Kemp: Oil Industry Starts to Squeeze Costs, Wages

Extreme Cycles

It takes a long time to train new drillers, petroleum engineers and construction specialists, and give them the experience needed before they can assume positions as experts and team leaders.

Similarly, the expansion of specialist construction facilities and manufacturing firms for items like oil country tubular goods takes years; and companies will only expand or enter the industry if they are convinced the upturn in demand will be durable rather than fleeting.

While the boom in oil and gas prices dates from around 2003 or 2004, the big expansion of exploration and production spending started much later, around 2006 or even 2007, and it has only filtered down to the labour pool and the rest of the supply chain much more slowly.

It is the long delay between an increase in demand for oil and gas, an increase in production and exploration activity, and an expansion of the whole supply chain, which explain the deep cyclicality of the petroleum industry and mining.

Extreme cyclicality is hard-wired into oil, gas and mining markets. Companies like Shell which have tried to ride through the cycle by ignoring short-term price and cost changes to focus on the long term have eventually been compelled by their investors to fall into line.

In the next stage of the cycle, oil and gas prices are set to remain relatively high but are unlikely to rise much further. For exploration and production companies, increasing shareholder value therefore means increasing efficiency and bearing down on costs, including compensation and payments to suppliers and contractors.

For the supply chain and oil-industry workers, capacity and the availability of skilled labour will continue to expand, while demand is set to stabilise or taper off. Major oil companies and miners have already cancelled some projects. Costs, wages and employment will fall, or at least start rising much more slowly.


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Jason Font  |  February 11, 2014
David, the oil industry is the only reason our economy is gaining any momentum.... With out the filthy product the government could not afford to Subsidize all the renewable energy companies only to see them fail in two years or less. Not to mention subsidizing the unemployed and low income citizens with food stamps and welfare.
David Murphy  |  January 31, 2014
WOW! Imagine an OIl company having to consider the cost of doing business in a world that wants its product to go away forever, and in a hurry. Would that be lovely. These companies make more money than GOD. If your profits on $90-$100 per 42 gallon barrel are not enough, perhaps we should completely stop subsidizing your filthy toxic product, and force you to re-tool into sustainable, renewable, non-toxic, green children-generation friendly scources. Only 30 years behind the 8 ball & counting on this one...

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