clearly defining roles and responsibilities:

• Force Majeure Clauses: Update provisions to reflect modern risks, such as pandemics or cyberattacks.
• Price Adjustment Mechanisms: Account for fluctuating raw material costs with escalation clauses.
• Indemnities and Liability Caps: Limit exposure to unforeseen events without deterring contractors.

Collaboration and Communication

Supply chain risks are best managed through proactive collaboration:

• Transparent Communication: Regular updates and shared risk assessments keep all parties aligned.
• Early Supplier Engagement: Involving suppliers early in the project lifecycle fosters innovation and risk-sharing.
• Digital Tools: There may be a place for leveraging technologies like blockchain to improve transparency and traceability.

Conclusion

Mitigating supply chain risks requires a balanced approach that prioritizes both foresight and flexibility. Strong, clear contracts can play a vital role in building resilience and protecting investments.

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The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.