Peak Oil is You
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Page added on May 18, 2012
Forget Peak Oil, Time To Worry About Peak Oil Labor
In a recent working paper, researchers at the the IMF (International Monetary Fund) attempt to reconcile the Peak Oil debate that whether resource constraints will dictate the future of oil output and prices, or advance in technology motivated by high oil price would eventually provide a solution to more production, as well as higher oil prices.
An economic model was developed incorporating both views, and identified two biggest factors contributing to the recent run-up in oil prices:
- Relative price insensitivity on the supply side – We have to point out that this IMF observation is partly due to oil production increase/decrease typically significantly lags the oil price movement.
- “Shocks to excess demand for goods and to demand for oil” due to the recent phenomenal growth from countries like China and India.
The paper also gives out this dire warning:
“….our prediction of small further increases in world oil production comes at the expense of anear doubling, permanently, of real oil prices over the coming decade. This is uncharted territory for the world economy….”
In general, various forecasts by different agencies seem to agree that world oil production will likely continue to have small increases with producers venturing out to exploit the more difficult and challenging formation.
However, what most forecasts as well as the IMF paper did not discuss is the scarce human capital that’s already seriously plaguing the oil industry, which could have serious implication in the future oil production and technology development.
With the aging and retirement of the boomer generations that began their careers in the late 1970s (see chart below), the oil industry is suffering an acute shortage of experienced skilled professionals.
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| Chart Source: Schlumberger presentation, March 1, 2012 |
This will only add to the cost of an oil barrel and become very disruptive (see graph below) as oil projects are getting more complex, more difficult and expensive to execute.
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| Chart Source: Schlumberger presentation, March 1, 2012 |
A separate study by the Petroleum Human Resources Council estimates about 39,000 workers will be needed in Canada along to replace those who are expected to retire before 2020 just to maintain the status quo. The industry could need as many as 130,000 new hires by the end of the decade with more bullish oil and gas prices.
Already at least one analyst firm is scaling back its drilling activity forecast for 2012, in part because there aren’t enough workers who can drill big, complicated wells. For now, NES Global Talent sees a depletion of skilled workers in oil and gas fields in the United States, Great Britain and Australia, three of the busiest oil and gas regions, will become a major problem.
Schlumberger, the largest oilfield services company in the world, sees significant negative effect from peak oil labor manifesting by 2015, a short three years from now, with increasing inexperienced oil professionals, and that the talent problem will only get worse.
For now, most forecasts expect crude prices would remain high in 2012, mostly due to the Iran tension. Meanwhile, OPEC just revised its 2012 world oil demand outlook slightly upwards citing a stable US economy and the shutdown of nuclear plants in Japan. So if the IMF prediction comes true, it seems the peak oil labor could be just enough to tip the scale for doubling in oil price scenario a lot sooner than year 2022.
The future will not be easy.
9 Comments on "Forget Peak Oil, Time To Worry About Peak Oil Labor"
BillT on Fri, 18th May 2012 2:07 pm
I guess nobody wants to be a buggy whip maker when Henry Ford is turning out hundreds of horseless carriages every year.
Oil workers have no future. You are 22, just out of college, and starting your career. Less than twenty years later, when you are in the middle of raising a family, your career ends because the oil fields are closed. Now what? You could always make buggy whips…lol.
SOS on Fri, 18th May 2012 3:01 pm
Most people are grateful to have a job making a living wage and producing security for our country. Many people I know got their start in the oil patch. Most worked hard and saved establishing a very nice nest egg for themselves and their families. Others are still there surviving the boom/bust cycles.
Now the cycle is lengthing. It is going to take 30 years to drill out the Bakkan in North Dakota, now the nations 2nd largest oil producer behind texas.
California is experiencing peak oil because their politicians and politicians and their allies at the federal level have all but stopped development and are seeing their production fall. The oil workers there that havent moved to Tx or ND are all on welfare.
DC on Fri, 18th May 2012 4:37 pm
Ah loserhedge, deflect the PO issue by talking about how a differnt peak will suposedly hurt the tar-sanders, which are only turning alberta into a cratered toxic moonscape because of the effects of guess what…
Peak oil…
But loser-hedge cant apprecicate how a problem PO created, feeds on itself and comes full-circle can it?
There is huge unemployment in Canada, and it still imports 225k 3rd world economic migrants every single year. Dont cry for suncor, they will have no trouble filling jobs building even larger toxic impoundments and to run the loaders and dumptrucks.
Arthur on Fri, 18th May 2012 8:32 pm
I am not so sure if a career in oil is not lucrative, even in the long run. Oil might be running out, cheap oil that is, but oil will be in demand even if prices rise steeply. Remember that oil represents something like 5 man years of physical labour per barrel. That will be in demand long after Joe Sixpack has stopped visiting the filling station after oil prices have risen to 500 $ / barrel. 1 trillion ‘low hanging oil fruit’ has been handpicked, so to speak. The effort required to make a start in picking the next (and last) trillion is a far bigger challenge than the first trillion and requires more skills and expertise. Oil will become the new diamond, sort of, as long there is no real breakthrough in alternative energy sources. Solar cells could be such a rival as prices now reportedly have dropped to 1 $/Watt.
SOS on Fri, 18th May 2012 8:38 pm
I dont think so Arthur. Thats not what is playing out. Oil is pleantiful and not that expensive to get.
Peak Politics might make oil more expensive but left to a policy of orderly development supply and demand will stay in balance at a reasonable price.
BillT on Sat, 19th May 2012 1:24 am
Arthur, you don’t take into account the economy. If it costs too much to buy and you have to decide whether to buy food for your family or gas for that metal box rusting in your back yard, which do you buy? Oil will be pumped only as long as there is someone to buy it. But, soon there will be a collapse in the world economy and then most of those high priced wells/mines/sources will be shut down, never to start up again. With real inflation running at 10%+, how long do you think it can continue? I would recommend a young person take up farming, not petroleum engineering. There is a future in the first and a dead end in the second.
Arthur on Sat, 19th May 2012 8:22 am
Bill, we agree that Joe Sixpack will abandon his car soon. But even if a barrel of oil costs 500$, the farmer will be eager to buy 5 manyear of labour equivalent represented by that barrel, rather than employing hired men to do the ploughing for him. The prices of oil will skyrocket. As a consequence, oil will more than ever be the black gold. The decrease in volumes will be compensated by increased prices. There will be an oilindustry and employment opportunities for
decades to come, just like there is a thriving goldmining industry, despite the fact the HS cannot afford gold either.
But I do agree with you and people like Jim Rogers that agriculture will be a booming business, where the average age of farmers in Anglosphere is something like 60 years! Do not go to college, forget about MBAs, psychology, sociology or lesbian finger painting, but learn a trade like farming or plumbing.
BillT on Sat, 19th May 2012 1:11 pm
You assume that the farmer will have that $500 per gallon to spend and even if he does, you assume that the oil infrastructure is still going to continue. Remember, if oil is $500…that tractor is going to cost him maybe $1,500,000 or more, to purchase. After all, those several tons of metal comes from mines that will also be buying that $500 oil to power their machines, etc. The demand will drop, no mater what you think until it is not used anywhere. Odds are very good that all of the recoverable oil will not be recovered for many reasons that are all possible in the next few decades. The oil industry is dying.
Do you want to bet your future on today’s ‘buggy whip’ industry? Yes, they still sell buggy whips and maybe a few hundred people actually still make a living off of them, but not hundreds of thousands of people.
Arthur on Sat, 19th May 2012 2:27 pm
He will pay 500$ as he can compensate his higher cost in higher prices for his produce. Food is the only thing people **have** to buy. Society probably will have to be rebuilt on a new agrarian base, that’s where everything starts. Culture, civilization is created by the surplus of people who are not needed for agricultural production. We can be sure that in the future a much larger share of the population will be necessary to provide society with food than the current… what is it, 2-3%? … of the workforce.