week 8: shortages

Despite the recent rise in reserve stocks that have driven crude prices down in the last week, the oil and gas industry will likely be facing a relatively tight supply situation for the next couple years. The market's response to the supply disruption in Nigeria today is a perfect example of how sensitive the market is to any unexpected events. Many operators are attempting to increase production to capitalize on both the current high prices and the expected continuation of these prices. However, attempts to bring new production online are slowed by two factors: people and equipment.

The equipment issue is a short-term problem that can be resolved in about a year. The talked about shortage at the moment is with drilling rigs. However, as more rigs begin to operate, that will increase the need for other service equipment. For instance, there will be a strong need for high pressure pumping fracturing equipment to keep pace with the wells drilled so they can be brought online. Additionally, hydraulic fracturing is becoming more common as fields mature and stimulation is needed to maintain production levels. Nonetheless, equipment can be made, will last for several years, and does not need to cooperate to be used. The same cannot be said for people.

The personnel issue is striking at all levels of the industry. Simply put there are shortages of people from operators to engineers to managers. The need for experienced people is highlighted in this article, which draws special attention to how the situation has arisen partially due to the cyclical nature of the industry.

The problem with people is that they have needs, human needs. Like a desire to live in a particular place without being transferred to wherever there is a need for help. Or something against being put in storage while times are slow before being brought back into commission when business picks up. Can you believe that? A total lack of commitment to the team. Seriously, personnel issues cannot be resolved by manufacturing more equipment. In fact, they cannot simply be solved by paying people more either though people will put up with much more, how shall I put this, BS if they feel well compensated.

There is no easy way to address the personnel problems. New operators can be hired and trained, though communities that have seen the industry boom and bust many times before tend to distrust rapid expansion. Even new entry level engineers like me can be brought up to speed relatively quickly. It does take a certain disposition and native ability that is not all that common for college grads to have to adapt to the field life and deal with the many types of people to work with. The issue becomes experience. The next slow down, and it will come eventually (though it may not occur for several years), is the problem. It will force the termination of many field operations level people since there will be no need for them. (People in research are more insulated since there is still a need to innovate no matter what, but the field personnel are highly exposed to a slow down.) Then the business will pick up again and the cycle gets to repeat again and there is a lack of experienced personnel who have worked their way through the ranks to fill critical middle management positions that are invaluable to smooth on the ground operations.

I suppose this is true of many industries. The oil and gas industry, with its obvious public face and impact on something people buy continuously, seems to suffer from the problem more seriously though. Part of the solution is to standardize as many work processes and systems and technologies as possible. That way, the transfer of knowledge to new personnel can be done more quickly which is certainly something I see Schlumberger working on. As for keeping experienced knowledge workers and managers, that becomes a matter of finding challenges for them. For researchers and developers, the research can never stop so even in slow times the work will continue. For operations personnel and managers, field experience is too valuable to let go of easily so efforts need to be made to keep those people and that is often done through transfers to busier districts.

The industry will struggle its way through these personnel shortages in its own way and in its own time. It'll be interesting to see how it manages this time.