[Graeme]

2008: Crunch time for the oil industry

$this->bbcode_second_pass_quote('', 'I')n February of this year, oil closed above $100 (£50) per barrel as demand for commodities pushed prices to their limits. In the same month the chief executive of Marsh, the international insurance broker, addressed the National Oil Companies Conference about the emerging risks threatening the industry.

Dan Glaser noted that the challenges in 2008 are much changed from those of a decade ago, when operational and legal risks would have been the most significant threat and cited a rise in political risks, global warming, cyber crime, religious and cultural factors, and nuclear proliferation as top of today’s agenda.

Currently, the oil industry is facing a specific operational challenge – a deficit in skilled workers. A skilled workforce is inevitably essential in order for the industry to function effectively.

According to Sarah Beacock, Professional Affairs Director at the Energy Institute, the severity of the shortage is such that it has become a boardroom issue for 50% of US companies. Moreover, an Energy Institute survey suggests that the problem could get progressively worse as a substantial section of the current workforce approaches retirement. Of those polled, 50% of workers expect to leave the industry within the next ten years, leading to a significant shortage in technical specialists – particularly engineers.

[Twilight]

It is the same in the power industry, over here at least. The IET expects 40% will retire in the next 10 years. I think it is a similiar picture across all infrastructure. At the same time, much of it is up for renewal so a lot of work is being squeezed into a tight window.

When you think about it, aren't things great when people with more than 30 years' experience are the norm? That might not be the case ten years from now. In this sense these are cyclical industries.

[FrankRichards]

As they sowed, they reap. This is what putting beancounters in charge always brings. Why yes, I trained in engineering, why do you ask?

[Graeme]

Don't you think it curious though that there was no talk about lack of supply.

[Twilight]

$this->bbcode_second_pass_quote('Graeme', 'D')on't you think it curious though that there was no talk about lack of supply.

[Graeme]

Why not? One would have thought that this was a risk. Or can't you insure against this?

[Novus]

$this->bbcode_second_pass_quote('FrankRichards', 'A')s they sowed, they reap. This is what putting bean counters in charge always brings. Why yes, I trained in engineering, why do you ask?

[joewp]

Boy, the corporation is like organized stupidity, isn't it?

[shortonoil]

joewp said:

$this->bbcode_second_pass_quote('', 'B')oy, the corporation is like organized stupidity, isn't it?

[rockdoc123]

You need to understand some history here to appreciate how oil companies got into the present staffing bind. Up until the early eighties being hired by a major oil and gas company was considered to set you up for your life's work. Very few people jumped ship, most looked at their place of employment whether it be Mobil, Gulf Corp, Texaco, Amoco etc as their second home...close friendships were developed with co-workers, the corporation looked out for the well-being of it's employees and kept them well trained. That all changed in the early eighties with the first market crash which saw many companies facing short term cash crunches and a bleak future. I remember one of those fateful days working for a multinational. I came in one morning bright and early and watched as my co-workers were escorted out the door in droves. The exploration and development department at that company was less than half it's size by end of business that day. Although reticent to layoff staff management at those companies they saw no other choice short of closing up shop. This was an extremely tough decision for most of senior management at these companies, not something they had ever anticipated and not something they wanted to repeat. As a consequence even when the industry started to recover they refused to increase hiring efforts simply because they did not want to have to layoff employees once again in what was a very cyclical industry. Because the oil companies were being quite selective in their hiring of young new staff, fewer and fewer students were going into the traditional oil and gas fields...geology, geophysics, petroleum engineering, chemical engineering etc. And so the pattern continued through the nineties and into the current century.
It is definitely a serious crisis now. I've heard Exxon estimated they would have to hire every graduating student from every University in North America in order to make up for their expected retirements over the next few years. That might be a bit of an exaggeration but it does suggest how serious the situation is.

[seahorse2]

Lack of people expertise, losing good people, is one of the reasons Simmons is pessimistic. He has long warned of an aging workforce and infrastructure and the dangers overcoming those hurdles pose to an optimistic outcome.

[Graeme]

These are some projected consequences of oil shortages and their effects on the insurance industry as envisgaed in 2006:

Oil shortages: the next Katrina

$this->bbcode_second_pass_quote('', 'I')f gasoline becomes very costly, living in outlying suburbs may become less attractive. Oversized homes, wherever located, may become expensive to heat and maintain. Prices of these homes may fall and they may become difficult to sell. Homes may stand empty for extended periods. Costs for goods that need to be transported, including food, could experience large increases.

Could an industry with $500 billion in premium volume lose $50 billion (10%) in a single year from sudden oil shortages? It seems quite possible. A surge in inflation and the accompanying upturn in interest rates would amount to a triple blow in the form of investment losses, underwriting losses and additions to reserves to settle claims. The combined effect could easily outstrip the one-year cost of Hurricane Katrina for the U.S. insurance industry.

[joeltrout]

Wanted: Oil workers

Help wanted: oil jobs

I am 25 years old and work in the California oil and gas industry and know less than 10 landmen that are under the age of 35 and most are over the age of 45.

The only reason many oil and gas landmen are staying around and not retiring is because companies are now paying them a ridiculously high salary to keep them a few more years instead of losing them to retirement. I know many landmen that are receiving their full pension payments and make a full salary at their current place of employment. Double income is pretty nice.

joeltrout

[Starvid]

It's the same thing in process industry, mining, power generation, nuclear, you name it! And not only engineers but technichians, welders and so on.

Well, I guess I won't have any troubles getting a job. This autumn I'll be changing from political science and economics to something which in 5 years time (or a bit less if I manage to include some of the other stuff I've studied) will result in me being a Master of Energy Systems Engineering.

Wish me luck! With all that horrible math, I'll need it.

And god bless government subsidised dirt cheap educational loans and a total abscence of University fees (yes, they are illegal!).

PS. Will Starvid graduate before we reach peak oil? It's a race against the clock!