The Oil Education Gap

October 12, 2007


It’s not oil we’re running out of; it’s oil engineers.

  • An aging workforce
  • Worksite delays
  • A new career?


With all the talk of how high oil prices are making those "hard to get at" oil reserves (such as the Canadian oil sands) more attractive, and not to mention profitable, there still isn't a lot of discussion of the problems in getting that "hard to get oil."

Here's one aspect of the problem that may not have hit your radar. Cambridge Energy Research Associates (CERA) put out a press release last week with the rather long title of "Engineering Talent Squeeze -- "People Deficit" -- Likely to Cause Further Delay in Some Oil & Gas Production Projects through 2010."

It turns out that it’s not so much the oil that’s hard to get; it’s the engineers. There just aren't enough oil and gas project engineers to go around for all of the projected projects in the, um, pipeline. Part of the knowledge gap is the number of projects that need staffing—some 400 planned over the next five years worldwide. A part is because the pool of engineers is itself running dry. The average age of a qualified engineer in the oil business is 51, and about half of them are expected to retire by 2015. And though the industry claims to be recruiting aggressively, there are just not enough engineers out there to completely take up the slack—especially with projects becoming increasingly more complex. CERA is telling us to expect some delays and problems on big oil and gas projects, especially in the planning stages when all the cost and development decisions get made.

Ever wanted a career change? Like math? How about working in hazardous, potentially lethal environments, surrounded by tinpot dictators and vicious competitors? No, not Wall Street.

How about moving to Venezuela? I hear it's lovely this time of year. And they're hiring. President Hugo Chavez plans to increase Petroleos de Venezuela SA's payroll numbers by 35% in the next year in an effort to boost production. (Production that is somewhere between the official number of 3 million barrels per day and the industry analyst's guess of 2.4 million barrels per day.) The WSJ points out that since Exxon Mobil and ConocoPhillips left Venezuela, there's a lot of technology and probably some manuals hanging around for you to peruse, which could give you a big leg up. Of course, you're going to have to deal with some of their headaches too—like what will happen when Venezuela and whatever company Chavez can get to partner with him tries to make use of that technology and know-how. The last thing you're going to want to have to do is sit in court and testify in some international corporate secrets lawsuit.

All kidding aside, the upside for any company that comes in is the possibility of benefiting from the heavy crude experience and technologies that have been left behind. The downside (besides having to deal with Chavez) is that the use of that technology and experience could invite a legal challenge. And it's unclear what's left—or who's left—to transfer that technology and expertise. There have been accounts of accidents, machinery failures and all manner of keystone cops episodes which outside observers think have more to do with experience than man-hours. As we reported earlier in the year, a lot of the best oil workers jumped ship and joined other Venezuelans in a race to Alberta, Canada.

But even in Canada they're running out of roughnecks, and construction workers and anyone else who can handle themselves around a worksite. But that may not be a problem for long. Not because of a record jump in job applicants, but because of proposed hikes in the oil sands royalties. Those royalties may limit which projects go forward. Canadian Natural Resources Ltd., the No. 1 producer of heavy oil in the region, has said that the proposed royalties would slow down construction plans and lead to job cuts. Pipeline company Enbridge has been more conservative, saying that the royalties won't be the make-or-break variable in decision making, but that there is a balance between construction costs, commodity prices and profit margins that will determine which projects are viable.

After all, it's hard to cut jobs when you can't hire the engineers in the first place.

What’s the play in all this? As explained here, you buy the “picks and shovels”: the suppliers of oil equipment and technical suppliers. Anytime there’s a shortage of something, its value goes up. And right now, the most precious thing in the oil industry may not be oil, but engineers.

Heavy oil may soon prove profitable Alaska Journal of Commerce October 7, 2007

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