Kemp: Oil’s Slump Is Scattering The Workforce And Supply Chain
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 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.
By the late 2000s， the workforce consisted of a large number of ageing professionals nearing the end of their careers， recruited in the 1970s and early 1980s. There were also a large number of young and relatively inexperienced professionals recruited in the 2000s with less than 10 years’ experience. But there was a severe shortage of mid-career professionals with 10-20 years experience， the missing generation that would otherwise have been recruited in the 1990s
The “talent gap” on the workforce side was matched by a similar “supplier gap” as the industry struggled to replace the pipe makers， drilling manufacturers and specialist steel producers downsized in the 1990s.
The acute shortage of specialist labour and supply firms contributed to the enormous wage and cost inflation in the industry between 2004 and 2014 as it struggled to increase output in response to soaring prices.
The problem of maintaining a specialist labour pool and supply chain in the face of deep and long activity cycles is both a consequence and contributor to instability in the industry.
The current slump is already creating the conditions that will lead to the next boom at some point within the next 5-15 years.
The length of the slump matters more than its depth. Recently laid off workers can be hired back more easily than those who have joined other industries or retired. The industry bounced back quickly from a very deep but short downturn in 2008/2009 linked to the global financial crisis. The slump in the late 1980s and 1990s lasted for more than a decade. By contrast， the current slump is only a little over a year old so most of the damage done to the workforce and the supply chain remains easily reversible.
But the longer the slump persists， the deeper the damage and the more difficult it will be to return the industry to growth in future.
Oil And Gas Diaspora
Oil and gas producers， as well as big services companies such as Schlumberger， Halliburton and Baker Hughes， are acutely aware of the need to maintain capacity and skills through the cycle.
The industry puts an enormous amount of effort into workforce planning.
But there is tension between the need to maintain optimal capacity over the whole cycle and the need to meet investors’ demands to maximise profits at each point in the cycle.
Senior managers must balance the need to maintain capacity and capabilities for the future against the need to right-size the business for current conditions.
At some point， the industry goes into lock-down， and the need to protect current cash flow and profitability overwhelms the need to protect future capabilities.
Abdulazziz， the Saudi minister， estimated the downturn had already resulted in the cancellation or postponement of projects equivalent to 5 million barrels per day of future production.
The impact on the workforce and the supply chain is harder to measure but probably even more important in terms of future production， costs and oil prices.
How much damage the current downturn has already done to the future production capacity of the oil and gas industry remains an under-researched subject.
We need much more research on how oil and gas workers and suppliers respond to downturns， now and in the past， where they go， and how easy it is to bring them back.
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