The ticking talent time bombby Arabian Oil & Gas Staff on Nov 16, 2016
It has long been recognised that the oil and gas industry is facing what optimists call a demographic gap, and what pessimists describe as a talent time bomb. Even before the precipitous drop in the price of oil, an aging cohort of expertise was leaving the industry, hard-won pension in hand, and with little sign of replacement in sight.
With the average age of workers on the rise, the volume of engineers, technicians and professionals retiring out of the industry will widen the already large gap in qualified talent needed to fill essential roles. Individuals with five to 10 years’ experience are expected to be of greatest demand.
In the past couple of years, the exodus of talent has been accelerated by cost-cutting and efficiency drives in the face of low oil prices and unsustainable break-even points. Airswift estimates that since March 2015, more than 290,000 jobs have been lost worldwide, with many employees opting for early retirement packages where offered.
The cuts have primarily been at the operator and service company level in the upstream sector, whereas downstream companies, which are more sheltered from the direct impact of oil prices, are in a better position to sustain current headcounts.
The Middle East has also been sheltered from the direct impact of the lower-for-longer environment, however cost optimisation has now come to the fore. The region’s major players have joined their global counterparts in balancing along the fine line between cost optimisation and talent retention.
Initial stopgap reductions of the contingent workforce are now extending deeper into organisations where some of the most skilled and experienced individuals have become expendable. At Airswift, we have seen examples of Middle East operators and other participants across the value chain offloading talent with more than 10 years’ experience on specific assets or projects.
The consequences of the growing talent shortage have already been seen in a number of ways. In a recent report, Marsh, a major insurance broker and risk adviser, highlighted the link between low oil prices and an increase in major incidents. In the short term, this lower-for-longer environment is producing a new dynamic between people, safety and cost, which needs to be carefully managed to ensure safe and sustainable operations.
In the long-term, there could be even greater consequences for the industry. As so many individuals with oil and gas expertise are now looking for work, sectors such as metals, mining and infrastructure can, for the first time, afford some of the most skilled talent in the world.
For individuals who can transfer their skills to more stable sectors, this is not necessarily bad news. Project management and engineering talent is moving into other project-related sectors – for example mining, nuclear power, renewables, downstream, and chemicals, as well as infrastructure.
We are seeing similar moves when it comes to quality, health, safety and environment (QHSE). Here, the experience of working in one of the most hazardous environments in the world is a valuable badge of honour that is an extremely attractive commodity to companies in other sectors.
When the price of oil recovers, there may be a long-term, more pronounced talent shortage. There is the growing possibility that the oil and gas sector will face an even greater skills shortage than pre-recession levels. And if companies are unable to fill essential positions, then the risk to their business is significant.
It is almost impossible to calculate what this loss of talent will cost the industry. Oil and gas projects are bigger, more complex, and more resource-intensive than ever before. This requires a large, international and scalable employee base with the right skills and experience to support projects through to completion. If the right people aren’t available, these projects will be delayed, costing operators potentially millions of dollars.
Before the economic downturn in the late 2000s, the estimated average cost of an unfilled vacancy in the oil and gas sector was as high as $30,000 per month. Taking multiple regions into account, the scale of the issue becomes apparent. And this is not simply a matter of economics. If the loss of QSHE professionals is permanent, then the safety and cost conundrum highlighted in the Marsh report will continue long after the oil price picks up.
As the price of oil drifts upwards from the $50 mark, the industry can realistically expect more projects to come online and hiring activity to increase once more. Before the downturn, the shortage of talent made it difficult for companies to find and retain top workers. As the price of oil declined, more talent became available and so power shifted back to organisations. Once the market starts to recover, that balance can tip very quickly in the other direction and the talent shortage will return in full force.
If knowledge transfer doesn’t take place internally, then organisations will be forced to compete for the most experienced – and rarest – talent.
That time bomb is ticking…
- 5 Minutes With: Dick McAdam
- The Black Swans of KSA's Vision 2030
- Go big or go home
- Cover Story: Ringmaster of gaskets
- Interview: Partner in success
- Comment: Apt time for new strategies
- Comment: Strategy for success
- Five Minutes With: Benoit Dubarle
- 5 Minutes With: Cor Corbeek
- Chinese technology for digital oilfield