If America can claim the title of the world’s breadbasket, the Middle East is surely its oil well. Of the 19 countries that topped 1 MMbbl/d in 2016, seven are Middle Eastern (five on the Arabian Peninsula), eclipsing any other region for total output or concentration of major players.
It is a region that offers rich opportunity to the upstream oil and gas sector, but it has its challenges, too. The geopolitical situation, the low oil price—despite OPEC’s production cuts—and drives by various states to diversify their economies and energy sectors are all headwinds.
However, some of the most pressing structural challenges have to do with the industry’s workforce. The time to act is now, but concerted efforts are difficult, not least because tomorrow’s challenge often masquerades as today’s opportunity.
Ultimately, it all boils down to cost per barrel and price. The most obvious challenge is the persistent low oil price environment.
Taken in isolation, the low price is a storm that the region’s upstream industry could ride out without too much discomfort. But nothing happens in isolation. Though not catastrophic in itself, the oil price is the rough undercurrent to a host of other challenges.
Take, for example, the ongoing diplomatic tensions between Qatar and its neighbors, including Saudi Arabia and the United Arab Emirates (UAE). Accusations of foul play and supporting terrorism have led to Qatar’s larger neighbors imposing sanctions and all but closing the borders.
However, things are more difficult in the region as a result of the dispute. Sanctions and border restrictions make everything more expensive, from the food eaten by the crews onsite to the construction materials required for asset development and maintenance.
It also causes problems for suppliers to the upstream industry. Multinationals typically set up a central regional office and serve the region from there. If that office is in Dubai and there is work to be done in Doha, then a short direct flight is now a circuitous trek of about 7 hours. Though aimed at Qatar, in this way the restrictions hamper ease of doing business throughout the region.
There are other less direct challenges, too. The energy sector is changing in the Middle East, and renewables are making inroads. The UAE, for example, is investing $163 billion in renewables aiming to meet half of its power requirements sustainably by 2050. Similar projects have been planned and ambitions stated across the region. This is unlikely to spell disaster for upstream operators anytime soon, but it does reduce domestic demand and begin to chip away ever so slightly at oil’s privileged position as the centerpiece of national economies.
Not all the challenges are external, either. The ease of extraction in the Middle East has led to underinvestment in efficiency and technology compared to more demanding regions around the world. As reserves gradually reduce, operators may come to regret the underinvestment.
The sleeping giant
The greatest challenge that Arabian upstream operators face does not have to do with geopolitics or tech; it has to do with people.
From March 2015 to October 2016 it is estimated more than 300,000 oil and gas jobs were lost worldwide, with the Middle East certainly seeing its share. Now, having made the painful adjustments, operators are prima facie in a great position. There is a lot of very skilled talent available and eager for work; to some it may look like a buyer’s market. However, that situation cannot last.
Many of those people went out and made new careers for themselves. These are skilled workers with highly transferable experience that can open doors in many industrial or infrastructure sectors. The burgeoning renewables market has been a willing recipient of veteran engineering and managerial talent.
In the 2016 Global Energy Talent Index conducted by Airswift and Energy Jobline, it was revealed that 67% of oil and gas professionals worldwide were interested in working in other energy sectors, particularly renewables. One of the biggest motivations was job security (cited by 42%), and, shockingly, nearly half (49%) would take a pay cut to do so.
The oil and gas industry can’t assume it will easily tempt them back. People who have been let go are not quick to forget. In the Middle East 50% of surveyed hiring managers had not rehired any of their laid-off employees, with a further 33% having rehired less than 10%. They might find that some of the skilled talent they seek to rehire have left the job market entirely. The aging workforce is a well-publicized phenomenon in the upstream sector. Almost three-fourths of hiring managers cited an overall talent deficit as a challenge to the industry, with nearly half (46%) believing the aging workforce to be the main reason for this challenge.
If the industry tries to ratchet up hiring again in the near-medium future, it might find a significant number of skilled energy workers are happily settled in other sectors and others have opted to retire. So, while it might feel like a buyer’s market with regard to talent now, upstream operators should have one eye on the future.
Room for optimism?
Luckily for operators in the Middle East, many of the figures cited above are global ones, representative of the oil and gas sector as a whole. For regional operators there are some nuggets of good news in the more granular data. For example, 46% of hiring managers thought that the Middle East would be a hot spot for the industry over the next 12 months, with only 13% saying the same of Europe. When the professionals surveyed were asked for their top places to work, the Middle East came in second behind only North America.
Professionals in the Middle East were also optimistic about pay. Almost 50% believed it would increase in the next 12 months, far more than people who thought it would stay the same (33%) or decrease (14%). An important caveat, though, is that hiring managers were less bullish, with figures of 25%, 58% and 17%, respectively.
Overall, this is a broadly optimistic outlook for the Middle Eastern workforce. Global talent sees it as an attractive place to work and expresses cautious optimism about remuneration in the region. One of the biggest battles for the sector in the Middle East has been to counter false narratives in Western media about the quality of life in the region, so that is quite encouraging.
These reasons for optimism, however, don’t make the looming workforce challenges disappear. The skills and talent shortages are very real, and it is up to the industry to act now to avoid or mitigate the issue.
Have a story idea for Industry Pulse? This feature looks at big-picture trends that are likely to affect the upstream oil and gas industry. Submit story ideas to Group Managing Editor Jo Ann Davy at firstname.lastname@example.org.