Chris Sutton – Partner, Clover Global Solutions, LP
Our industry has come a long way since oil was first discovered in Texas. Although there are numerous opinions about what the future holds for the Oil & Gas Industry, there is one very irrefutable fact that affects not only our industry, but the world as a whole: things have changed significantly, and the global demand for energy will continue to quickly grow. This is mainly due to population growth and the desire of developing countries to attain economic success. At what rate the demand will grow is hazy right now, but regardless, the demand for energy is inarguable.
According to ExxonMobil’s latest energy outlook, today, the world consumes approximately 230 million BOE/D (Barrels of Oil Equivalent per Day) with oil and gas supplying roughly 60% of the total demand, 20% coming from coal and another 20% from wind, solar, hydro and nuclear energy. ExxonMobil predicts that by 2020, the worldwide demand for energy is expected to increase by around 24%, with about 80% of this growth stemming from developing areas. The outlook is that oil and gas will continue to supply around 60% of world energy demand by 2020, and this means an added 30+ million BOE/D of oil and gas production is critical to meet those demands. In order to achieve these projected goals and meet the future demand for oil and gas, there are some unique challenges that our industry needs to face head-on.
Critical Access to Resources
Currently, the most pressing issue in our industry is the access to significant quantities of economically recoverable oil and gas resources. There is a consensus that is more than enough oil supply to meet future demand – however, more than 80% of the world’s oil and gas resources lie at the mercy of National Oil Company’s (NOCs) and host governments, and aren’t available to International Oil Companies (IOCs). In fact, the major NOCs make up six of the ten largest oil producers in the world.
Higher product prices have only provoked increased resource and economic nationalism, creating competitors with a stronger, more aggressive demeanor. However, instead of having a Montagues-versus-Capulets, IOCs vs. NOCs relationship, adoption of partnerships will not only be ideal, but essential to sustain long-term competitiveness for both NOCs and IOCs. As resource-rich countries progress through the various stages of resource development and gain technological proficiency, resource nationalism will rise.
Cost of Services
Another major challenge our industry is currently facing is the increased costs for services in all fields – drilling, engineering, facilities, construction and procurement. Higher commodity prices have also driven the industry activity to a higher point that exceeds the industry’s ability to respond. One area in particular that has had higher activity is in drilling rigs. New rigs will be available for onshore areas and deepwater areas within the coming years. But this doesn’t solve the problem entirely – experienced, technical professionals will be essential to operate the new machinery, which can also pose as a limitation (i.e., they’re hard to find!) and as the industry attempts larger, more complex projects, the costs to fully commit to and complete those projects will be quite high. On the other hand, what we can’t be certain of is what oil and gas prices and what our revenue stream will be when the time comes.
New equipment and new technologies will require highly-experienced, highly-skilled (and highly-compensated) technical professionals to run them. The never-ending search for such a specific group of people continues to be an issue – so now the question is how do we find a sufficient number of people who meet the qualifications?
The answer seems simple: We need to hang on to the Baby Boomer professionals after they’ve reached the normal retiring age of 55-60 – and the way to do this could be through offering short-term, innovative consulting opportunities (usually six months to two years) where these folks can take on a more mentor-type, advisory role and transfer their expertise, knowledge and skills to a younger generation of employees. This goes both ways – with the older generation teaching the tricks of the trade, we have to attract more eager, bright young people into the engineering and science fields and allure them into the industry. In a world where the older generation may see The Millennials as a lazy, non-ambitious group, the reality is that Millennials are becoming more and more aware of the endless opportunities that they can grab a hold of once Generation X retires. And this is where things get complicated – not enough skills, not enough people…what is there to do?
The annual Hays Oil and Gas Salary Guide conducted for 2013 reported that skill shortages are at the top of the list of concerns for employers in the oil and gas industry. Thirty-seven percent of employers reported skills shortages as their top concerns, followed by economic instability (25.3%) and environmental concerns (11.8%).
An obvious choice for gaining the skilled personnel we’ll desperately need in the future is in encouraging youth to pursue degrees in science, technology, engineering and mathematics (STEM). In a study done by the Brookings Metropolitan Policy Program, it was found that 50% of STEM jobs don’t actually require a bachelor’s degree. However, it’s clear to see that STEM jobs aren’t limited to people with advanced degrees – many blue collar STEM jobs are in fields like construction, plant operation, etc. Even the lower paying jobs that require less than a bachelor’s degree pay somewhat well.
There is an ongoing need for new breakthroughs in technology that can help find, develop and even produce more oil and gas. Technology has been one of the major drivers behind our industry’s ability to deliver increased oil and gas production in a safe & efficient manner while continuing to consider the environmental impacts. However, there has been some concern that not enough effort is being put into devoting adequate manpower and resources to developing the new types of innovative technologies our industry is so actively seeking.
Marathon Oil conducted an informal analysis of industry research and development, and from their results, 60% to 80% of oil and gas R&D is focused on ‘’incremental advances,” rather than new innovative or game-changing technologies. The general attitude displayed from those results is one that calls for partnerships and joint ventures between service and oil companies, governments and the academic world working together to reach breakthroughs in areas that need attention faster and more cost-effective rather than going at it alone.
Looking Ahead: Predictions for 2014
Keeping in mind the challenges our fierce industry will continue to face, some additional predictions can be made. One thing oil and gas companies may do is focus on resiliency within the global energy supply chain. It’s also predicted that Chief Information Officers (CIOs) will concentrate on innovation, analytics and sourcing to keep the attention of business. Since safety will forever more be a major concern for oil and gas companies, a fair prediction is that safety and accountability will frame relationships between owners and service companies.
Every industry has its own fair share of challenges and setbacks – what’s so great about our industry is our ability to affect so many other aspects of the world. Our challenges are not only critical to us, but to the world as well. A developing country’s ability to achieve economic growth and raise the standard of living greatly depends on its access to affordable, reliable energy – and this is where our industry will always be a key player.
Having written this article, a couple of questions come to mind that I’d like the readers to answer:
- Which of these challenges do you think will pose the biggest problem?
- Can you think of any other challenges our industry might face in the future?
Chris Sutton has a sound foundation in the energy sector contracting from both Client and Contractor sides with specific expertise in building alliances to facilitate service capabilities. To contact Chris with any questions or comments, please send an email to Chris.S@clovergs.com.