THE TIME BOMB IN THE OIL AND GAS & A DEMISING FUTURE

Credited to: blog.radissonblu.com

The demand for oil and gas will still continue to grow in the foreseeable. According to EIA estimates: "global petroleum and other liquid fuels inventory builds will average 1.0 million b/d in 2016. Inventory builds are expected to continue into 2017, but at a generally decreasing rate, averaging 0.3 million b/d for the year". EIA  went further to projects that "global consumption of petroleum and other liquid fuels to increase by 1.5 million b/d in both 2016 and 2017", which will be mostly influenced "by growth in countries outside of the Organization for Economic Cooperation and Development (OECD). Non-OECD consumption growth was an estimated 0.9 million b/d in 2015, and it is expected to be 1.3 million b/d in 2016 and 1.4 million b/d in 2017".

This is despite concerted and relentless efforts by inventors and technology savvies to find alternate sources of fuels that are cheaper, efficient and more environmentally friend.

However, the survival of the industry will mostly depends on the industry experts and operators that will be bold enough to invest and invent new strategies. Strategies that will help them keep their heads above the waters in this arena of fierce competitions and low prices of fuel. Especially with economic slowdowns that have affected almost all the producers couple with the competition among producers to glean any market space available.The competition for market for the products can only get fiercer especially with the return of Iran and continuous high levels of production by OPEC members.

The current fluctuating upward movements of crude oil prices are unsustainable; this is principally because of the factors that have led to this price increases. These are US storage levels reductions plus wild fire in Canada that greatly affected their sand oil productions and the crisis in the Nigerian Niger Delta. These factors are transient and can be fixed by the affected countries. As US, Canadian and Nigerian governments can  deal decisively with these situations and end the happy and celebration party abruptly.

Third and may be the more enduring  factor may be the inability of shale gas producers to stay above waters, as most of them have already started feeling the pinch of low prices and many have defaulted and breached  their debt covenants with their lenders. And this means that production levels will drop significantly. This position of low production levels has been succinctly supported by EIA  data released on June 7 this year. Non-OPEC production levels will continue to drop progressively but this may not compensates for low prices substantially, as OPEC member states will continue to sell more oil in order to balance their books and reduce their deficit budgets in Q3 and Q4 of 2016 and going into 2017.

It is therefore imperative for the operators and stakeholders to adopt sustainable and proactive management strategies that can respond almost intuitively to the challenges, and to carefully invest in technologies that can help reduced the cost of production and enhance profitability in medium to long terms.

And more importantly, oil and gas companies should invest not just in their capital development projects or technologies, but should as a matter of priority; invest heavily in the human capital development of their workforce and should also ensure that their contractors also do same. The general trend especially in the Third World countries where contracts are awarded to indigenous contracting firms that do not train their workforce is not only harmful to the industry in the short term but destructive, in a long run and is capable of causing a demise of the industry. As the older workforce is fast aging and most of them are out of date with new technologies and skills needed. 

With the discovery of new frontiers especially offshore, oil and gas operators should take the training of workforce seriously. Major E&P are as guilty as their contractors, they deliberately used this ‘strategy’ in the name of  reducing cost especially in the Third World countries where regulatory frameworks are weak or non-existence, even where they exist, they are barely implemented or monitored. This ‘strategy’ is a Biblical 'Haman' strategy that will end up destroying the very E&P themselves, as the aging workforce is hardly been replaced by qualified and trained young ones.

According to World Economic Forum:  “a deficit in skilled workers has affected the industry’s ability to deliver projects safely, profitably and on time”, especially in the new frontiers where explorations and productions come with their accompanied complexity and risk of projects.

The industry has to get it right with its human capital development aspect of the investment.Their valuable assets-people. But these assets can not be valuable, if the assets are not the right assets. Technologies cannot operate in isolation. High risks of project will be greatly reduced if right skilled workers are deployed.

And this will going a long way to help reduce the actual cost  where most of the E&Ps spend more on projects due to lack of skilled workers to deploy in manning projects. Some E&Ps severally, had gone to extent of contracting two or more companies to do the same job, in case one of them fails. This double or triple contracting will be eliminated if skilled workers are trained and deployed.

Additionally, in the Third World countries where restiveness in places of operations is prevalent, this will not only help E&Ps in their operations but will also help reduce unemployment.  Thus, youthful hands will be engaged in more productive ventures. And it will also enhance the corporate image of the E&Ps.

However, the current situation where E&Ps and their privileged contractors are seen by the workers especially local workers as predators is rather worrisome. This image, most of the times portray E&Ps in a bad light. The host communities also do view these ‘cost cutting strategy’ as predatory and exploitative as most of them are not employable because of lack of relevant skills needed by the operators.

Consequently, E&Ps and their contractors can do well by establishing mini training centers that can cater for the skills development of their workforce and their host communities. This will help them, to eventually reduce the cost in the long term and in turn, they will have a healthier and skilled workforce that is well trained and is ready to take on the challenges of the new discoveries even in uncharted waters.

Emmanuel Sule writes from Lagos, Nigeria.