Energy Tribune

For headhunters like Tom Zay, business couldn’t be better. “I have never seen demand like this,” says Zay, a managing director in the Houston office of Boyden, an executive worldwide search firm. “We’ve had cycles in the past. But this is different.”

Indeed it is. While Zay looks for executives and top-level managers, the entire energy industry – from welders, tank builders, and roughnecks to petroleum engineers, nuclear engineers, and technicians – is strapped for talent. And the problems are likely to get substantially worse before they get better. Nor is the labor shortage limited to the U.S. and the hydrocarbon sector. Rather, it is worldwide, and being felt in industries ranging from coal mining to nuclear power. The reasons for the labor crunch are many: an aging workforce, lagging student interest in engineering, a lack of interest in blue-collar jobs like welding, and perhaps most important, the strong commodity prices that have led to a boom in energy projects of all types.

This article will survey a few of the sectors and geographic regions facing labor shortages.

Given the high commodity prices, it’s not surprising that the oil and gas sector leads the list of energy businesses facing a labor crunch. But high prices are only part of the story. Over the past couple of decades, mass layoffs and mergers shrank the talent pool. And the remaining pool is dominated by members of AARP.

According to a January report issued by the Interstate Oil and Gas Compact Commission, the U.S. oil industry cut its overall workforce by 60 percent between 1986 and 2000. In 1999 alone, some 38,000 jobs were lost. Of all those in the oil and gas sector, “half are now between the ages of 50 and 60, while only 15 percent are in their early 20s to mid-30s. The average age in the industry is 48, with some major and supermajor companies reporting an average age in the mid-50s.” The report cites a Devon Energy official who in 2005 predicted that within five years, one-third of that company’s geotechnical staff would be eligible for retirement.

The dearth of skilled workers can be seen by looking at the Gulf Coast. “There is a shortage of several thousand skilled laborers for the offshore industry,” says Bill French, a three-decade veteran of the oil industry and an executive search director for the recruiting firm World Wide Worker. French says that the entire coast is feeling the pinch. All of the offshore industries need welders, not just those who cater to the energy sector. “Welders are making twice as much as they were five years ago,” says French. “It’s like a merry go-round, with workers going across the street for 50 more cents [an hour]…everybody needs welders.”

Statistics from the Louisiana Department of Labor show that employment in the construction industry is at an all-time high, a fact that likely reflects the rebuilding efforts in the wake of the 2005 hurricanes. “Numbers could actually go higher if the employers simply had more laborers,” says the agency’s Patti Lopez, who added that in tracking the top ten jobs with positions open, construction laborers rank number two. “Welders and [pipe] fitters were sixth on the list,” she said.

In the wake of the hurricanes, many companies on the coast, from major fabricators to smaller shipyards, are having a difficult time finding skilled workers. This has led them to go through recruiters and subcontractors, who are pulling in laborers from Mexico and other Latin American countries as well as from places as far away as Vietnam and the Philippines.

Michael Harter, chairman of the Tulsa Welding School, the nation’s largest, says demand for his students has never been greater. “I have three to ten job opportunities for every student that leaves us,” he said. Demand is so great that Harter has nearly doubled the size of his classes. Five years ago, the school, which begins a new class every three weeks, would have 60 students. Now, those classes may have 100. And Harter doesn’t see demand slowing down any time soon. “There are so many welders who are already between 55 and 65 and who are retiring. They are retiring as fast or faster than new welders are coming into the job pool.”

The situations for blue-collar workers is matched by that for white-collar professionals. For instance, engineers are in short supply in the North Sea, where Robert Rapier works for one of the supermajors. Rapier, who writes the R-Squared Energy Blog and requested anonymity for his company, says the demand for engineers is “insatiable,” and that he has “posted jobs that literally go unfilled. Supply and demand is out of balance, so the supply side – the manpower – can command high premiums. We have started recruiting a lot in Iran and India.”

Rapier, who holds a master’s degree in chemical engineering, said that he is seeing a lot of job-switching by qualified personnel. The result, he says, is “a high turnover rate, because people keep offering them more money.” He went on, saying that “the shortage doesn’t look to get better any time soon. This was a key reason I joined the oil industry. I could see a shortage developing, and I knew that job security would be very high.”

Rapier appears to be right. The pipeline of new students coming into the industry is shrinking. For instance, in 1983 some 11,000 students were enrolled in the geosciences at 34 universities in the U.S. By 2004, according to the IOGCC report cited above, those same universities had just 1,500.

David Preng, CEO of Houston-based Preng & Associates, says his executive search firm is looking for technical personnel of every stripe. He predicts the shortage will continue. According to his own calculations, Preng believes the oil and gas sector will need about 5,000 new technical professionals entering the profession annually for the next decade or two. “The good news is that the total number of graduates in petroleum engineering, geology, and geophysics in 2004 was 8,600,” he said. But he quickly added that the bad news “is that 53 percent of those graduates had a first language that was either Chinese or Russian.” And Preng believes that many of those graduates will go back to their home countries.

Zay, the headhunter from Boyden, says he has never seen stronger demand for talent in the oil and gas industry. The biggest shortage right now is for mid-level managers who “have strong business skills.” In particular, he says the industry needs more people with finance skills, regional general manager-types, and project managers. “Projects are getting bigger” and more expensive. In the past, companies could often get by without having sophisticated project-management skills. Now, “if a project goes over budget or gets behind schedule, it can affect the overall profits of the company and their stock price on Wall Street.”

The ongoing lack of qualified financial and technical people has resulted in higher wages across the board. Preng said that some recent petroleum engineering graduates from Texas A&M and U.T.-Austin are making more than $80,000 right out of school.

While oil and gas gets most of the media attention, similar problems are afoot in the nuclear sector. A recent survey by the Nuclear Energy Institute found that as many as 15,600 workers in the commercial nuclear industry – or about 27 percent of all workers in the sector – will be eligible for retirement over the next several years. The same survey found that nearly half of the industry’s employees are over 47, while less than 8 percent are younger than 32. The problems extend into the nuclear supply chain as well. The engineering and construction firms, fuel suppliers, and reactor manufacturers estimate that about one-third of their employees will be eligible for retirement by 2009.

But U.S. universities are not turning out enough graduates to replace those retiring workers. According to energy analyst Philip Verleger, American colleges and universities produced about 3,300 nuclear engineers in 1976. By 2005, that number had dropped to just over 2,200. Thus, while many observers of the energy industry believe nuclear is the only source that can provide large increments of low- or no-carbon electricity over the near term, there simply may not be enough personnel to allow the industry to grow at a pace that will make a difference in America’s overall electricity mix.

Demographics are haunting the American coal business, too. That has led Pittsburgh-based Consol Energy, America’s second-largest coal producer (behind Peabody Energy) to launch a multi-million dollar advertising campaign designed to encourage young workers to consider coalmining as a profession. Earlier this year, a Consol executive told a reporter from National Public Radio that the issue is straightforward: “We have a baby-boom demographic problem. Over the next five to seven years, about 4,000 of our 7,200 employees are going to elect to retire.”

Consol’s ads will appear on TV, the Internet, and billboards, and in newspapers and magazines. One of the print ads shows a huge miner looming over a city. The text below him reads: “Not everyone has what it takes to produce more than 70 million tons of coal a year.” Consol even talks about how much it pays its workers, pointing out that miners with a high-school diploma can earn $100,000 per year.

Luke Popovich, a spokesman for the National Mining Association, says the shortage of qualified coalminers extends from Appalachia to the Powder River Basin to the Ohio Basin. He said the coal industry is “facing a very basic problem: how do you attract a new generation of miners, particularly underground miners, at a time when coal is reaching record demand, and we have a steep decline in the number of skilled miners?” Further, says Popovich, the industry needs more educated workers who are able to manage the increasingly sophisticated equipment now used. Coalmining companies need more people who are “facile with technology,” he said.

While Consol is hoping that advertising will help it get the workers it needs, other energy-sector players are working more closely with the universities to help develop talent. The nuclear power sector has launched several initiatives, including the North American Young Generation in Nuclear, a group that works with people under the age of 35 to promote the industry. The oil and gas industry also works with high-school students to encourage them to consider engineering and geosciences.

Although it’s too early to claim definitive results, some of the efforts are showing promise. For instance, at U.T.-Austin, home of one of the country’s leading petroleum engineering schools, enrollment has surged, thanks to increased high-school recruitment efforts. In 2000, the school had less than 200 students. This year, it has about 450. Larry Lake, U.T.’s chairman of petroleum engineering, says part of the problem recently has been that American college students don’t see engineering as their best career choice. Instead, they “view the path to prosperity as through the business and management ranks. So they’ll get an engineering degree and then go on to get an MBA or a law degree.”

And while Lake agrees that the industry is short-handed at the moment, he believes the labor shortage “will take care of itself in a few years. Companies are largely understaffed right now. They haven’t hired anybody in about 20 years. It’s very serious at the moment. But the market is going to rise to meet demand.”

That may be the case. But it is obvious that broader concerns about peak oil may be misplaced. Yes, the world has a finite amount of oil and gas. There’s also a finite amount of coal and uranium. And as those commodities become scarcer, developing them may become increasingly difficult. Nevertheless, going forward, the problem may not be a shortage of these commodities in the ground. Instead, the key constraint may be a shortage of the technical personnel and skilled laborers necessary to find, develop, transport, and turn those commodities into motor fuel, electricity, and the myriad other products crucial to the global economy.