Sunday, May 25, 2008

Why is There a Shortage of People and Equipment in the Oil Industry?

The common lament of oil executives today, and the increasingly tedious explanation for the drop in oil production, is that there is a shortage of trained people and the equipment needed to increase exploration, development and production to offset declines from older fields. Both shortages, I would very strongly suggest, are born out of the same realities.

What attracts people to most professions is not the mundane. It is the potential for the exceptional, the potential to be part of the big find, the big discovery, the big breakthrough. The simple reality is that the peak in oil discovery was a full half century in the past, production now at 4-5 times the level of new discovery. The last major oil discoveries were nearly thirty years ago. Production of the premium, light-sweet crudes have now been in decline for several years. Overall crude production has already decline with increases in production in recent years coming from alternatives, not from increased crude production. The long decades of major technological development in the oil industry since then, in terms of both exploration and production, have not altered those realities. That is hardly a situation that is going to attract the best and brightest to the profession. It is more likely to attract those who walk in with their eyes closed, who have not bothered to check the landscape before they commit themselves. When you add into the mix the disdain that most people today now feel for the oil industry, the fact that new exploration and development is taking place in some of the most inhospitable regions on the planet, the reality that oil is soon to become a dying industry to which it would be very unwise to hitch your wagon, there should be very little surprise that the industry is having trouble finding qualified people.

And the equipment that is declared to be needed and in short supply is in the same boat. The geography and geology involved in the new oil environment take a tremendous toll on equipment, or require totally new equipment because existing equipment simply can't do the job now required. As with qualified people, why would the companies that build the equipment be investing large amounts in the research, development and production of equipment for an industry which looks increasingly like it will not remain viable long enough for them to recoup their costs? It may be culturally suicidal to use the words peak oil inside the oil industry but it would likewise be suicidal to not be aware of that reality. Corporate culture demands an awareness of the risks to investment and peak oil is unquestionably the greatest risk for new investment in the oil industry.

What the executives of the large oil majors are doing is trying to convince others, like equipment developers, national oil companies, exploration companies and today's students to take the risks that they are fully aware are foolhardy. Those oil executives know what the future of their industry holds. That is clear in their rush to diversify into other forms of energy. They are not going to commit their own profits to further investment they know will have no pay back. The only strategy left open to them was to convince others to make that investment. Failing to convince them to do so, after all, gives them a point of blame to focus on while they run out their term in office and crank up their golden parachutes.

1 comment:

Anonymous said...

Well written article , my father is a oil engineer and I never considered to go in his footsteps after i learned that my country was post peak .Romania peaked long time ago in 1976 .I think the world will peak in 2010 .