In 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.
Glaser’s concerns have been echoed by others within the industry - the International Energy Agency (IEA) backed the chief executive’s claims in a statement – but these new risks have by no means rendered traditional challenges obsolete. Indeed, the ‘operational and legal risks’ that were present ten years ago are still alive and well, and placing a strain on the today's oil industry.
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. The issue of demand is currently a precarious one: the Energy Information Administration estimates that world oil consumption will grow by 1.3 million barrels per day in 2008 and 2009, while some analysts predict a decrease in demand this year due to the economic slowdown. But to give it some context, Britain alone consumes two-million barrels of oil per day.
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.
Hamish Roberts, the Managing Director of Natural Resources at Aon Global declares that this lies at the very heart of the problem facing oil companies. "What we are seeing is a generational gap" he said, referring to the fact that many workers are looking towards retirement. He asserts that the industry is struggling to attract new recruits because it is up against the competitive salaries often offered by banks and other companies which are traditionally viewed by graduates as preferable employment opportunities. "Put it this way, it is better to sell oil rather than produce it, meaning it is better to work for the energy company as opposed to being involved in the actual production and the physical stuff,” Roberts said.
The problem of an ageing workforce is not entirely new. In 2003, the chief executive of Cogent, the Sector Skills Council (SSC) for the Oil and Gas Extraction, Chemicals Manufacturing and Petroleum Industries, contributed a report to the Oil and Gas Review. John Ramsey noted that out of the 4,620 technicians that were already in the industry, 47% were aged 45 and over, and warned that this would raise serious implications within the next five to ten years.
The industry is well aware of the risks that this carries, as is the Energy Institute's Beacock who remarks that ‘shortages of skills is rapidly becoming the major limiting factor so the impact on companies' ability to operate is directly affected’. Thus far, steps have been taken in an attempt to address and rectify the imbalance. In January of this year, the Aberdeenshire Robert Gordon University announced that it would be offering two new courses that would specifically target those in the oil and gas sector. Mike Pittilo, the principle of the university, said: “The oil industry will be important to the UK and World economies for many years to come…our goal is to attract and educate the next generation of energy industry professionals and ensure that companies get the highly-skilled work force that they require.”
If new blood is prescribed as the solution to the oil industry’s problems, then Hamish Roberts suggests that the industry needs to encourage new talent into its fold by reflecting a more positive image of itself. “There has been a lot of boom and bust”, he said, “And when the oil industry has a tough time, the first thing it does is cut back on costs and that’s not attractive long-term to university graduates.”
Sarah Beacock of the Energy Institute agrees, conceding that ‘the industry doesn't seem as appealing or as long-term as it once did’. However, she argues that this is merely a perception issue. “This is one of the most technologically advanced industries and has a long future ahead of it,” Beacock commented, and added that this serves to make it ‘one of the most challenging and rewarding fields to work in’.
If the industry can negotiate a way of conveying the many benefits that if offers as a career, then it may go some way to solving the skills shortage. The general consensus among those in the industry is that a resolution will be reached because it has to be. Hamish Roberts believes that the industry must be prepared to spend money in order to attract a capable workforce, but Sarah Beacock puts forward a more tangible plan of action. “Solving the problem will take a number of years and requires a combination of actions to be successful,” she explained. "It's likely to include better and more effective upskilling of those already in the workforce, including retraining where appropriate, reuse and redeployment of retirees and those who have previously left the industry, and mentoring and in-house development programmes that move new recruits to the point of being productive as quickly as possible.”
In terms of preventing the crisis from repeating itself in years to come, Beacock suggests that a heightened awareness of the importance of the energy industry is needed amongst society in general, and that energy companies would do well to offer long-term investment in their staff. There is no room for complacency or indifference – even in the face of an economic slowdown.
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