Kemp: Oil's Slump Is Scattering The Workforce And Supply Chain

Kemp: Oil's Slump Is Scattering The Workforce And Supply Chain
The current slump is starting to dismantle and scatter the workforce and community of suppliers rebuilt with so much difficulty and expense over the last decade following the slump of the 1990s.

Reuters

(John Kemp is a Reuters market analyst. The views expressed are his own)

LONDON, Feb 19 (Reuters) - The U.S. oil and gas industry has lost around 100,000 jobs over the last 16 months, according to the U.S. Bureau of Labor Statistics (http://tmsnrt.rs/212GuVD).

Employment losses worldwide are probably at least double that figure.

And these are only people employed directly by oil and gas producers, drilling contractors and other oilfield services firms.

Tens of thousands more jobs have been eliminated throughout the supply chain.

Job losses range from truckers and sand producers to the manufacturers of everything from drilling pipes, rigs and pumping equipment.

Where have all those employees gone, and how quickly will they come back if and when oil and gas prices rise again?

Industrial Ecosystem

Skilled and highly trained professionals are the most important assets of the oil and industry and parts of the supply chain.

The availability of an experienced workforce, as well as an ecosystem of drilling contractors, surveying firms and other specialist services companies is critical to maintaining and expanding output.

Lack of skilled personnel after the mass layoffs of the 1990s was one of the main reasons oil companies struggled to raise their production between 2002 and 2008 even as oil prices quadrupled.

Now history is threatening to repeat as layoffs threaten the workforce and ecosystem of companies that will be needed to meet oil demand towards the end of the decade and into the 2020s.

"Previous cycles have shown that the impact of oil prices is long lasting, and that the scars from a sustained period of low prices can't easily be erased," Saudi Arabia's vice petroleum minister, Prince Abdulazziz bin Salman, warned last year ("Sixth Asian Ministerial Energy Roundtable", Doha, 2015).

"During sharp downturns, the industry tends to lose talent, technical expertise, financial resilience, and the confidence to embark on new investments. Unfortunately, none of these adverse impacts on our industry can be quickly reversed."

Oil and gas companies have tried to protect as much of their specialist workforce as possible during the current slump to be ready for an eventual recovery when the cycle turns.

But the lower oil prices fall and the longer they stay there, the more difficult it becomes to preserve the industry's specialist workforce and supply chain.

The current slump is starting to dismantle and scatter the workforce and community of suppliers rebuilt with so much difficulty and expense over the last decade following the slump of the 1990s.

The current downturn's impact on the workforce and the supply chain could prove to be one of its most lasting effects.

The impact on the workforce and supply chain is the most enduring source of competitive advantage Saudi Arabia can create from the current price war ("Is Saudi Arabia winning the war against shale?" Reuters, Feb. 17).

The techniques at the heart of the shale revolution as well as offshore megaprojects cannot be unlearned, but the workforce in which they are embodied can be harmed by attrition.

If the oil market rebalances over the next 12-24 months, as many analysts expect, consumption starts to outstrip production, and prices rise, how easy will it be for the oil industry to begin increasing output again?

Lost Generation

The prolonged slump of the late 1980s and 1990s hollowed out an entire generation of jobs within the oil and gas industry (http://tmsnrt.rs/212GvZz).


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Scott S | Feb. 22, 2016
Thank you Obama!

Rodger Kaminsky | Feb. 20, 2016
I remember very well when the large independents and large operators all said they made a critical mistake laying off way too many of their technical staff back in the late 1980s and said, that will not happened again. Well, they lied and in a couple years there is going to be many laid-off workers with no desire to get back in this industry. I know universities known for graduating PEs and Geo-types are canceling classes because students dont want to spend the next 4 - 6 years pursuing a a career where there is no opportunities. Looks like they are going to have to entice retired workers, but they also are probably disgusted at the thought. I do understand tough choices must be made, but its very frustrating when a typical salary of a CEO, COO and CFO is equivalent to hundreds of technical people who get the proverbial ax,


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