CERA: O&G Projects Delayed to 'People Deficit'
Large oil and gas production projects worldwide are likely to continue to suffer delays owing to an expanding shortfall of qualified project engineering resources. Compared with the estimated number of staff needed to deliver projects, there could be a potential 10 to 15 percent "people deficit" by 2010, according to a new analysis by Cambridge Energy Research Associates (CERA), an IHS Inc., company (NYSE: IHS).
CERA's conclusion is based on a comprehensive analysis of the engineering and project management staff needed to deliver the over 400 major projects expected to come onstream over the next five years. This demand analysis was then compared to the current and expected future staff available for upstream projects from all major international and regional engineering and project management contractors. This analysis confirms that engineering and project management personnel are already insufficient to meet 2007 upstream project demand and it forecasts that design and project management availability will be an important factor going forward for development of new oil and gas fields.
"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. We have seen projects where no one bids for the work because they don't have adequate resources, and the quality of the engineering workforce will increasingly become an area of great concern and focus in the medium-term," Patel added.
Engineering Supply-Demand Estimate
CERA forecasts future personnel needs by estimating the total engineering and project management man-hours required for each of the more than 400 projects due to come onstream over the next five years based on reserve size, reservoir and well stream properties, location, water depth and estimated first production date. This analysis indicates that total upstream engineering design staff-hour needs will increase to over 79.1 million by 2010 from 73.5 million in 2006, and project management requirements will rise almost 10 percent from 19.1 million staff-hours in 2006 to 21.1 million in 2010. More than 55,500 engineering personnel will be necessary to provide this volume of work in 2010.
A CERA survey of international and regional engineering contractors identified a current base of 55,100 engineers involved in upstream design activities. However, with an average age of 51 years, CERA anticipates that over 50 percent of today's workforce will have retired by 2015, an attrition rate of six percent per year. This will create a significant gap in available staff hours. While the industry is recruiting aggressively, there will only be a two percent influx of new entrants in 2008, forecasted to increase to five percent in 2010 as more graduates gain the experience necessary to work on complex projects.
The net result of this 10-15 percent shortfall of qualified, available staff by 2010 will be increased costs and further delays that will have cascading effects in other markets.
As the project engineering talent pool continues to shrink and the number of technically difficult projects such as deep water, heavy oil, or severe climate operations increases, the demand for the remaining highly qualified staff is expected to increase significantly. One area where the lack of experienced staff is expected to contribute to the delay of projects is the early-stage concept and 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," according to Candida Scott, CERA research director. "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," she added.
The changing project engineering talent supply environment will reshape the oil and gas business, according to the CERA analysis. Contractors are 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 are already examining strategies to manage increased costs and taking steps to ensure a supply of adequately trained and available personnel over the long term. EPC (engineering, procurement and construction) contractors are using price as a mechanism to allocate scarce resources, but also are seeking new suppliers and partners to expand their available capacity
The Capital Costs Forum is an on-going CERA research project focused on understanding and forecasting the costs associated with current and future oil and gas project development and the factors that shape those costs.