The current financial crisis has ballooned around the world economy and there are fears that this International recession could even trigger a global economic meltdown. Most economic analysts are predicting that it will get worse before it gets better. This is reflected in some of the recent downswings in stock markets worldwide as near term recessionary expectations are being priced in today. The channels of credit have dried up and businesses small and large have been plagued by a credit crunch. The other key trend is in the sharp volatility of hydrocarbons prices. After a remarkable run up over the last two years, crude prices have plummeted over the past few months. We're hovering below the US$45/barrel range as of press time. While there are many factors driving the price of oil (demand-supply, speculation, political risk, etc), it is undeniable that there has been some demand destruction due to unsustainable high prices in the $150 range.

Effect on projects

In the last few years, quite a few operators were able to leverage cheap credit and high commodity prices to finance large new exploration projects in some new areas. However with the squeeze in the credit markets, some of these projects are either being put on hold or delayed. Small cap companies are scaling back operations, seeking new partners or have become targets for acquisition. There are other companies are also restructuring their project plans to tide over the current period of economic uncertainty. Shell recently announced the delay of its oil sands project in Canada, Yemen has also delayed its gas production outlook. However, most large cap integrated oil companies are not cutting back as they did not factor in $140 oil while making their investment decisions. This is also the case for most national oil companies.

In the long term, we see that the demand-supply equation is still likely to be unbalanced. The International Energy Agency (IEA) predicted in November in its World Energy Outlook that by 2010 oil companies will have to commit to projects producing almost as 7m barrels a day - if the world is to avoid a supply crunch by the middle of the next decade. This is due to the steep rates of decline in existing fields to meet demand of growing economies like China and India. Further investments should staunch the natural rate of output decline of 9% down to 6.7%. As a result they have predicted a price range greater than $100 by 2015.

So the question is how will the credit crunch and lower oil prices affect the labour market in the oil and gas industry? Will it stall the recruitment and talent acquisition process? Are we going to see a repeat of the layoffs of the 1980s?

The human capital deficit

It is unlikely that we will be seeing a repeat of the 80s. There has been a massive shift in the demographics within the industry:

• There will be a 38% shortage of upstream engineers and geo-scientists and 28% in instrumentation. It will take 7-10 years to fully train and deploy replacements;
• By 2010, in the US, 40% of the workforce will be poised for retirement (64m workers);
• By 2020, there will be a gap of 14m skilled workers in the US while EU markets will experience a 13% decrease in the number of people aged 25-40.

The dearth of skilled professionals in the sector is a significant long term strategic threat. The ability of the oil and gas industry to expand sufficiently to meet future demand growth will hugely depend on its workforce. Project delays and abandonment are as much a result of capacity constraints as financial calculations. Finding the right talent will be the biggest human resource challenge particularly in emerging markets. The problem is compounded by the decreasing supply of young, technically qualified people; the declining number of skilled graduates interested in the sector; the loss of existing skills and experience into other industries; and an ageing workforce on the verge of retirement. The industry simply cannot afford to under-invest in new talent and in developing a resource pipeline for the future.

The industry is already facing an acute shortage of professionals in almost every part of the business, particularly in technical functions. For front-end engineering and design of technically complex projects, the sector will need an experienced global and mobile workforce. The 'Crew Change' dilemma will hit the industry at its most vulnerable moment. The industry will have to adopt a fine balance between short term obstacles and long term objectives.

Looking over the horizon

Due to the underinvestment in human capital in the 80s and 90s that is driving the expected Crew Change, we can see a very positive outlook for professionals in this industry, in spite of the current slowdown. Key roles in demand are geoscientists, drilling and pipeline engineers, project managers and commercial managers. Many senior professionals are choosing to defer retirement and engage in knowledge transfer, while young entrants are seeing more opportunities in the sector open up around the world.

Industry professionals will agree that the days of easy oil are over. Most future E&P activities will be in frontier geographies, inhospitable climes and politically unstable regions. Advanced technology and exploration techniques are required to efficiently recover oil from these projects. This would require an experienced technical and scientific workforce. Indeed the degree of technical innovation required for these types of projects would demand a more cross-trained individual; one that is able to develop and apply new technologies across a range disciplines. How are we creating these new skill sets?

The other large trend we'll see in the coming years is the rise of different renewable technologies - bio-fuels, wind, solar and geothermal. These nascent industries require technologists and commercial personnel with the skills to develop deploy and manage large projects with complexities in economic, political and commercial models. Currently there are two key sources of such people - the armed forces and the global oil and gas industry. Many oil and gas majors are already positioning themselves as integrated energy graduates to these fields, while mid-career professionals that want to move to new areas will find their valuable skills much in demand in the development of these new technologies.

What next?

Overall, the current global slowdown is likely to have only a short term impact on employment and career prospects in the oil and gas industry. The industry fundamentals are solid, and the needs are even greater. Given the huge shortage of technical professionals and the imminent burden of a massive crew change, the demand for skilled professionals will remain high in the foreseeable future.