With more than 400 major oil and natural gas projects scheduled to ramp up over the next five years, the energy industry is facing a sharp "people deficit" of 10-15% as soon as 2010, according to an analysis by Cambridge Energy Research Associates (CERA).
The Cambridge, MA-based consultant analyzed the number of engineering project management staff members needed to deliver the 400-plus major projects expected to come onstream over the next five years. The demand analysis was then compared with the current and expected future staff available for upstream projects from all major international and regional engineering and project management contractors.
The analysis indicated that engineering and project management personnel already may not be enough to meet even 2007 upstream project demand.
"Our modeling shows that unless there is a dramatic change in the industry, the next few years will experience a greater imbalance between needed and available staff," said Pritesh Patel, study co-author and associate director of CERA's Capital Costs Analysis Forum. "Pressure in the industry continues to increase as companies vie for a limited pool of skilled resources, and personnel costs rise as companies recruit from each other."
CERA found "projects where no one bids for the work because they don't have adequate resources, and the quality of the engineering work force will increasingly become an area of great concern and focus in the medium-term," Patel said.
To determine the personnel deficit, CERA estimated the total engineering and project management man-hours required for projects scheduled to start up around 2012 based on reserve size, reservoir and well stream properties, location, water depth and estimated first production date. The analysis showed that total upstream engineering design staff-hour needs would increase to more than 79.1 million by 2010 from 73.5 million in 2006. Project management requirements would jump almost 10%, to 21.1 million staff-hours in 2010 from 19.1 million in 2006. At those projections, CERA estimated that more than 55,500 engineering personnel would be needed to take care of that volume of work in 2010.
CERA identified a current base of 55,100 international and regional engineering contractors involved in upstream design activities. However, with an average age of 51 years, and at an attrition rate of 6% per year, CERA noted that more than 50% of today's work force will have retired by 2015. The shortfall would create "a significant gap in available staff hours," said the consultant. Even with aggressive recruiting, CERA said there will only be a 2% influx of new entrants in 2008, forecasted to increase to 5% in 2010 "as more graduates gain the experience necessary to work on complex projects."
The net result of this 10-15% shortfall of qualified, available staff by 2010 would be increased costs, and further delays that would have "cascading effects" in other markets, the analysis found. As the project engineering talent pool continues to shrink and the number of technically difficult projects such as deepwater, heavy oil, or severe climate operations increases, the demand for the remaining highly qualified staff would increase significantly.
The lack of experienced staff is expected to contribute to the delay of projects is their early stages and in the "pre-feasibility work phase," where basic cost and development decisions are made.
"CERA expects this short-term deficiency to lead inevitably to a trend of increasing delays and problems on mega oil and gas projects," said CERA Research Director Candida Scott. "Given the number of large complex projects scheduled for the next few years, and this trend of decreasing capacity, one has to ask if all of them are going to hit their target dates, or will there be some delays."
The changing project engineering talent supply environment will reshape the oil and gas business, according to the CERA analysis. Contractors already have begun changing bidding strategies and methods of performing contracts, and relationships among contractors, oil companies, vendors and subcontractors are evolving to include partnering, profit sharing and long-term commitments among other strategies.
Forward-thinking producers, said CERA, already are examining strategies to manage increased costs and ensure a supply of adequately trained and available personnel over the long term. To allocate scare resources, engineering, procurement and construction contractors are using price as a mechanism, but they also are seeking new suppliers and partners to expand their available capacity.
El Paso Corp. CEO Doug Foshee said recently that retaining a talented labor force has been an ongoing battle (see NGI, Sept. 24).
"As we move forward on a big project...the ability to execute is what's the big differentiator," Foshee said. "There are constraints everywhere in the pipeline business, just like the E&P [exploration and production] business. Contractors are stretched, and they are short their own labor, welders in particular. And we have the same kinds of constraints in our own internal staff. We're really focused on that." He added, "as a country, we have not graduated enough engineers, enough geoscientists," and the labor shortage is affecting energy companies across the board.
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