When you consider problems in the global oil market, have you considered the effect of a lack of oil and gas workforce has on the market? A persistent shortage in skilled labour for the energy sector is among the main causes of instability in the global oil market along with investment uncertainty and other factors, according to an energy official.
During the late 1980s and early 1990s, the slump in oil prices resulted in significant numbers of skilled workers being deprived of jobs in the energy industry. Not only did such workers abandon the industry, but future generations were also discouraged from pursuing careers in energy.
During these low profitability years the industry neglected investment in its workforce and it is now feeling the consequences in an oil and gas workforce which is nearing retirement age.
While the hydrocarbon sector is in dire need for skilled staff, nearly 50 percent of the industry's current skilled workforce will be lost to natural attrition through retirement within the next 10 years as junior recruits comprise barely 15 percent of the resource base, Said Nachet, Energy Director at the Riyadh-based International Energy Forum (IEF), said, Emirates Business 24-7 reported.
The warnings of Nachet echo those of Michael Ohadi, interim president of the Petroleum Institute in Abu Dhabi, who said in 2008 that the majority of the employee roster is eying retirement. Up to 50 percent could potentially retire within ten years.
"Naturally worker shortages are going to be bigger in the Middle East," explained Ohadi. "Middle Eastern economies are far behind those of the top ten worldwide and the region's education system is lacking - we do not have a single university that stands out in the international rankings, let alone a technical university that compares to the standards of the rest of the world.
"In the case of Abu Dhabi, 90 percent of the economy is composed of oil and gas, so it is vital that we train people and make sure we have enough skilled workers," says Ohadi, speaking of the impetus for the creation of the institute.
Nachet said, "Shortage of skilled personnel in the petroleum sector coloured investment decisions and contributed to cost escalation in the oil and gas industry until 2009. Perceptions of the industry as a 'sunset' sector, misconceptions about its approach to environmental concerns, increased competition from other high-tech industries, and cutbacks in technical programmes in universities have reduced the number of skilled staff available to the petroleum industry. Additionally, long-term job security is a major concern for students, perhaps now more than ever given the global downturn."
The IEF said those factors had left the energy sector with an "ageing workforce". It cited a recent independent survey showing that the average age of professionals in the oil industry is close to 50.
Volatility of the oil market
Nachet cited other key factors contributing to persistent oil market volatility, including economic downturns, investment uncertainty, efforts to develop alternative energy sources and environmental concerns about oil.
Citing estimates by the International Energy Agency, he said investments needed for energy expansions to meet global demand exceed US$25 trillion until 2030, including around US$250 billion a year for the oil and gas sector.
It also cited figures by the 12-nation Opec as showing investment in the upstream and downstream oil and gas projects could reach US$3.1 trillion.
"Investment uncertainty has long clouded the energy sector. With revenues tied to shifts in both the geopolitical and policy realms, as well as to unpredictable commodity price swings, the appropriate level of investment is difficult to ascertain," said Nachet, whose organisation groups nearly 100 hydrocarbon producers and consumers worldwide.
"Over the last two years in particular, the increase in oil price volatility has exacerbated concern in the oil and gas sector over investment returns, and in conjunction with an intermittently prohibitive credit environment, contributed to the deferral of capital expenditures. The current climate of economic uncertainty has cast a shadow over future supply and demand as firms have scaled back their capital expenses and delayed project deadlines. These conditions impact oil and gas project development immediately, but also echo through to investment in new technology and alternative energy."
Nachet said a persistent gap in forecasts about oil demand is one of the key obstacles to investments in the energy sector, adding that such a factor "fosters further uncertainty among market participants".
"Greater transparency and a better understanding of why the outlooks are different, how their assumptions were established, and the type of modelling used would improve market stability," he said.
"Furthermore, more skilled staff will be needed to meet future global oil and gas requirements. There is also a need for agreements over a wide range of prices and conditions. Long-term considerations should prevail."
Nachet called for stronger co-operation between national oil companies (NOCs) and international oil companies (IOCs) to tackle the challenges facing the energy industry.
Bahrain take action on ageing oil and gas workforce
Bahrain has been forced into action to safeguard its oil and gas sector, which is under threat as a result of its ageing workforce, a senior government official said earlier in the month.
There is already a 38 percent shortage of skilled petroleum engineers and geologists in the region, Oil and Gas Affairs Minister and National Oil and Gas Authority (Noga) chairman Dr. Abdulhussain Mirza told delegates at a conference in Manama.
He said a lack of young, trained personnel meant there might not be enough people to take over when experienced staff retired.
However, he revealed the country was investing BD3.024 million (US$8 million) a year on training and developing its oil and gas workforce for the future.
"A recent survey shows that the average age of this workforce has now reached 50 years, which is very high - mainly because of a shortage of skilled and competent petroleum engineers and geologists," said Dr.Mirza.
"All GCC countries are looking to increase their oil and gas capacity and for this, they will compete for limited talent. We need a younger generation who have the right qualifications and are more attuned to the new technologies."
Dr. Mirza explained to Trade Arabia that since Noga was established in 2005, it had prepared a succession plan for all of its oil and gas companies, which included training and on-the-job experience.
"We have to fill positions of manager, general manager, deputy chief executive officer and chief executive officer and it can take three to four years to train someone to take over at the higher levels," he added.
Dr. Mirza said regional economies were changing rapidly and businesses were facing new realities, which needed new ideas and direction. He stressed it was vital for companies to invest in developing their staff.