Peak Manpower

Last week I got 4 e-mails and 3 phone calls from headhunters trying to fill engineering positions in the oil and gas industry. They have a tough job right now, and it only looks to get tougher. I know, because as part of my current role, I have to recruit and hire process engineers. It has been a challenge. There just isn’t enough manpower to go around, and it is shaping up to be a big problem. An article published today explains:

‘Peak oil’ Just how long will it last?

We may not be at peak oil, but we are at peak manpower in the industry. Within the next 10 years or so, there is a huge number of people who will retire from the industry. The real problem is where are they are going to get scientists, petroleum engineers, drillers and everyone else it’s going to take to do the work when we haven’t been replacing people in the industry? Ten years ago, the average age of scientists was probably 45. Today, 10 years later, it’s 55. That says we haven’t been bringing new people into the industry.

You can argue “peak oil,” but the one thing you can’t argue about is that the industry is struggling with peak manpower problems.

Robert Bryce also weighed in on this during the summer in Energy Tribune:

Energy’s Manpower Peak? – Why the biggest problem might not be oil.

Of all those in the oil and gas sector, “half are now between the ages of 50 and 60, while only 15 percent are in their early 20s to mid-30s. The average age in the industry is 48, with some major and supermajor companies reporting an average age in the mid-50s.” The report cites a Devon Energy official who in 2005 predicted that within five years, one-third of that company’s geotechnical staff would be eligible for retirement.

Bryce shows a table in that article that estimates by 2020 the industry will need 140,800 employees, but of the current workforce, only 73,800 will still be working. And it doesn’t look like we will be able to close that gap. We just don’t have enough people coming into the industry. I understand the reasoning, having passed on the oil industry when I graduated from college. It wasn’t sexy enough for me. I had the image of an old and stodgy industry, so I spent my first 7 years after college in the chemical industry.

What does the manpower shortage mean? Two things. First, if you want to work in an area where your skills will be highly sought after – which therefore implies excellent wages and job security – this is it. Second, it means that projects are being delayed because people simply aren’t available to complete them. This means that supplies will not come on line as soon as they may be needed- just another above-ground factor that will keep supply from ramping up fast enough to meet demand. Which will of course help maintain the pressure on energy prices.

22 thoughts on “Peak Manpower”

  1. How does this tally with the Friedman “flat earth” worldview?

    He mentions universities of increasing quality pumping out engineering graduates … do they not do oil?

  2. I haven’t seen projects delayed for lack of qualified employees – yet. But we are trying to make do with less. Right now I have 2 offices. I work part time in my normal business development role, and part time in major capital projects. We have one capital projects manager running 3 different projects, where a few years ago he would have just had 1. I’m helping him out writing project plans and other documentation that he doesn’t have time to do. I don’t really want to go back to being a project manager, but at some point I might be told that is what I’m doing.

    Robert – we may never get to retire!

  3. I found the numbers I was looking for …

    I don’t mean to say that western petroleum engineers will have not benefit from higher oil prices. I think they will. I also share the idea that a petroleum engineering degree might not such a bad choice for a western student.

    That said, I’m not sure that a regional, western, shortage is going to hurt global (esp. overseas) production.

    “Last year more than 600,000 engineers graduated from institutions of higher education in China. In India, the figure was 350,000. In America, it was about 70,000.”

    Those are big numbers, and will probably shift the “centers of innovation” around the globe a bit.

  4. The Christian Science Monitor tries to make the comparison “apples to apples.”

    Measured engineering bachelor’s degrees to the same in China/India the gap is smaller .. but still (a) they focus more heavily on engineering than we do, and (b) they get to pull the brightest and most motivated from much larger population pools.

  5. I agree with the state of current staff demographics Robert explains. But I also think it’s fair to point out that the industry is largely responsible for its own problems. Let me offer this for discussion:

    1. In the late 80s and early 90s the industry responded to lower commodity prices by imposing huge layoffs (many of whom never came back) and slashed college recruiting. I was a new graduate in 1990 and saw this firsthand. My dad was forced out of the industry and I could not get in for nearly 10 years.

    2. Internal staff development (training, seminars, tuition resimbursement programs) were also curtailed or eliminated.

    3. Traditional pension plans were replaced by cash balance plans which do not reward long tenures, promoting more exodous from the oilpatch.

    4. Dot coms and the service sector eroded Big Oil’s historical position as a high-paying industry.

    5. Merger mania and the resulting consolidations resulting in fewer regional mega-centers, further limiting recruiting potential. Let’s face it, Houston is not for everyone.

    6. Many current new-hire programs (like my company’s) spend more time telling recent grads how smart they are and how fortunate we are to have them, and precious little on actually creating challenging jobs and a meaningful career path.

    Taken as a whole, the industry was short-sighted, slow-moving and ill-prepared for change. Sound familiar in light of $90 oil and the industry’s image? Funny how things don’t really change…

  6. It seems to me that this situation, while certainly painful, may be to our net advantage over the long term.

    Here’s my reasoning: (Assume) we are approaching, or have reached, the point of diminishing returns of oil production based on geologic factors. The world certainly doesn’t seem to be voluntarily reducing its thirst for oil, and the oil companies will presumably respond as best they can, by pouring more and more resources into finding and opening new wells and increasing production. Given unlimited human resources and access, they would presumably bring as much production on line as quickly as possible. (This might create a glut, but I’m guessing not, just because they seem to be working really hard just to stave off declines.) If this happens, however, it stands to reason that when they finally reach the geologic peak, the subsequent decline will be very steep.

    If, on the other hand, the rate at which they can develop new capacity is limited by resources other than available oil in the ground, that limitation will serve to stretch the remaining geologic resources by restricting the rate at which they can be exploited. The result, ideally, would be a long, slow decline with a depletion rate of ~1% per year, rather than a short, steep dropoff.

    If the Guardian article is right, and we’re really going to see a 7% decline in world oil production next year, then stock up on the ammunition and food, because things are likely going to come unglued. On the other hand, I suspect that that figure is either overestimated, or being misapplied (i.e. applies to one region, not the entire world).

  7. Green, don’t make the mistake of thinking world production will be limited by the number of US graduates.

    Chinese companies are in Africa, for instance.

    Really we can look at this from two perspectives: the consumer at the gas pump, and the student or engineer considering a career.

    What is good for one is not always good for the other, as evidenced by the 1990s. Those were happy days for drivers, rough times for petroleum engineers.

  8. Bad journalism is as much a threat to civilization as anything else. From the Guardian article:
    The German policy, which guarantees above-market payments to producers of renewable power, is being adopted in many countries – but not Britain, where renewables generate about 4% of the country’s electricity and 2% of its overall energy needs.

    Glaring omission: How much renewable energy are the Germans getting for their rather considerable investment? Could it be that the German government is burning through a pile of cash (like US with ethanol) and not generating much in the from of results?

  9. Interesting quote on page 44 of the report:

    Recently, there has been a significant statement by King Abdullah of Saudi Arabia which
    perhaps can remove the remaining uncertainties: “The oil boom is over and will not return,”
    Abdullah told his subjects. “All of us must get used to a different lifestyle.” [Christian Science
    Monitor, Aug 15, 2007]

    So is King Abdullah referring to peak oil, or peak oil light?

  10. Odo,

    Yeah, good point. The Chinese and Indians are graduating an awful lot of engineers; presumably a reasonable fraction of them are petroleum engineers.

    Given that, what (if any) barriers do you see to them being employed by the western oil companies? Obviously there are some language and cultural barriers, but sufficient economic inducement can maybe overcome all that.

    Any reason why they could not be the ones to fill the manpower gap?

  11. The theory of the (H1?) visas is that we let in trained people when required to meet critical need.

    In the software industry that has lead to a lot of internal dissent, about what constituted critical need, and where large employers were just using the political process to undermine wages.

  12. it would seem that the long term answer to the problems discussd[skill sets, commodity availability], thus strategic economic growth/control/dominance rests with those having national strategies for the same. those which follow same by also projecting military power.

    that has proven true for recent western civilization development. the most recent experience being the usa thru the 20th century.

    where would similar development take place over the next XXX years? where do such priorities/populations/economic capabilities reside?

    the governments owning the required resorces, elsewhere might also participate as junior partners.

    the world is flat!
    is the center of gravity moving?

    who will have enough military power to back priorities?

    should be exciting century to watch.

  13. I don’t think we should make too much of King Abdulla’s quotation. If you look at the Christian Science Monitor’s actual story, which is available
    you will see that the quotation was made in 1998 and that it was referring to the Kingdom’s economic problems which existed despite oil.

  14. If oil stays high, then comapnies will pay more for talent, and more talent will gravitate into oil occupations. I just hope pay for lawyers and financiers plummets, while pay for engineers skyrockets.
    But, I hope for a lot of things.

  15. Anon – thanks, that quote makes more sense in 1998 when oil prices were in the $10-20 / barrel range.

    I wonder if CSM had fixed the date in the original story before or after Energy Watch Group picked up on it. OPEC used to worry about destroying demand, so they came up with a price band. They have abandoned that strategy. Peak oil theorists say that OPEC is incapable of ramping up production. I say if they really wanted to they could open up their reserves to private development and we’d have plenty of oil. Peak oil isn’t a physical problem now, it is a political/economic problem.

  16. BTW, web-consensus seems to be building that the report says “half by 2030” or about a 3% annual decline, and that The Guardian’s “7% decline” was in error, or not the long-term number, or something.

  17. Web-consensus or not, nobody knows the real number. 7% decline is about as likely as a 7% increase. I suspect we should see a modest increase (1-2%) to next year as OPEC aim to take full advantage of high prices without causing them to drop.

    OTOH, if that modest growth will require new investment in infrastructure, OPEC might keep things level and just rake it in @ $100/bbl and beyond…

  18. Glaring omission: How much renewable energy are the Germans getting for their rather considerable investment? Could it be that the German government is burning through a pile of cash (like US with ethanol) and not generating much in the from of results?

    I stand corrected, the Germans are doing fairly well: Although Germany has increased its renewable energy share to 9% in six years, Britain’s share is only 2%, with its greenhouse gas emissions rising.
    So Germany is almost halfway there, while the Brits have 90% of the road ahead of them. No wonder they’re getting cold feet. Can’t play much rugby either…

    Should have known if anybody could make it work, it would be the Germans. Still, bad journalism to give the UK numbers without referencing the German achievement.

  19. What careers might a biologist working in the energy sector (as a public servant) lean toward in the coming year(s)? Also, because I’m fairly young, I’m looking for a nice graduate program centered upon sustainability. Of course, that type of thing wouldn’t pay the bills right now, but could be extremely useful in a decade or so.

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