What Manpower Shortage?

Much has been made of the manpower shortage in the oil industry. I have been interviewed about it, I have written about it, and I saw it first hand when I was working for ConocoPhillips in Aberdeen, Scotland. Recruiting people was very difficult, and contractors – especially process engineers – were commanding unbelievable salaries. I got so many calls from headhunters – including the companies mentioned in the story below – that I literally hated to pick up the phone for fear I was going to get tied up for 15 minutes.

Well, that was then. Since oil prices have fallen, ConocoPhillips has announced they are laying off 4% of the workforce, Schlumberger is laying off 5% of their North American workforce, and now contractors in the North Sea are rolling back salaries by 10%:

North Sea contractors facing a 10% pay cut

More than 1,000 North Sea contractors will see their pay cut by an average of 10% as oil companies feel the impact of lower crude prices.

The wage reductions affect only one oil service business, Wood Group Engineering (North Sea), but its rivals could follow suit as their oil company clients seek to reduce costs.

I worked with Production Services Network (PSN) when I was there, and the story mentioned them as well:

Among the other large North Sea oil service firms are PSN and AMEC.

Bob Keiller, chief executive of Aberdeen-based PSN, said: “We are looking at all ways to help our customers reduce costs.”

One of the reasons that I decided to join the oil industry in the first place was that I felt like it was a safe harbor in a world that would be facing big energy challenges in the near future. In fact, the energy sector has been mentioned as a place to find ‘recession-proof jobs.’ Some are about to discover that even so-called recession-proof jobs can be impacted by a recession.

Note: For the gardeners who read this blog, I just started a gardening journal this morning. It is basically just a journal of my gardening experiences in North Texas. I find it easier to do this via a blog than to keep a notebook. Anyway, feel free to stop by and share any tips you might have. The URL is My Gardening Blog, and I will update it quite often as gardening season gears up.

Renewable Energy Tempts Workers

I saw an interesting little story today from The Glasgow Herald. I can’t find an online version, so here it is:

Renewable Energy Tempts Workers

By Mark Williamson

More than half of the skilled staff working in the oil and gas industry may be interested in switching to work for renewable energy, according to a survey which could heighten concerns about skills shortages for North Sea firms, writes Mark Williamson. In an online survey, Eden Scott found that 52% of respondents who were employed by oil and gas firms said that they had considered or were considering a move into the renewable energy sector.

The recruitment firm said almost one in five, 19%, of those respondents who were already working in the industry had come from oil and gas. The findings may concern North Sea industry leaders following repeated complaints that firms have been struggling to get enough skilled staff. Other sectors that had proved to be fertile sources for candidates for renewable energy companies included telecoms, aerospace, engineering, power generation, consultancy and nuclear.

Among people who said they were considering moving into renewable energy, some 71% said they thought the industry had good long-term prospects while 68% cited technical interest and 63% highlighted green concerns. Eden Scott said the number of jobs in renewable energy in Europe was predicted to increase from 30,000 to 200,000 across Europe in the next five years.

Interesting times ahead for the oil industry. I see the manpower shortage getting worse and worse, which is of course one of the issues leading to Peak Lite. Am I one of the 52% who has considered it? Of course. I have considered it several times.

I find LS9 appealing, but not living in California. Ditto for Tesla Motors. I found Range Fuels interesting (and I was talking to Vinod Khosla about this when my current assignment came up), but I didn’t want to live in Georgia. And I find Choren very intriguing, but don’t like the idea of living in Houston. (I also know some of the key Choren players, and they are quite a likeable bunch). I think all of the above have good prospects, yet each one had or has something that for me is a show-stopper. But I can see why people are drawn to the field.

Help Wanted

We may not have yet reached Peak Oil, but we may have reached Peak Oil Workers:

Wanted: Oil workers

In the next three or four years, there’s expected to be a 30 to 40 percent shortage of technical and professional oil workers in the Untied States, according to Damon Beyer of Katzenbach Partners, a Houston-based management consultancy that specializes in the energy sector.

Over a quarter of the industry’s highly skilled employees – petroleum engineers, process engineers, geologists, geophysicists and the like – are eligible for retirement in two years, said Beyer.

Well, I won’t be eligible for retirement in 2 years, and I can see my job getting much more difficult. I already see this manpower shortage firsthand, because one of the things I have to do is secure manpower for my team. That consumes a disproportionate amount of my time, because there aren’t that many good people just floating about.

“It’s a real issue,” said Beyer. “Success in attracting new people into the work force is limited.”

Worldwide, the industry’s “people deficit” is expected to reach up to 15 percent by 2010, according to Pritesh Patel, an associate director at Cambridge Energy Research Associates.

Well, I know one way to address that supply deficit. If the pay for engineers, geologists, and geophysicists was in the ballpark of what energy analysts and hedge fund managers are paid (seven figures is not that unusual, which has certainly tempted me on occasion), I think the supply imbalance will start to swing the other direction.

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.

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.

Jim Jubak Gets Religion, NPC Endorses Peak Lite

Jim Jubak, a popular prognosticator over at MSN’s MoneyCentral, has gotten religion over peak oil:

The oil squeeze has just begun

“World will face oil crunch in five years.”

That’s not exactly the kind of headline you want to read when crude oil is already at $73 a barrel. When things are this bad — crude prices are up 12% in the past two months as of July 12 — you don’t want to hear that they’re going to get worse.

Yet that’s exactly what consumers — and investors — should expect, the International Energy Agency said in its latest Medium-Term Oil Market Report, issued July 9. The market for oil will get even tighter over the next five years. (And in case you’re looking for a way out, natural-gas markets may be even tighter.)

He also highlights an argument that I have been making for 5 years. Contrary to the beliefs of many that the oil industry is a dying industry, or that declining reserves will cause the value of oil companies to decrease, I have argued that oil companies will become even more valuable as they supply an increasingly valuable resource. Jubak writes:

You can debate whether the world is running out of oil all you want. It is certain, however, that the world has run out of cheap oil.

Almost any oil stock will profit from that scenario, especially if the company owns oil still in the ground. In an era of rising prices for oil, such companies are sitting on an appreciating asset.

That is exactly right. I don’t like to provide investment advice, but I really believe that investments in oil companies will be good for a very long time. In a time of constrained supplies and rising demand, profits will be solid quarter after quarter. The cyclical days are over, because if this view is correct it will no longer be possible to crash prices by overbuilding capacity.

That’s why I went to work for an oil company, and that’s why I believe job security will be very good. That’s especially true in light of Robert Bryce’s excellent article on the impending shortfall of labor in the industry:

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

Funny story. I didn’t realize I had been quoted in the article until I had already sent the link to several people after seeing the opening two paragraphs at The Oil Drum on Monday. I need to elaborate on that theme at some point, because it is shaping up to be a very big problem.

National Petroleum Council Endorses Peak Lite

First the IEA, now the NPC are endorsing Peak Lite. All I can say is that it took these guys long enough.

US Petroleum Industry Draft Sees Energy Demand Soaring

World oil and gas supplies from conventional sources are unlikely to keep up with rising global demand over the next 25 years, the U.S. petroleum industry says in a draft report of a study commissioned by the government.

The findings suggest that, far from being temporary, high energy prices are likely for decades to come. “It is a hard truth that the global supply of oil and natural gas from the conventional sources relied upon historically is unlikely to meet projected 50% to 60% growth in demand over the next 25 years,” says the draft report, titled “Facing the Hard Truths About Energy.”

The conclusions appear to be the first explicit concession by the petroleum industry that it alone can’t meet burgeoning global demand for oil, which may rise to as much as 120 million barrels a day by 2030 from about 84 million barrels a day currently, according to some projections.

Hey, I have been making that explicit concession for a long time, and critics are always telling me that I represent the petroleum industry.

Jim Jubak Gets Religion, NPC Endorses Peak Lite

Jim Jubak, a popular prognosticator over at MSN’s MoneyCentral, has gotten religion over peak oil:

The oil squeeze has just begun

“World will face oil crunch in five years.”

That’s not exactly the kind of headline you want to read when crude oil is already at $73 a barrel. When things are this bad — crude prices are up 12% in the past two months as of July 12 — you don’t want to hear that they’re going to get worse.

Yet that’s exactly what consumers — and investors — should expect, the International Energy Agency said in its latest Medium-Term Oil Market Report, issued July 9. The market for oil will get even tighter over the next five years. (And in case you’re looking for a way out, natural-gas markets may be even tighter.)

He also highlights an argument that I have been making for 5 years. Contrary to the beliefs of many that the oil industry is a dying industry, or that declining reserves will cause the value of oil companies to decrease, I have argued that oil companies will become even more valuable as they supply an increasingly valuable resource. Jubak writes:

You can debate whether the world is running out of oil all you want. It is certain, however, that the world has run out of cheap oil.

Almost any oil stock will profit from that scenario, especially if the company owns oil still in the ground. In an era of rising prices for oil, such companies are sitting on an appreciating asset.

That is exactly right. I don’t like to provide investment advice, but I really believe that investments in oil companies will be good for a very long time. In a time of constrained supplies and rising demand, profits will be solid quarter after quarter. The cyclical days are over, because if this view is correct it will no longer be possible to crash prices by overbuilding capacity.

That’s why I went to work for an oil company, and that’s why I believe job security will be very good. That’s especially true in light of Robert Bryce’s excellent article on the impending shortfall of labor in the industry:

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

Funny story. I didn’t realize I had been quoted in the article until I had already sent the link to several people after seeing the opening two paragraphs at The Oil Drum on Monday. I need to elaborate on that theme at some point, because it is shaping up to be a very big problem.

National Petroleum Council Endorses Peak Lite

First the IEA, now the NPC are endorsing Peak Lite. All I can say is that it took these guys long enough.

US Petroleum Industry Draft Sees Energy Demand Soaring

World oil and gas supplies from conventional sources are unlikely to keep up with rising global demand over the next 25 years, the U.S. petroleum industry says in a draft report of a study commissioned by the government.

The findings suggest that, far from being temporary, high energy prices are likely for decades to come. “It is a hard truth that the global supply of oil and natural gas from the conventional sources relied upon historically is unlikely to meet projected 50% to 60% growth in demand over the next 25 years,” says the draft report, titled “Facing the Hard Truths About Energy.”

The conclusions appear to be the first explicit concession by the petroleum industry that it alone can’t meet burgeoning global demand for oil, which may rise to as much as 120 million barrels a day by 2030 from about 84 million barrels a day currently, according to some projections.

Hey, I have been making that explicit concession for a long time, and critics are always telling me that I represent the petroleum industry.