Large-scale oil and gas projects require skilled and workforces but, sadly, a dearth of experienced engineers – both upstream and downstream – is hampering the energy companies’ efforts. Bahrain Petroleum Company (Bapco) CEO Abdulkarim Al-Sayed says the Middle East needs to tackle the problem head-on or face falling behind the rest of the world.
“A major US oil company has declared that all their current projects will build in a manpower cost escalation of 20-30% per annum to cater for the higher wages that will have to be given to engineers and technical staff”
-Abdulkarim Al-Sayed, Bapco’s CEO
The oil industry in the Middle East is witnessing an unprecedented boom. Driven by mix of rising international oil demand and geopolitical uncertainties about supplies, crude prices and refining margins have surged in the past four years, providing fortunes to government and oil companies alike. This liquidity and positive outlook on world oil demand have triggered a wave of new investments aimed at boosting oil production and producing higher value products that can also meet the more stringent environmental specifications. The petrodollar was also aimed at new projects to enhance the countries’ infrastructure that suffered the long recessions of the 1980s and the 1990s.
To draw a scale, the total value of active and planned projects in the Gulf Region was estimated at over US$1.8 trillion for the period 2006 to 2012. The value of projects at Saudi Aramco alone, the world’s largest oil exporter and reserves holder, was estimated at around US$500 billion. According to MEED June 2006, the value of projects at Saudi Aramco was estimated at US$70 billion in 2007 requiring a workforce of about 23,000 engineers in 2007.
In an ideal world, the government agencies responsible for development and the industry aiming at its specific needs are able to invest time and money in training an army of local engineers, skilled manpower and other professionals.
But this is far from an ideal world. Training engineers and professionals for example takes time, and with the US$1.8 trillion worth of projects planned or under way in the Gulf Region alone, time is the one asset that the region’s clients and contractors do not have.
So, the only immediate solution is to look overseas, to Europe, the US and Asia. But those regions are also facing an engineering and skilled workforce capacity crunch. Coupled with the still common misperception outside the region, that the Middle East is a dangerous place to work, it is somewhat difficult to attract foreign professionals to the region. The inevitable result is that employers in the region are going to have to pay inflated prices to attract the necessary resources, driving up the cost of projects and further restricting the development of indigenous talent.
To learn from the past, the present crisis goes back to the oil price collapse in the early 1980s through the 1990s when the oil process industries experienced a tidal wave of re-engineering and down-sizing in an effort to mitigate the tide of rising costs. Tens and possibly hundreds of thousands engineers were laid off worldwide. Recruitment in the global oil industry slowed and students, turned off by the bleak job outlook in the sector, opted for other disciplines. Training and development programs targeted at the indigenous workforce suffered. All of this caught us unguarded against the current surge.
One of the most worrying aspects of the current skills shortage in the region is the likelihood that the response to the problem will repeat the mistakes of the past, which led to the crisis in the first place. With the Asian regions, traditionally supplied the needed resources, also facing shortages, we need to give a more serious long-term look at depending on our own indigenous talents.
In Bapco, we felt the pinch in many ways. We have lost over 30 Western employees through resignation since January 2006. From a situation where the Eastern employee turnover rate was traditionally very low, Bapco has lost over 40 such employees through resignation since January 2006, mostly engaged in critical jobs. It has become increasingly difficult to attract and retain expatriate design engineers, geo-scientists, production, drilling, and refinery process specialists. India, which was Bapco’s most effective source of such recruits for professional jobs, is now in similar need for engineers and skilled manpower to meet its ambitious industry development needs.
A “Quick Hit” committee consisting of all the senior management members was immediately put in place to address short and long-term solutions. The committee introduced a number of measures to address difficulties facing attracting and retaining both Bahraini and expatriate workforce in the face of rising expectations. Bapco, however successfully completed a number of projects on its strategic investment program. As mentioned earlier, the Low Sulphur Diesel Production (LSDP), at a cost of US$725 million, is one of the most complex projects undertaken in the history of Bapco and it was successfully commissioned in 2007. The project used many innovative ways to alleviate risks through sharing manpower shortage problems with the E, P & C contractor by selecting a fitting contracting strategy.
A global problem
The present shortage of skilled manpower for the oil and gas sector is felt equally by the IOCs (international oil companies) and NOCs (national oil companies). They were all unprepared for the over US$100 per barrel of crude price which brought about this flurry of major investment projects requiring professional manpower. In the West, for almost two decades now, engineering colleges and universities have suffered from a lack of interest on the part of indigenous school leavers in joining these institutions. Many engineering departments faced closure due to this – they only survived by throwing open their doors to foreign students (mainly from the Asian sub-continent).
The present shortage of qualified manpower is not the result of any normal supply-demand internal adjustment between various branches of science and engineering. The cut in the supply side is far deeper and is the result of no new candidates entering for a long period of time. The demand, on the other hand, has increased tremendously over the past two years. A major US oil company has declared that all their current projects will build-in a manpower cost escalation of 20-30% per annum to cater for the higher wages that will have to be given to engineers and technical staff in the years to come. In some cases the situation is rather comical when the client company, the EPC contractor, and the technology licensor all try to lure away each other’s staff working on the same project!
The skilled manpower crunch in the oil and gas sector this time is not a short-term phenomenon. The supply-side might be able to mount a concerted effort and we could see some improvement in the situation in about five years time. The NOCs in the Middle East employ Western expatriates and Eastern expatriates in their organisations.
For most of the NOCs in the Middle East, the English-language trained pool of expatriates is the only one that presents workable options. Even in the face of dwindling supplies, the western expatriate can provide good value for money. In addition to a tremendous rise in demand in their home countries, the demand for western expatriates has also grown from some new and unexpected regions: Russia, oil-rich former Russian states, China, Africa, Pacific Rim, and even India. This factor, along with some real and imaginary personal security concerns, has made it difficult for NOCs’ HR departments to attract the requisite number of western expatriates (who have the technical/ managerial skills to deliver value for money).
As far as pay packages are concerned, there have been many salary surveys conducted by professional institutions and several other non-government organisations from time to time; a well qualified (PhD level) geologist with good working experience earns considerably more than what the NOCs are currently prepared to pay.
First thing to get their attention is an attractive salary. Like it or not, the whole Middle East is seen as a dangerous place from the North American perspective. If they do not see a significant financial benefit to working in what they perceive as a risky area, there will be little interest. We can assume that a 10-15 year experienced engineer in the oil industry in North America will earn a yearly base salary of US$80,000 – US$100,000. From this perspective, why would they leave the relative safety and comfort of North America to move to the NOCs and earn less? On top of the base salary that they can earn in North America they would probably be looking at a premium of 30-40% to be an expatriate in this part of the world. Once you have their attention with an attractive salary offer, then the other items such as fringe benefits, living conditions and other social activities should also be stressed or considered.
The NOCs, especially those in the GCC countries, must launch serious awareness campaigns aimed at the headhunters and the potential western expatriates to highlight the fact that many places in this part of the world, for example Dubai and Bahrain, are fast becoming better options to live from the standpoint of a western life style (climate, housing, standard of living, amenities, entertainment, sports, schooling, domestic help and servants, low crime rate…). Construction of luxury villas and plush apartment complexes is at its peak. These are aimed at not only the currently working high-income professionals, but also to lure rich expatriate retirees to make a home-away-from-home in this part of the world.
India is the primary country that currently has a pool of English-speaking technical and managerial professionals that is large enough to supply the immediate need of the NOCs. It would take Poland and the Czech Republic a at least 10 years to introduce English into their technical and engineering colleges to the extent that they would have surplus manpower in this category to meet the needs of NOCs (currently the trend is migration to the UK). But this pool of technical and engineering manpower resources (like India) is also drying up rapidly. The oil and gas sector in India is giving serious consideration to the problem created for them by the sudden, en masse flight of their experienced personnel to pastures greener. In the recent past the eastern expatriates started moving within Middle East due to considerable difference in the pay packets. The NOCs need to implement some kind of a “no poaching” code of conduct to prevent luring away of each other’s expatriate staff.
The western draw
Sayed Abdulkarim Al-Sayed says there are several reasons why it is difficult to attract and retain qualified and experienced western expatriates.
- Demand in home countries has increased tremendously.
- The IOCs have launched a recruitment blitz that has sucked up the supply pool.
- Demand by the non-oil sector has mushroomed.
- The perception about the security situation in NOC countries has worsened.
- Spouses have become more demanding; many of them are professionals in their own right and wish to pursue job careers. This facility is generally not available in NOC countries.