If This Isn’t the End, Then What Is It?
Two years ago, a longtime petroleum engineer and former SPE President dared to speak of a future in which his discipline had seen peak employment. He’s back again with a new paper that tries to explain where things may go from here.
In a new SPE paper, Nathan Meehan revisits an idea that has been weighing on his mind and that of many others who represent all the disciplines that fall under the banner of petroleum engineering.
Presented last month at the SPE Annual Technical Conference and Exhibition (ATCE), “It’s Not the End of Petroleum Engineering” chiefly addresses how the industry’s hiring practices have been reshaped by the pandemic, environmental concerns, and technology. So, what is this period of uncertainty if not the end?
“I think it is a new beginning,” Meehan told colleagues at the conference. But not from Dubai, the host city of this year’s ATCE.
In what is itself a sign that a new normal is indeed firmly upon us, the 45-year petroleum engineering veteran, 2016 SPE President, and a senior consultant at Aramco Americas was speaking via the hybrid event’s web platform from his home in Houston more than 8,000 miles away.
The Churchill-esque remark and title of his new paper are a direct reference to one that Meehan coauthored in 2019. Titled “The End of Petroleum Engineering as We Know It,” it analyzed the aftermath of the 2014–2015 downturn that resulted in hundreds of thousands of industry layoffs.
The authors asked in that first paper what they considered to be a critical question: Will the oil and gas industry ever fill the ranks with as many petroleum engineers as it did before that downturn? The answer shared more than 2 years ago was no, it was not likely to.
On the New Beginning
Meehan readily admits that one of his points with the original paper and its title was to be provocative—a true and tried way of getting people to talk about something.
“It got lots of reviews—some good, some not so good,” he recalled of what became that year’s most-accessed document on the OnePetro compendium of industry literature.
With respect to his sequel, Meehan has tried to offer additional nuance while making the case that disruption does not mean outright destruction; those who evolve with the industry will have a place in it for a long time to come.
Operating companies and oilfield service companies have collectively invested billions into advanced digital technologies since the downturn of 2014–2015. More recently, the energy transition has become the new lodestar for the largest of these firms.
Petroleum engineers seeking leverage would be wise to realize these intermeshed trends as both a way to achieve job security and career flexibility. That’s according to Meehan who said that he’s “most optimistic” about increased demand for petroleum engineers working to these ends.
- “I see new engineers that are very intelligent with respect to data analytics, digital, and AI,” he said, noting that the students he meets with today are “enthusiastic” about using cutting-edge programming to solve old oil and gas problems.
- On maintaining its social license to operate, Meehan said the industry will “need engineers that really know how to make oil and gas production be less carbon-intensive. We’ve got to make sure that flaring is infrequent, brief, and efficient. And, we’ve got to eliminate methane leaks, which are much more broad than we were led to believe in the past.”
- To meet many of the newly adopted climate initiatives, both from the corporate and regulatory level, Meehan added that the world will need “a massive increase in carbon capture and storage” that is thousands of times greater than current levels. “This could lead to a demand for a huge number of additional petroleum engineers,” said Meehan.
On Pre-Pandemic Challenges
Based on his latest analysis, Meehan has not deviated from his prior convictions and instead has found that both time and the pandemic have exacerbated the key macro forces that are limiting the job market for petroleum engineers. The three main themes follow.
- Advanced software and automation are maturing, seeing wider adoption. Oil and gas companies are realizing new efficiencies, thanks to digital technology of all stripes, enabling them to explore and produce more reservoirs with less human capital.
- After “massive” and “widespread” layoffs during downturns, the industry is slow to begin the rehiring process. The pain of downcycles is especially acute for petroleum engineers, since Meehan says they are too “closely linked to one industry” by employers from other sectors.
- Volatile business cycles and concerns over climate change are hurting the talent pipeline. Engineering “students pay attention to this stuff” when deciding what to major in, Meehan noted. Coupled with the average student’s increasingly negative perceptions about the industry’s role in climate change, petroleum engineering programs are likely to continue shrinking in size and number.
There are no easy solutions to the challenges listed above, but one that would at least help displaced petroleum engineers can be summed up as fungibility.
“There are a lot of engineering degrees that are considered to be far more fungible,” than petroleum engineering, explained Meehan. “A lot of people think, ‘Well, I could just hire a mechanical engineer or a chemical engineer to do any of my challenges.’
“I think that petroleum engineers should be—and most are—engineers first and can pretty well handle any engineering challenge,” he continued. “The profession doesn’t have that reputation, but “I think we probably should do something to encourage it.”
On Energy Demand vs. Talent Demand
Meehan is among those that see the likelihood for many years of sustained demand growth for oil and gas. And by virtue of that, he sees the need for many petroleum engineers to ensure supply.
Further, Meehan is highly skeptical of scenarios that foretell of a rapid and major shift away from fossil fuels. He cites the BP Energy Outlook 2020 which was issued late last year by the supermajor’s analysts.
In it, they imagine a world where demand might drop from pre-pandemic levels of above 100 million B/D to just 30 million B/D by 2050. Meehan imagines that such a situation would be a “complete disaster” for the industry—he also doesn’t see how it is realistic.
Meehan added that the scenario BP termed “business as usual,” in which demand maintains current levels for a decade or more before gently trailing downward, is also unreasonable. “The reality is going to lie somewhere in between,” he predicted.
At the same time, Meehan warns those who want to work until the 2050s as petroleum engineers against ignoring how decarbonization concerns are manifesting into policy action and financial pressure. Marquee examples include this year’s decision by a Dutch court to hold Shell legally liable for CO2 emissions, the canceling of the Keystone XL pipeline in the US, and a boardroom shakeup at ExxonMobil.
In spite of such moves, the world remains dependent on access to affordable energy and is quick to notice when it isn’t available.
- Meehan argues in the paper that achieving the “net-zero” path identified by BP’s analysts would require China and India to shutter coal-fired power plants that they just recently commissioned.
- In reality, both China and India are facing shortages of all forms of energy, which has increased pressure on governments in each country to import more coal along with more oil and gas.
- While net-zero and other aggressive decarbonization scenarios issued last year saw demand for natural gas shrinking immediately or in the next few years, in late-2021 demand is surging across North America, Europe, and Asia.
We don’t know how the current energy crunch will play out, or where it will ultimately send prices to. But when it comes to petroleum engineering jobs, by a measure of the past 18 months of layoffs it would be hard to argue that there is not a surplus of such technical talent.
As with every downturn, some of those people will reenter the business and some have exited forever. This is a metric that is hard to measure. One that is easier to see is the number of students who are planning to enter the business over the next few years. Few would be surprised to hear that this pipeline is much smaller today than it was a few years ago.
But what Meehan emphasizes above this is that enrollment in petroleum engineering programs is likely to fall regardless of where we see crude prices head this year or next. If this holds true, then it would be a break from the past.
- After averaging below 1,000 enrolled petroleum engineering undergrads through the 1990s and into the mid aughts, enrollment soared to around 6,600 by 2016.
- The bulk of this influx came after 2005 when on an inflation-adjusted basis oil prices shot up from $60/bbl and for several years managed to stay relatively high (at or just below $100/bbl).
- That is until mid-2014, which is when crude prices began a 20-month slide to less than $30/bbl. At that point, the number of petroleum engineering students was rolling over and “we haven’t seen the big enrollment increases and I don’t expect to see them,” said Meehan.
Notably, there have now been two substantial commodity rallies since the peak enrollment number was reached. For much of 2018, crude prices traded above $60/bbl before tapering downward. Today, the world is watching oil break through even bigger multiyear highs above $80/bbl.
However, the drop in student enrollment showed no signs of slowing during the 2018 recovery. While it’s too early to say for the current price trend, it may not attract more students for the same reason.
Meehan sums up the reason by explaining that oil prices don’t actually drive enrollment. “I think it’s job availability,” he said, “Which is strongly driven by activity levels, which in turn is driven by prices—so it’s kind of a knock-on effect.”
For Further Reading
SPE 194746 The End of Petroleum Engineering as We Know It by Derek Mathieson, Baker Hughes, a GE Company; D. Nathan Meehan, Gaffney, Cline & Associates; Jeff Potts, Baker Hughes, a GE Company.
SPE 206269 It's Not the End of Petroleum Engineering by Nathan Meehan, CMG Petroleum Consulting Ltd.