Editorial: Oil's rock and hard place

Oct. 29, 2001
There's one sure way out of squeezes between proverbial rocks and hard places-such as a staffing dilemma now confronting the oil and gas industry.

There's one sure way out of squeezes between proverbial rocks and hard places-such as a staffing dilemma now confronting the oil and gas industry. The rock is today's market collapse. The hard place is tomorrow's market growth.

The market sagged from gloomy to gloomier after terrorist attacks in the US chilled economic activity and froze air travel. Growth was sputtering before the attacks. Now it has all but vanished. Since the year's start, when projections for annual worldwide demand growth were 20 times current levels, the price of crude has fallen by $10/bbl, the price of natural gas by $5/Mcf.

The industry has ridden through slumps before. In fact, slumps happen with increasing frequency. And when they do, the industry cuts. It cuts spending. It cuts activity. It cuts people.

That reflex needs to change.

Huge challenge

The future supply challenge is huge. Demand growth and depletion combine to require unpre cedented additions to reserves and production. ExxonMobil Corp. Executive Vice-Pres. H.J. Longwell defined the task succinctly at the Society of Petroleum Engineers annual conference this month in New Orleans. Despite new energy sources and conservation strategies, he said, "We're confronted with the reality that 10 years from now, half the oil and gas supplies we'll need are not on production today."

In a statement accompanying release last week of a market projection for 2020 and beyond, the International Energy Agency cited the need for "massive investments...in infrastructure and technology." Without them, although resources are "ample," IEA said, "supply is not guaranteed."

The creativity and work essential to those investments must come from people. The supply challenge is a recruitment challenge.

The industry's population doesn't have to grow nearly as much as oil supply must. Productivity improvements enable the industry to increase work impressively without increasing the workforce.

The industry still needs a hiring binge. The average age of workers in the upstream part of the business exceeds 50 years. The future retirement rate will exceed the expected ability of universities to produce graduates in petroleum disciplines (OGJ, Sept. 24, 2001, p. 22). And some of the productivity improvements constraining workforce needs are malignant and unsustainable, such as excessive hours and unachievable work loads.

Even if the industry were capable of meeting demand growth with a workforce no larger than the current one, therefore, it would still have to hire thousands of new workers in the next 10-20 years. Many of those new workers will come from nontraditional sources.

The industry must make oil and gas work attractive to engineers, scientists, and managers who might not have trained specifically for it. The work is not without allure. The business is big, global, interesting, and supremely technical. And the distressing cyclicality of its market is hardly unique.

The industry suffers, however, from a pattern of workforce reductions linked to unanticipated slumps in the prices of oil and gas. During the past quarter-century, as companies grappled with commodity behavior of their core products, oil and gas professionals began feeling like commodities, too. Success in future recruitment depends on demonstrating that employment no longer depends so much on the price of oil.

Slump will end

A new slump is at hand. Companies face a familiar choice. They can hold fast to what they have-including the professional staffs many tried recently to rebuild. Or they can once again jettison projects and people. They can act with confidence in their industry and the importance of its products to future prosperity. Or they can default to worst-case assumptions about present trends.

This slump will end. Withering demand of the moment will give way to enormous needs of the coming decades. The only question is when.

And when recruitment resumes across the industry, as it must, engineers, scientists, and managers deciding whether to commit their careers to oil and gas won't remember industry reaction to the market slump of 2001 merely as an historic question of confidence. To them it will have been a test of character, the exercise of which is the industry's one sure way out from between its current rock and future hard place.