Advanced technologies like digitization, big data, automation, artificial intelligence, IoT will shape the future of the Oil and Gas industry making it more profitable and stable.
The trepidation for the industry is that the working style, skill requirements, and operation will all be different for the new age of oil and gas industry. The current system of operation will turn obsolete and numerous technological advancements will replace and challenge the traditional setup. The bigger question here is: Is oil and industry equipped to meet the changing needs of the industry? Do they have the required skillset and expertise? The answer is NO.
That’s where the relevance of millennials play a vital role. To bridge this knowledge and skill gap, the industry needs to hire and retain a fair mix of professionals from other industries including software engineers, data scientists, analysts, and other digital savvy staff.
The mindset of millennials towards oil and gas industry
Deloitte surveyed 10,000 millennials born in the year 1983 to1994 and around 2000 Gen Z were surveyed who were born from 1995 to 1999 from across the world. Here are the key findings of the report:
Millennials seek opportunities beyond eventual leadership positions and a fat paycheck. They have immense untapped potential and are ready to contribute more for the greater good. With their tech-savvy mind, they can bring in innovation and advancement at every step.
Amy Chronis, Houston managing partner for Deloitte, draws a conclusion on the survey by stating that, “I think the younger generation represents the New World Order … they represent the viewpoint of today,” “I think [diversity and inclusion] is an acute issue in terms of attracting, fostering and retaining talent. The oil and gas industry is already doing a lot of things talent-wise, but I think the survey illustrates that it needs to find better ways to communicate and engage talent in their efforts.”
How to attract and retain Millennials?
Here are a few initiatives that recruiters can take up to hire and retain millennial workforce:
Studies show that millennials look beyond paychecks. They prefer challenging new age roles and oil and gas industry can provide them the right platform. As every function of oil and gas industry is getting automated today with rapid digitization there is a need for employees who can operate in the dynamic environment. Changing the job description according to the changing needs of the industry is a way to attract the young generation.
The current perception of the oil and gas industry amongst millennials is turning off the interest of the new generation. The recruiters must work on rebranding the image of the industry. Although it is a time-taking process it’s high time the industry starts working on it. Collaboration with community colleges can play a key role in the process by developing a curriculum and imparting the right information about the industry. Additionally, social media can be leveraged to rebrand the industry. The new developments, job roles, benefits, and work expectations can be highlighted along with employee testimonials to improve the perception. The new age job roles like a data scientist, software engineers, analysts can also be advertised. Additionally, the companies can highlight their initiatives that have been taken to reduce environmental footprint to enhance its social appeal.
In a recent survey conducted by EY, millennials and generation Z rank salary, work-life balance and on-the-job happiness as the top 3 priorities in any job. The oil and gas industry ranks well in terms of compensation however it is important to understand what monetary benefits the current generation is seeking? The millennials are more interested in stock options than pensions because millennials do not believe in sticking to one job for long period to avail pension benefit, so they prefer stock options.
Other intangible needs like work-life balance and on-the-job happiness are crucial too. Some companies have recognized this need and have started offering benefits like flexible work hours, relaxed leave policy, work-from-home options and so on. Most of the oil and gas companies are still conservative in this regard but the sign of changes are evident. For instance, beginning 1 January 2018, Shell has announced a global standard of 16 weeks paid maternity leaves for its employees. Additionally, to enhance the job environment, the oil companies are following the trend of healthy dining options, green space, public transportations and even gyms.
Make clear and transparent career growth trajectory so that the millennials are aware of their career progression. When the vision is clear, reliability increases which will eventually lead to talent retention. Companies like Saudi Aramco who have 50% workforce under 30 years of age, has invested handsomely in training and development of the employee. This increases the job satisfaction level. The company also sponsors its top performers for an advanced degree at universities across the world to increase loyalty among employees. Similarly, other oil and gas companies can show clear career progression, skill development, and benefits.
It can be safely concluded that the millennials are seeking opportunities to challenge the status quo and develop innovative solutions in the traditional setup. Their inherent curiosity and initiative will fuel the oil and gas industry with breakthroughs and innovation.
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Source: U.S. Energy Information Administration, Short-Term Energy Outlook (STEO)
In its January 2020 Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) forecasts that annual U.S. crude oil production will average 11.1 million b/d in 2021, down 0.2 million b/d from 2020 as result of a decline in drilling activity related to low oil prices. A production decline in 2021 would mark the second consecutive year of production declines. Responses to the COVID-19 pandemic led to supply and demand disruptions. EIA expects crude oil production to increase in 2022 by 0.4 million b/d because of increased drilling as prices remain at or near $50 per barrel (b).
The United States set annual natural gas production records in 2018 and 2019, largely because of increased drilling in shale and tight oil formations. The increase in production led to higher volumes of natural gas in storage and a decrease in natural gas prices. In 2020, marketed natural gas production fell by 2% from 2019 levels amid responses to COVID-19. EIA estimates that annual U.S. marketed natural gas production will decline another 2% to average 95.9 billion cubic feet per day (Bcf/d) in 2021. The fall in production will reverse in 2022, when EIA estimates that natural gas production will rise by 2% to 97.6 Bcf/d.
Source: U.S. Energy Information Administration, Short-Term Energy Outlook (STEO)
EIA’s forecast for crude oil production is separated into three regions: the Lower 48 states excluding the Federal Gulf of Mexico (GOM) (81% of 2019 crude oil production), the GOM (15%), and Alaska (4%). EIA expects crude oil production in the U.S. Lower 48 states to decline through the first quarter of 2021 and then increase through the rest of the forecast period. As more new wells come online later in 2021, new well production will exceed the decline in legacy wells, driving the increase in overall crude oil production after the first quarter of 2021.
Associated natural gas production from oil-directed wells in the Permian Basin will fall because of lower West Texas Intermediate crude oil prices and reduced drilling activity in the first quarter of 2021. Natural gas production from dry regions such as Appalachia depends on the Henry Hub price. EIA forecasts the Henry Hub price will increase from $2.00 per million British thermal units (MMBtu) in 2020 to $3.01/MMBtu in 2021 and to $3.27/MMBtu in 2022, which will likely prompt an increase in Appalachia's natural gas production. However, natural gas production in Appalachia may be limited by pipeline constraints in 2021 if the Mountain Valley Pipeline (MVP) is delayed. The MVP is scheduled to enter service in late 2021, delivering natural gas from producing regions in northwestern West Virginia to southern Virginia. Natural gas takeaway capacity in the region is quickly filling up since the Atlantic Coast Pipeline was canceled in mid-2020.
Just when it seems that the drama of early December, when the nations of the OPEC+ club squabbled over how to implement and ease their collective supply quotas in 2021, would be repeated, a concession came from the most unlikely quarter of all. Saudi Arabia. OPEC’s swing producer and, especially in recent times, vocal judge, announced that it would voluntarily slash 1 million barrels per day of supply. The move took the oil markets by surprise, sending crude prices soaring but was also very unusual in that it was not even necessary at all.
After a day’s extension to the negotiations, the OPEC+ club had actually already agreed on the path forward for their supply deal through the remainder of Q1 2021. The nations of OPEC+ agreed to ease their overall supply quotas by 75,000 b/d in February and 120,000 b/d in March, bringing the total easing over three months to 695,000 b/d after the UAE spearheaded a revised increase of 500,000 b/d for January. The increases are actually very narrow ones; there were no adjustments for quotas for all OPEC+ members with the exception of Russia and Kazakshtan, who will be able to pump 195,000 additional barrels per day between them. That the increases for February and March were not higher or wider is a reflection of reality: despite Covid-19 vaccinations being rolled out globally, a new and more infectious variant of the coronavirus has started spreading across the world. In fact, there may even be at least of these mutations currently spreading, throwing into question the efficacy of vaccines and triggering new lockdowns. The original schedule of the April 2020 supply deal would have seen OPEC+ adding 2 million b/d of production from January 2021 onwards; the new tranches are far more measured and cognisant of the challenging market.
Then Saudi Arabia decides to shock the market by declaring that the Kingdom would slash an additional million barrels of crude supply above its current quota over February and March post-OPEC+ announcement. Which means that while countries such as Russia, the UAE and Nigeria are working to incrementally increase output, Saudi Arabia is actually subsidising those planned increases by making a massive additional voluntary cut. For a member that threw its weight around last year by unleashing taps to trigger a crude price war with Russia and has been emphasising the need for strict compliant by all members before allowing any collective increases to take place, this is uncharacteristic. Saudi Arabia may be OPEC’s swing producer, but it is certainly not that benevolent. Not least because it is expected to record a massive US$79 billion budget deficit for 2020 as low crude prices eat into the Kingdom’s finances.
So, why is Saudi Arabia doing this?
The last time the Saudis did this was in July 2020, when the severity of the Covid-19 pandemic was at devastating levels and crude prices needed some additional propping up. It succeeded. In January 2021, however, global crude prices are already at the US$50/b level and the market had already cheered the resolution of OPEC+’s positions for the next two months. There was no real urgent need to make voluntary cuts, especially since no other OPEC member would suit especially not the UAE with whom there has been a falling out.
The likeliest reason is leadership. Having failed to convince the rest of the OPEC+ gang to avoid any easing of quotas, Saudi Arabia could be wanting to prove its position by providing a measure of supply security at a time of major price sensitivity due to the Covid-19 resurgence. It will also provide some political ammunition for future negotiations when the group meets in March to decide plans for Q2 2021, turning this magnanimous move into an implicit threat. It could also be the case that Saudi Arabia is planning to pair its voluntary cut with field maintenance works, which would be a nice parallel to the usual refinery maintenance season in Asia where crude demand typically falls by 10-20% as units shut for routine inspections.
It could also be a projection of soft power. After isolating Qatar physically and economically since 2017 over accusations of terrorism support and proximity to Iran, four Middle Eastern states – Saudi Arabia, Bahrain, the UAE and Egypt – have agreed to restore and normalise ties with the peninsula. While acknowledging that a ‘trust deficit’ still remained, the accord avoids the awkward workarounds put in place to deal with the boycott and provides for road for cooperation ahead of a change on guard in the White House. Perhaps Qatar is even thinking of re-joining OPEC? As Saudi Arabia flexes its geopolitical muscle, it does need to pick its battles and re-assert its position. Showcasing political leadership as the world’s crude swing producer is as good a way of demonstrating that as any, even if it is planning to claim dues in the future.
It worked. It has successfully changed the market narrative from inter-OPEC+ squabbling to a more stabilised crude market. Saudi Arabia’s patience in prolonging this benevolent role is unknown, but for now, it has achieved what it wanted to achieve: return visibility to the Kingdom as the global oil leader, and having crude oil prices rise by nearly 10%.