A number of unrelated though significant factors appear in play — undermining the global endeavor to find incremental crude resources.
The Cambridge Energy Associates (CERA) says large oil and gas production projects worldwide are likely to suffer even more delays in the coming years owing to “people deficit.” There could be a potential 10 to 15 percent “people deficit” by 2010, says CERA in a new report.
“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,” says Pritesh Patel, study co-author and associate director of CERA’s Capital Costs Analysis Forum.
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 on-stream 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.
And that is not available. The 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.
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.
The signs are indeed ominous. Spiraling costs are already starting to impact. A recent report said ConocoPhillips was reconsidering its joint venture refinery project with Saudi Aramco in Yanbu — apparently a casualty of rising cost. The project cost has almost doubled to $12 billion from the initial estimate of $6 billion, reports said. This project was of crucial importance to the global energy balance, as its scope included processing heavy crude, which does not have many takers in the current scenario.
Political impediments also seem to be adversely impacting the rush to find new resources. The Iraqi oil draft is yet to get through the parliament in Baghdad and the possibility of it being resolved in near future appears remote.
Political issues have long dogged projects in Kuwait. A key obstacle to expansion plans is the approval from parliament for the global oil majors to take a role in “Project Kuwait” — $8.5 billion scheme to boost output from the country’s northern oilfields. This political standoff in the world’s seventh largest exporter has delayed progress on projects to boost oil output so as to meet its 2020 output target of 4 million barrels per day (bpd). Currently Kuwait produces 2.8 million bpd.
In the meantime, doubts about the size of Kuwait’s proven oil reserves also persist ever since industry newsletter Petroleum Intelligence Weekly reported last year that it had seen internal Kuwaiti records showing reserves were only about 48 billion barrels, about half of the official Kuwait reserves of 100 billion barrels.
On the other hand, Ecuador is also flexing its muscles against energy majors. It is asking them to hand over 99 percent of the windfall oil profits to go to the state and the remaining one percent only to the companies, making the fields unattractive. This may hamper growth of the industry in Ecuador too.
In the meantime, trouble seems brewing in Kazakhstan too. Authorities have fined Chevron $609 million for alleged environmental lapses, the latest in a number of moves against foreign investors. The business climate in Kazakhstan has become uncertain amid the row over the foreign-operated Kashagan oil field.
Kazakh MPs recently approved a law allowing the government to break contracts with foreign firms. The move, if implemented threatens to undermine existing commercial deals in the oil-rich country.
Chevron, the largest private-sector oil producer by output in Kazakhstan, has a 50 percent stake in the Tengizchevroil project and 20 percent in another big field, Karachaganak, is Kazakhstan’s. The consortium has just invested $6 billion to expand Tengiz, which has recoverable reserves of 6 billion-9 billion barrels of oil.
In past, Russia has also used similar claims to arm twist Shell and other global majors. Once Russian officials stepped up complaints about environmental breaches, Shell and its partners got the message had to sell majority stake in the project to Russian state owned Gazprom. Something similar also happened to TNK-BP, a BP joint venture that owned a majority share in Kovykta, a huge gas field in eastern Siberia.
The road to additional resources, so very vital in quenching the global energy thirst, is definitely not an easy one. Major bumps, from technical to political and environmental, stand in the way, posing ominous challenges to the ingenuity of the energy fraternity.