Often at industry conferences, the subject of an impending squeeze on oil industry talent is mentioned as yet one more problem energy companies must face. It's presented along the lines of "we've got restricted access to reserves, we've got global warming issues to deal with, we've got governments wanting to tax us more, and oh, yeah, we've got an old work force."
But in a study just released by Ernst & Young, that issue is not viewed as an aside. It's presented as the number one problem facing the energy industry.
The study by E&Y was done in conjuction with Oxford Analytica, and its title is Strategic Business Risks: Oil & Gas 2008. There at the top of the list is what the study calls the Human Capital Deficit. "With the growing human capital deficit in the sector, the challenge of recruitment, development and deployment has become a significant strategic threat." The study quotes one of the (anonymous) panelists that were surveyed as part of the study: "The ability of the oil and gas services sector to expand sufficiently to meet future demand growth is questionable, not least in terms of staff."
The difficulty in getting non-native help through a more complicated visa process in the US was cited as a new area of concern, reversing the traditional trend that US companies could hire qualified people from all over the world. And then there are the numbers: the shrinking pool of graduates from technical programs, combined with an average employee age that this report puts at 46, but other estimates have placed even higher.
The rest of the top 10 follows below, along with an excerpt of E&Y's findings::
2) Worsening fiscal terms: "In some cases...a consequence of energy nationalism..(but) might be due to political opportunism and high prices."
3) Cost controls: "An inability to control costs...driven mainly by a lack of capacity in exploration."
4) Competition for reserves from NOCs: "Deals are struck not through bidding or tenders but at a state-to-state level, bundled with development aid, for example."
5) Political constraints on access to reserves: This sounds an awful lot like number 4, but the E&Y finding also cited environmental concerns as falling under this problem.
6) Uncertain energy policy: non-commercial goals, such as making energy affordable, building strategic stockpiles and mitigating climate change, could mean a rocky road for government intervention in the energy industry.
7) Demand shocks: Just when all the focus is on tightness of supply, the panelists found that "demand shocks could trigger a low-price environment." This is not a surprise coming from E&Y's contributors, who presumably have been around far too long to accept the popular cultural view that oil prices are never going to go down again.
8) Climate change: it could be, according to one panelist, that "the hazard is actually more imminent than is commonly understood," and that policies to deal with that will be "more abrupt than most firms are currently planning for."
9) Supply shocks: Interesting that it was ranked lower than demand shocks.
10) Energy conservation: Since the biggest growth in energy demand is coming from developing countries, who are consuming BTUs in a not particularly efficient manner, the report notes that efficiency gains may therefore be easier to achieve in countries like that than in a place like the US, which squeezed out a lot of the easiest gains starting with the first oil crisis in the 1970's. The next round of gains is tougher, but not for the developing nations.
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