Meeting the Shortage Of Engineers and Geoscientists In the US Oil and Natural Gas Industry

Transcription

1 Meeting the Shortage Of Engineers and Geoscientists In the US Oil and Natural Gas Industry AN INDUSTRY-BASED WORKFORCE INITIATIVE Developed by THE WORKSOURCE* for the AMERICAN PETROLEUM INSTITUTE S WORKFORCE COMMITTEE December 2005 *The WorkSource is an affiliate of the Gulf Coast Workforce Board, which manages a regional workforce system that helps employers solve their workforce problems and residents build careers so both can compete in the global economy. The workforce system serves the City of Houston and the 13 Texas Gulf Coast counties.

2 Meeting the Shortage of Engineers and Geoscientists In the US Oil and Natural Gas Industry AN INDUSTRY-BASED WORKFORCE INITIATIVE December 2005 Contributions to the Economy The oil and natural gas industry pumps the lifeblood of the American economy. Oil derivatives provide about 97 percent of US transportation fuels, with gasoline and diesel fueling nearly all cars and trucks traveling on US highways, and airliners using advanced jet fuel derived from oil. Clean-burning natural gas heats millions of US homes, schools, hospitals, and workplaces and generates the electricity used in homes and businesses across the country. Both oil and natural gas are key ingredients in manufacturing thousands of products from medical equipment to skis and computers that make Americans lives more productive and rewarding. More than 1.5 million Americans are employed in the nation s oil and natural gas industry, while another 2 million hold jobs generated indirectly by the industry. Many of these are well-paying professional and technical jobs offering unlimited opportunities to work, learn, and grow in diverse environments in the US and around the world. In 2000, the oil industry s capital expenditures topped $56 billion in the United States alone. The leading 20 energy companies in the US accounted for $1.8 trillion in assets and $447 billion in revenues in Over the past decade, the industry spent more than $89 billion protecting the environment, and the industry commits billions of dollars every year to further improving the country s environment. In short, the US oil and natural gas industry helps keep America s economy strong and ensure our quality of life. Unfortunately, the industry s contribution to economic growth is often underestimated and its future portrayed as limited, passive, and in decline. According to the American Petroleum Institute (API), nothing could be further from the truth. 1 First, the oil and natural gas industry has played a key role in economic development worldwide. Virtually no country has been able to sustain economic growth without increasing energy consumption. Second, there is no evidence the role of oil and natural gas will decline significantly in the foreseeable future. Demand is likely to continue growing with economic activity. In fact, most estimates expect that sustaining a 3 percent rate of economic growth over the next several decades will require a more than 50 percent expansion of world oil supplies and an even greater expansion of natural gas.

3 Third, there is no characteristic of the resource base itself that has prevented the industry from sustaining this growth in the past, or constrain it from meeting future challenges. The key to past performance has not been the expansion of resources in the ground but rather the sustained application of new technologies by skilled professionals. Technology will be even more important to sustaining industry growth in the future. So, too, will be the availability of skilled professionals to apply that technology. 2 A Chronic Shortage of Engineers and Geoscientists The oil and natural gas industry s contributions to future economic growth are potentially compromised by the lack of skilled professionals, especially engineers and geoscientists, working to find and produce more oil and gas. Simply put, there are not enough graduates coming out of higher education in the US and Canada to meet the replacement needs, let alone the growth needs of the industry. In 2004, API surveyed the workforce needs of 33 large companies engaged in exploration and production of oil and natural gas in the United States. The 22 companies responding identified a need to hire 6,380 highly-skilled workers by 2009: 5,044 engineers and 1,336 geoscientists. 3 This translates into new hires of 1,000 engineers and 260 geoscientists each year for five years, most as replacements for retiring workers. The number of new hires needed represents 38 percent of engineers and 46 percent of geoscientists currently employed by the responding companies. This level of turnover in the technical workforce brings enormous challenges associated with loss of experience, knowledge transfer, and the assimilation of new employees into a company s workforce. While total employment among the respondents represents a significant portion of the current workforce engaged in the exploration/production of oil and natural gas in this country, API s findings cannot be extrapolated to the industry as a whole. 4 The survey does, however, document a projected shortage of skilled workers in two technically demanding professions among 22 large oil and natural gas companies, which suggests that industrywide needs may be even greater. Should prices for oil and natural gas remain at or near current levels, exploration and production in the US will exceed earlier projections as will the demand for technically skilled workers. The problem facing companies engaged in the exploration and production of oil and natural gas surfaces when the projected demand of the 22 respondents (and the much higher potential demand of the entire industry) is compared to the expected output of institutions of higher education in the United States over the next five years. In general, enrollments and graduations from undergraduate programs preparing students for employment in these professions have fallen drastically from their record highs in the early 1980s. Meeting the Shortage of Engineers and Geoscientists 2

4 Though there is some evidence of enrollment growth in undergraduate programs since 2002, increases in the number of graduates are modest at best. Furthermore, while new graduates may increase the potential labor supply, they do not possess the experience to replace the mid-level managers and technicians who are themselves replacing the many seasoned executives now retiring from the industry. Petroleum Engineering In 2004, only 303 students graduated with bachelor s degrees in petroleum engineering in the United States, 78 percent below the 1984 level of 1, See figure 1. 1,600 Figure 1: Students Earning Bachelor's Degrees in Petroleum Engineering in the United States ( ) 1,400 1,200 Graduates 1, Year Source: Lloyd Heinze, Texas Tech University, Enrollments in undergraduate petroleum engineering programs fell from 8,456 to 1,858 over the same period, again a 78 percent drop. As further evidence of declining interest in the field, 34 baccalaureate programs produced petroleum engineers in 1982, but only 16 did in After ranging from 1,300 to 1,600 annually for years, undergraduate enrollments jumped from 1,603 in 2002 to an estimated 2,412 in 2005, a 50 percent increase in only four years. The number of baccalaureate degrees earned in that same period rose from 298 to an estimated 393, a 32 percent increase. 7 Since enrollment increases indicate future increases in the number of degrees earned, further increases are on the horizon. Unfortunately, current estimates of expected increases in the number of degrees earned will not suffice to meet the oil and natural gas industry s projected need for engineers. Meeting the Shortage of Engineers and Geoscientists 3

5 The problem is exacerbated by the fact that not all petroleum engineering graduates work in exploration and production. The US Bureau of Labor Statistics (BLS) estimates that only 44 percent of petroleum engineers employed in 2002 were employed by oil and natural gas companies engaged in exploration and production. Others were self-employed or working for companies in related industries such as professional, scientific, and technical services. (Of those working in related industries, many, but not all were likely to be engaged in exploration and production of oil and natural gas as contract staff.) Still others were working in utilities, petroleum refining, chemical manufacturing, or government. 8 See figure 2. Figure 2: Employment of Petroleum Engineers by Industry: 2002 Petroleum and Coal Products Manufacturing 5% Other 14% Oil and Gas Extraction and Support Activities 44% Utilities 5% Professional, Scientific and Technical Services 15% Self-Employed 17% Source: Bureau of Labor Statistics. Prepared by The WorkSource. The Geosciences Though the numbers are larger, the story is much the same for geoscientists. In 2003 in the United States, 3,381 students graduated with undergraduate degrees in geology, a decrease of 55 percent from the 1984 high of 7, For the large, upstream oil and natural gas companies that require job applicants to hold an advanced degree, a more important indicator of future supply is the number of students earning master s degrees, which fell from 1,747 to 1,323, a decrease of 24 percent over the same period. 10 (As used here geology graduates include those earning degrees in geology, earth sciences, geochemistry, geophysics, paleontology, hydrology, oceanography, and geological and earth sciences, other.) See figure 3. Meeting the Shortage of Engineers and Geoscientists 4

6 Graduates Figure 3: Students Earning Bachelor's and Master's Degrees in Geology in the United States ( ) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Year Bachelor's Master's Source: US Department of Education, National Center for Education Statistics, April Moreover, fewer graduates are interested in careers in petroleum geology. Evidence of this comes from the 2003 Report on the Status of Academic Geoscience Departments in the US and Canada. Of the 69 reporting departments, only six identified petroleum geology as one of their top three academic strengths. Twenty-nine identified environmental geology among their top three, 22 stratigraphy, and 18 hydrogeology. 11 Furthermore, international students account for an increasing percentage of those enrolled in master s and doctoral geoscience programs. In 2002, 27 percent of doctoral and 15 percent of master s degree candidates were from outside the United States. In 2003, those numbers were 36 and 22 percent respectively. 12 Many of these students will return home to work, further reducing the US labor supply. Even more than petroleum engineers, graduates of geoscience programs work in a variety of industries. The BLS estimates that only 19 percent of geoscientists employed in 2002 were working for oil and natural gas companies engaged in exploration and production. Some 47 percent worked in the professional, scientific, and technical services industry; 26 percent worked for government agencies; and 3 percent were self-employed. 13 Again according to the 2003 survey cited above, only 17 percent of graduates found jobs in the oil and natural gas industry while 55 percent went to work in the environmental sector. See figure 4. Meeting the Shortage of Engineers and Geoscientists 5

7 Figure 4: Employment of Geoscientists by Industry: 2002 Self-Employed 3% Other 5% Oil and Gas Extraction and Support Activities 19% Professional, Scientific and Technical Services 47% Government 26% Source: Bureau of Labor Statistics. Prepared by The WorkSource. Not Enough Graduates to Meet Future Needs The bottom line is this: Without fundamental changes, petroleum engineering and geoscience programs will not produce enough graduates to meet projected replacement needs in the exploration and production sector of the oil and natural gas industry, let alone any employment increases likely to result from industry growth. While the gap might be narrowed by recruiting engineers educated and employed in other fields (chemical, mechanical, electrical, or civil) and converting them into petroleum engineers, the prospects aren t good that such an effort alone would make a dent in the oil and natural gas industry s workforce needs. The situation the industry finds itself in today unable to attract and retain new talent in sufficient numbers results from a number of converging forces, some real, others perceived yet no less powerful. A Declining Sector of the US Economy The oil and natural gas industry is not, nor has it recently been, a growing sector of the US economy, offering increasing numbers of long-term career opportunities. Employment in the industry continues to decline, as it has for more than 20 years. According to the BLS, over half a million jobs in the US oil and natural gas industry disappeared between 1982 and Meeting the Shortage of Engineers and Geoscientists 6

8 An Unattractive Industry Shrinking employment opportunities and layoffs have given the industry a negative image. Consequently, many young people pursuing high-technology careers believe oil and gas is a dying industry, the world is running out of oil, and other forms of energy will soon replace fossil fuels. Others believe the industry is dirty and has insufficient regard for the environment. Coupled with the industry s cyclical nature, these misperceptions mean that young, highly skilled professionals don t view the industry as one where they want to start or redirect their careers. Shift in College-Level Programs Many college-level engineering and geoscience programs have responded to changes in demand by shifting their focus away from petroleum engineering and related geoscience programs. Consequently, they are not as closely aligned with the needs of the oil and natural gas industry as they once were. Fewer Graduates from Engineering and Geoscience Programs Due to a lack of demand, far fewer students have been enrolling in and graduating from engineering and geoscience programs that lead to careers in the oil and natural gas industry. An Industry With An Aging Workforce Many oil and gas companies limited recruiting or discontinued it altogether during the prolonged industry downturn. Consequently, theirs is an aging workforce more pronounced than in other companies. Much of the industry s remaining talent base (those who survived the layoffs) will soon retire, leaving fewer seasoned employees and further exacerbating already critical labor shortages in certain technical and managerial positions. The technology to improve the exploration and extraction of oil and natural gas is available, but the industry does not have sufficient numbers of skilled workers to fully leverage that technology. A human resources problem the shortage of skilled workers is constricting individual companies as well as the oil and natural gas industry as a whole, reducing its ability to compete in the larger energy industry and sustain economic growth in the US. Left to their own devices, oil and natural gas companies have tried to solve their workforce problems in classic fashion, by competing with each other for a dwindling supply of labor. Long term this approach does nothing but increase labor costs because it does nothing to increase the supply of qualified employees. It is now time for the oil and natural gas industry to accept responsibility for its contribution to its workforce problems and initiate industry-based efforts to correct them. It is time to try a different approach, one where companies work collectively to better manage the human resources they so desperately need to compete in the world economy. Meeting the Shortage of Engineers and Geoscientists 7

9 What the Initiative Will Focus On In the beginning, this initiative will focus on chronic labor shortages in the oil and natural gas industry, specifically in exploration and production, and on the shortage of engineers and geoscientists. What We Want, the Desired Result We want a labor market environment that meets the following conditions. There are no chronic shortages or surpluses of engineers or geoscientists in the oil and natural gas industry in the United States. A good mix of public and private educational institutions are producing a sufficient number of qualified graduates to meet the industry s growth and replacement needs, current as well as projected. The engineering and the geosciences workforce more nearly mirrors the diversity of the US population than it did in the past. The oil and natural gas industry is viewed as a highly desirable place to work and learn in the American economy. Why Develop an Industry-Based Workforce Initiative Traditionally, companies in the oil and natural gas industry, as in other industries, have worked independently to meet their workforce challenges. Their individual recruitment efforts combined to signal market conditions to colleges, prospective students, and parents alike. Special relationships with individual engineering and geoscience departments at the traditional feeder institutions expanded educational capacity beyond what it otherwise would have been. These initiatives have not, however, produced a supply of engineers and geoscientists sufficient to meet the industry s needs. Nor are they likely to do so in the future. It is time for industry leaders to seriously consider a different approach: creating an informal, employer-led industry cluster to address the industry s most pressing immediate and long-term workforce needs. Several important attributes distinguish the approach suggested here from others of the past. It: is industry based, replacing isolated and often sporadic activities undertaken by individual companies with sustained action by a group of companies working together at the industry level. is employer driven, led by participating companies, not by educational institutions or professional associations. Both have important roles to play but not the lead. Meeting the Shortage of Engineers and Geoscientists 8

10 supports competition but encourages collaboration on long-term solutions to chronic workforce problems facing the oil and natural gas industry. This is not unlike accommodations being made today in a number of industries, health care being a leading example. starts small, with only one or two occupations, but can expand to include other laborshort occupations if successful. operates from an economic rather than a social-welfare perspective. It is not a public relations or community service initiative. builds ongoing relationships based on understanding, trust, and mutual benefit among participating companies and between these companies and their workforce suppliers, the educational institutions preparing qualified graduates for the labor-short occupations. is managed by an informal industry steering committee made up of key employers and selected representatives from their workforce suppliers. is supported by professional staff funded by the public workforce system, staff not directly associated with or employed by a participating company or any educational institution supplying the industry. rests on the assumption that companies will have more leverage and greater impact acting collectively than they will individually. How Do We Solve the Problem and Get There from Here The strategies identified in the five categories below represent a starter list of ideas for action. At this point in the process, the strategies listed here should be bold and creative. They should challenge past approaches and propose new options for collective action to solve the oil and natural gas industry s most immediate workforce problem, the shortage of engineers and geoscientists. Together, theses strategies relate to attracting qualified students, providing appropriate faculty, increasing the numbers who graduate, and raising the percentage of graduates who go to work for oil and natural gas companies in the United States. The list starts the creative process and will serve as a point of departure for an expanded discussion at the 2006 Workforce Summit, one that further increases the number of potential strategies and leads to an action plan that will produce the results stated above. Meeting the Shortage of Engineers and Geoscientists 9

11 Category 1 Marketing Careers in the Oil and Natural Gas Industry, Especially in Engineering and the Geosciences 1.1 Identify and leverage marketing efforts currently underway in the United States. 1.2 Develop an ongoing marketing campaign that combines advertising, public relations, and other community outreach efforts. Target this campaign to the following groups: the general public those already working in technical jobs who might be likely to find engineering or geoscience jobs in the oil and natural gas industry attractive career alternatives the K-12 school-age population, especially young people in the early grades (and their parents) making decisions about the number and kinds of math and science courses they choose engineers and geoscientists who left their professions before reaching retirement age, who with refresher courses, could return to the workforce minorities and women with demonstrated aptitudes and interests in math and science. 1.3 Make sure educators and counselors have the latest tools to help students explore career paths that include jobs as engineers and geoscientists in the oil and natural gas industry. Identify these pathways with as many different career opportunities as possible and use them to demonstrate that these occupations are not dead-end jobs but part of a life-long learning process. 1.4 Identify and leverage broad-based initiatives to reach, identify, educate and support students who demonstrate aptitudes and interests in math and science early in the K-12 experience. Note: The effectiveness of any marketing campaign will ultimately rest on what s being marketed and how it stacks up against other available career options. When compared with other jobs available to well-educated and highly-skilled people, a career in petroleum engineering or geoscience may not be very attractive. Therefore, successfully marketing engineering and geoscience as careers (or some part of a career) is likely to first require making fundamental changes in how people view the oil and natural gas industry in general. 1.5 Develop a promotional piece which specifically touts the oil and natural gas industry as a good place to work and learn, one that promotes the positive aspects of a career in the industry. Meeting the Shortage of Engineers and Geoscientists 10

12 1.6 Develop a marketing campaign to promote careers in petroleum engineering to engineering and geoscience students in those schools, (including historically underutilized institutions) not traditionally targeted by companies in the industry; follow-up with regular recruitment visits at these schools. 1.7 Other possible marketing and sales strategies? Category 2 Enhancing Educational Capacity, Improving Access for Under-Represented Population Groups and Increasing Enrollments and Graduations 2.1 Identify capacity constraints in bachelor s and master s programs offering degrees in petroleum engineering and the geosciences, if any. If there is a bottleneck due to physical capacity, identify alternatives and explore options with other institutions having excess capacity. If there is a bottleneck due to a lack of qualified faculty, help schools recruit faculty, pay salaries, and/or lend qualified employees from companies in the industry to teach in these programs. 2.2 Increase funding for scholarships and expand company internships for students who are making satisfactory progress toward degrees in engineering and geoscience programs that lead to careers in the oil and natural gas industry. 2.3 Provide scholarships, loans, and other financial incentives for individuals pursuing advanced degrees (masters and doctorates) in petroleum engineering and related geosciences programs who are interested in taking faculty positions after graduation. 2.4 Explore and join forces with any existing organizations successfully promoting math, science, and engineering options for the K-12 school-age population, especially minorities and women. 2.5 Partner with educators to develop and operate summer career camps beginning with students in the sixth grade who have aptitudes and interests appropriate for careers in math, science, and engineering. 2.6 Partner with educators to create career information, exploration, and planning materials in math, science, and engineering for use in public and private schools. Meeting the Shortage of Engineers and Geoscientists 11

13 2.7 Develop collaborative partnerships between historically underutilized colleges and major universities producing petroleum engineers and geoscientists to increase the number of minority graduates and the percentage of those graduates who go to work in the oil and natural gas business. 2.8 Other possible education and recruitment strategies? Category 3 Maximizing Use of Current Supply of Talent and Experience 3.1 Hire and convert graduate engineers and geoscientists from related fields to work in the oil and natural gas industry. 3.2 Use mature employees in these occupations more effectively (those approaching retirement, those recently retired, and those working in related industries). 3.3 Better use current engineers and geoscientists and their supporting workforces. Conduct analyses and redesign jobs to ensure that qualified engineers and geoscientists are not doing tasks below their knowledge and skill levels. 3.4 Make it easier for international graduates of US colleges and universities to work for extended periods of time in the US. 3.5 Other possible employee utilization strategies? Category 4 Meeting the Internal Challenge: Changing the Work Environment 4.1 Compare salaries and fringe benefits for engineers and geoscientists in the oil and natural gas industry with those for these same occupations in related industries. 4.2 Adopt a common methodology and begin measuring the real costs of turnover (both visible and invisible) in the oil and natural gas industry. This is crucial in order to educate chief executives about the investment required on the front end (outreach and recruitment, salaries, fringes, and continuing education programs) to stabilize the workforce and reduce the substantial visible and invisible costs associated with high turnover. Meeting the Shortage of Engineers and Geoscientists 12

14 4.3 Other possible work environment strategies? Category 5 Making Government a Facilitating Partner 5.1 Partner with government (federal, state, and/or local) to finance some of the education, training and student support initiatives identified in the above categories. 5.2 Work with the US Immigration and Naturalization Service to 1) make it easier for oil and natural gas companies to employ foreign-born graduates of US colleges and universities for extended periods of time in the US and 2) increase the number of foreign-trained engineers and geoscientists allowed to work in the US. 5.3 Other possible government-related initiatives? Once finalized, each of the strategies will be evaluated and prioritized based on its potential contribution to the desired result stated above. The list that emerges will not one from which individual companies pick and choose their own, individual initiatives. Rather, participating companies will select a common set of strategies to implement as a group on behalf of the entire oil and natural gas industry. How Big and How Broad Is the Initiative The most effective partnerships among the business, education, workforce, and government tend to be local or regional in scope. We propose that the focus on the problem be national in scope, but that strategies to solve the problem be implemented regionally, first in the Gulf Coast region of Texas and then replicated in other similar regions across the United States. Who Finances the Plan Whatever the scope and scale, who pays the cost of going forward and implementing the action plan, once it s developed? Meeting the Shortage of Engineers and Geoscientists 13

15 What to Remember About Getting Started Recognize the probability of false starts. If you knew how to fix this problem, either individually or collectively, you would have done so already. The first proposed action plan is not likely to be the best or the last. Recognize that the industry s immediate workforce problem the inability to attract and retain new engineers and geoscientists was a long time coming. It will not be solved overnight. Getting quality students in the education pipeline in technical fields preparing them for careers in the oil and natural gas industry will take considerable time. Accept that people learn a lot from failure but little from success. Meeting the Shortage of Engineers and Geoscientists 14

16 REFERENCES 1. American Petroleum Institute (API), Workforce Challenges Survey Results, page 1 (May 2005). 2. International Energy Agency (IEA), World Energy Outlook, (2004). Found in American Petroleum Institute (API), Workforce Challenges Survey Results, page 1 (May 2005). 3. American Petroleum Institute (API), Workforce Challenges Survey Results, (May 2005). API s survey asked companies to report employment numbers in terms of full-time equivalents (FTEs). To the extent that any workers in these professions work parttime, the actual number of new hires needed will exceed the number of FTEs reported. 4. Total employment in oil and natural gas exploration and production includes those working for companies involved in oil and gas extraction (NAICS 211) and support activities (NAICS 213). NAICS is the acronym for North American Industry Classification System, which replaced the Standard Industrial Code (SIC) as the generally accepted taxonomy for classifying and grouping industries. 5. Heinze, L. Unpublished data and graphs of historical trends in enrollments and graduations from petroleum engineering programs in the United States. Phone conversations and exchanges, Lloyd.Heinze@ttu.edu ( September - October 2005). In Heinze s data system, 2002 enrollments and Fall 2001 enrollments are synonymous, and estimated degrees earned in academic year 2002 reflect those earned between September 2001 and August Accordingly, his 2006 numbers reflect enrollments for Fall 2005 and the estimated number of degrees earned in academic year 2006 (September 2005 August 2006). Figures given for the most recent years are estimates and subject to revision as petroleum engineering departments report on their latest year and update numbers for previous years. 6. Heinze, L Phone conversations and exchanges (October-November 2005). 7. Heinze, L Phone conversations and exchanges (October-November 2005).

17 8. The Workforce, an affiliate of the Gulf Coast Workforce Board. Using Bureau of Labor Statistics data, labor market analysts at The WorkSource identified and formatted data used for research and analysis. (2005). 9. US Department of Education, National Center for Education Statistics (NCES), Integrated Postsecondary Education Data System, Digest of Education Statistics, 2003, Chapter 3, Tables 212, 216, 250, 252, 253, 254, 255, 284, 285, 292, and Appendix Table (April 2005). 10. US Department of Education, National Center for Education Statistics (August 2003). 11. Katz, B Report on the Status of Academic Geoscience Departments, Results of the 10 th Survey of Academic Geoscience Departments in the United States and Canada, conducted by the American Association of Petroleum Geologists (2003). 12. Katz, B. Phone conversation (November, 2005). 13. The Workforce, an affiliate of the Gulf Coast Workforce Board. Using Bureau of Labor Statistics data, labor market analysts at The WorkSource identified and formatted data used for research and analysis. (2005). 14. American Petroleum Institute (API), Workforce Challenges Survey Results, page 3 (May 2005). References 2