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The Transformation of Oil & Gas Companies

16/08/2019
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The Oil & Gas industry has transformed dramatically over the last few years, resulting in a series of significant changes affecting the workforce, that shows no sign of slowing down in the near future. Indeed, the shifting focus from oil to natural gas, new export opportunities and geographies, and oncoming digitalisation are set to continue disrupting the industry as we know it well into the next decade.

But how can Oil & Gas workers prepare for the next big commercial shift?

As the Oil & Gas industry continues to develop, what effect will it have on the workforce?
(Image via Shutterstock)

The changing landscape

Aside from the dramatic fall and steady recovery of oil prices over the last decade, the industry has seen the biggest companies re-evaluate their focus in recent times.

Global demand for natural gas has now overtaken that for both coal and oil and it’s predicted that this will remain the case. As well as being relatively abundant from conventional sources, as a cleaner source of energy than coal or oil it’s being increasingly turned to by governments with climate targets on their minds.

The market for natural gas has therefore grown significantly over the last few years, and companies are adapting their models to match it. According to Shell, global demand for liquefied natural gas grew by 27 million tonnes in 2018 to reach a total of 319 million tonnes. It’s thought that by the end of 2019, demand could grow by a further 35 million tonnes. 

Supermajors like Shell, Chevron and BP are now considered larger gas companies than oil companies, and most are investing more into future production. It’s thought that global energy demand will grow by a further 18% by 2035, and gas is expected to meet around 40% of this.

“Shell’s core business is, and will be for the foreseeable future, very much in oil and gas...and particularly in natural gas,” said Shell’s CEO Ben van Beurden at this year’s Oil & Money conference.

But getting that gas is a challenge.

FPSOs are a growing solution for ultra-deepwater Oil & Gas projects, that will continue to create new jobs in the coming years
(Image via Wikimedia)

Exploration of new fields is taking Oil & Gas companies to increasingly remote and difficult geographies. Ultra-deepwater operations such as those in the Gulf of Mexico are proving bountiful for those that can lead them, but come with associated risks and complexities that require significant investment in new technologies and skilled workers to overcome.

FLNG (floating liquefied natural gas) and FPSO (floating production, storage and offloading) vessels are two such technologies being increasingly used for these projects, with a global impact on the sort of skillsets required within the Oil & Gas industry. The previous hotbeds of activity, particularly Korea, are seeing increased competition from China and Singapore. This means that major fabrication yards in the Asia Region are overall growing,  delivering  jobs to engineers building floating facilities, while the projects themselves are requiring more workers with operations support and maintenance skills once they are on station.

For engineering professionals working in the Oil & Gas industry, the skillsets in demand are changing, and workers must now be prepared to up-skill, collaborate and work in different areas to match the direction of the market. 

"The engineering industry needs to build a strong, collaborative culture, as well as identify the global gaps in knowledge, skills and experience so our skilled workers can fill them," said Francis Norman, former president of the Western Australian branch of Engineers Australia, speaking at the 2016 Australasian Oil and Gas Conference.

"This means developing robust relationships between academic institutions, operators and the broader support industry"

More Oil & Gas is being produced from non-conventional sources
(Image via Getty)

Non-conventional sources are also contributing to the growth of natural gas, with hydraulic fracturing - fracking - having made its own impact on the USA’s domestic production in just the last five years. By 2018, 90% of the United States’ natural gas supply was being produced domestically. It’s thought that by the end of 2020, the country will be able to eliminate its reliance on OPEC suppliers. 

Gas exporters will instead be redirecting their business East, with the traditional customers in Korea and Japan now being joined by China, India, and Pakistan, all of whom are dramatically stepping up their demand for cleaner Gas. China’s Economic growth combined with increased efforts to improve air quality by reducing reliance on coal, has led to an increase in LNG imports by 16 million tonnes in 2018 alone. More than half of LNG’s global growth came from Asia last year.
On the supply side, it’s Australia and Qatar who have benefitted the most from this demand, with both countries having significant domestic resource and sitting in prime position for export to Asian countries demanding cleaner fuels. 

Australia in particular has seen its LNG processing capacity tripled since 2012, when the last spate of LNG Mega Projects began, with exports expected to rise by 10 million tonnes in 2019. According to data from NERA (National Energy Resources Australia) between 2009 and 2017 over A$320 billion was invested in new LNG facilities across the country, causing Australia’s core oil and gas workforce to more than double from 9,000 workers in 2006 to 19,000 in 2016, not counting indirect employment which is five times greater than any other industry, with an additional 10 jobs created for each oil and gas worker. 

Not to lose its LNG Crown, Qatar is expected to grow its LNG capacity by over 40% in the next decade to reach a total of 110 million tonnes per year. Leading exporters from each company expect the trend to continue well past then.

“We believe that natural gas will continue to play a key role, not as a so-called transition fuel but rather as a destination fuel,” says Qatar Petroleum’s CEO Saad Al Kaabi.

A growing number of high-value mergers and acquisitions are taking place as Oil & Gas companies snap up firms that have already completed exploration projects
(Image via iStock)

The reaction of major Oil & Gas companies

So how do Oil & Gas supermajors completely turn their core business to adapt to a rapidly changing landscape, encompassing technological advances, changes in export demand and a switch in priorities from oil to gas?

For many it has involved a series of mergers and acquisitions.

Oil & Gas exploration requires companies to work in increasingly difficult areas
(Image via Shutterstock)

The challenges and expenses that come with exploration activity in unconventional plays or complex geographies mean that for many supermajors it’s better to simply acquire another company already conducting the activity than to invest their own resources in exploring new areas.

The purchase of Anadarko by Occidental is a prime example of this, with Total also benefiting from the deal by taking on the former’s Africa assets for $10 billion, giving it further potential from a Continent in which it has vast experience of operating. While not an insignificant figure, it’s a significantly safer investment than conducting their own exploration activities in unknown fields, with the profits they stand to gain from projects such as Mozambique’s Rovuma Venture vastly outweighing the initial cost.

It’s very likely that this trend of supermajors making significant acquisitions rather than launch their own exploration activities will continue. It’s a unique capability of supermajors to be able to make such large capex investments, knowing that it could be decades before they reap the rewards.

Another supermajor engaging in a flurry of acquisition activity over the last few years is Shell. In conversation with GTM’s interchange podcast, Shell’s VP of energy solutions, Brian Davis talked about the company’s series of acquisitions as part of its New Energies unit - counting 10 acquisitions in just two years, covering areas as wide ranging as electric vehicle charging, retail electricity, utility scale renewables developers and residential energy storage and solar generation.

We're seeing a growing trend of Oil & Gas companies branching out into different areas
(Image via Shutterstock)

The intention seems to be for the company to embrace flexibility - becoming more than merely an Oil & Gas company so that they can continue to dominate whichever way the market turns. Davis explained that a balance can be found when smaller companies are acquired by Shell between leaving them to continue on their individual missions while providing enough support to ensure that workers feel like they are part of the larger company. Thus when the market shifts - such as the way it has towards natural gas - the company have the resources and workforce in place already to innovate at scale and organically build a stronger presence.

“It’s difficult to know what the market will be in 2-3-4 years time because it’s changing very rapidly, so I think it’s critical to keep a certain amount of agility,” Davis explained.

Shell are not the only ones following this business model - other multinational Oil & Gas companies including Centrica, EDF and Total are all acquiring more varied businesses in order to expand their offering and allow them to grow organically into new areas depending on the direction the future market takes.

How will the rapid changes in Oil & Gas companies affect the workforce?
(Image via Shutterstock)

How will this affect the workforce?

As supermajors expand their remit to cover new areas and crossover into other industries, it opens up new challenges and new opportunities for workers.

Mergers and acquisitions will naturally have a dramatic impact on the workers of the companies involved - particularly those being acquired by supermajors. But when the target companies are technical businesses staffed by specialists who operate in an area the larger company is trying to enter, workers can often find that they benefit from the support and resources that come with being part of a multinational brand.

There is value in integration for both sides, particularly when flexibility is seen as key for supermajors dealing with a rapidly changing industry. Greater focus from key companies can even facilitate a faster growth in the market if they see it as being the optimal direction for the future.

Digitalisation will dramatically affect the workforce, with some jobs no longer necessary, while others open up in other parts of the supply chain
(Image via Shutterstock)

From development of new technologies to facilitate the digitalisation of Oil & Gas, to greater investment in renewables, to expansion into more complex projects and difficult geographies - the wider bandwidth of services provided by multinationals will depend on a greater array of skills from their workforce.

Those aiming to join the oil and gas industry therefore will also need to be flexible. More than ever, workers will need to develop a wide skillset that can be applied over a range of different areas. The oncoming rise of digitalisation within the Oil & Gas and wider energy industries will become an invaluable aid to this, meaning it is vital that those seeking a future in this sector embrace digital changes and a redefinition of existing roles.

This will inevitably impact lower-skilled workers employed directly by the Oil & Gas industry. However, predictions from sources such as NERA suggest that the growing competitiveness and operational efficiency of primary producers would benefit suppliers who would need to employ additional workers to service the higher need for inputs from primary producers.

Digitalisation and other changes may see a reduction in direct jobs within the Oil & Gas industry, but an increase in indirect jobs
(Image via iStock)

In Australia, NERA predict that if the oil price remains steady and digitalisation creates a greater operational efficiency scenario by 2030, the impact would be a reduction of around 1,000 direct jobs – mainly low to medium skilled corporate and production roles such as drillers, project development workers and clerks - BUT would also require an increase of 3,000 workers in the supply chain, resulting in a net gain of 2,000 jobs supported by the industry. Companies would require more workers with strong operational, maintenance and technology skills.

An increase in demand from the Asian market would also push the required workforce up in export countries. If demand continues at the rate it’s been going then the direct workforce in leading exporters like Australia and Qatar could actually grow by up to 16%. This industry growth would demand new construction, fabrication, exploration, production and export facilities to be built and operated over the coming years. With such dramatic expansion in a relatively short time there will inevitably be talent shortages which means there will be stronger opportunities for those with knowledge and experience, and a greater need for training and retraining throughout the industry.

An industry growth scenario led by this increase in LNG demand is predicted to see an increase by 26% of plant operators within the industry. There will also be demand for metal fitters/machinists, electricians, petroleum engineers, building/engineering technicians, production managers, drillers, geologists/geophysicists, industrial/mechanical/production engineers, and contract/program/project administrators.

Filling these jobs will require upskilling workers who currently operate in roles most likely to see a reduction in demand, such as structure steel construction workers, construction and mining labourers, construction mangers, building/surveying technicians, carpenters, earthmoving plant operators, logistics clerks and machine operators.

With a shift towards natural gas, an increase in unconventional sources, a rise in digitalisation and a series of mergers & acquisitions; the Oil & Gas industry will have a very different outlook in just a few short years
(Image via Wikimedia)

The Oil & Gas industry has changed significantly and over the coming years will change just as dramatically, if not moreso. But with greater investment in a wider field of operations comes greater opportunities for technical specialists whether directly or indirectly employed by the industry. As the Oil & Gas industry transforms, the rise of new skillsets led by a new generation of engineers will see the workforce transform with it.

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Fircroft has been recruiting engineering and technical professionals for the global Oil & Gas industry for almost fifty years. Whatever your location or experience level, we can help you secure your next role on major projects. Find out more about our current vacancies, or register with us for free.

If you’re a hiring manager looking for leading talent on an upcoming project, Fircroft can help source the best engineering professionals for you. Find out more about our recruitment services and workforce solutions.

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The Transformation of Oil & Gas Companies - Time to read 12 min
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