A job boom is coming to the US shale patch, bringing higher wages through the end of 2024.
According to a new report from Rystad Energy, wages will remain elevated, with average wage growth for crucial oil and gas trades between 2.5 and 7.2% this year and next.
The Oslo-based energy research firm credited strong production growth spurring labor growth, including in the core shale basin of the Permian, where an expected increase in output levels of more than 10% will lead to more than 7,000 new jobs.
A combination of low labor force growth and unemployment levels, competition from the renewables sector, and increased retirements should increase the bargaining power of job seekers in the shale patch.
US labor market conditions have reached unprecedented tightness over the past 5 decades, and no sector has felt that more acutely than oil and gas. Before rising in March, unemployment dipped as low as 3% in February, even lower than the broader economy rate of 3.5%.
Rystad said the overall tightness in the US oil and gas labor market resulted in increased pain for industry players across leading shale basins as they have had to shell out a premium to attract and retain workers.
Wages in the Permian Basin's core—Midland County—had increased by nearly 14% by the third quarter of 2022 annually. It is the highest wage growth level across all counties in the US. Wage growth across key US shale basins—the Permian, Williston, Haynesville, Eagle Ford, and Appalachia—averaged more than 9% for 2022, according to Rystad Energy research.
Wages will stay elevated across US shale basins until at least 2024. Rystad said underlying drivers guiding its research include a spike in operator spending levels—by more than 70% compared to 2020—and an increase in production levels, with most basins registering a double-digit growth by 2024 compared to 2022 levels.
The increased spending and production levels are poised to stimulate labor demand in an already tight labor market and help wages maintain their upward trajectory. Stagnant labor force growth and unemployment rates will also keep wages elevated soon, according to Rystad. This combination is exacerbated by growing competition from the renewables industry, and rising retirements are bound to increase the bargaining power of job seekers and result in robust wage growth.
After 2024, Rystad expects operator spending levels to peak, production growth to slow down, and the impacts of the US Federal Reserve’s stringent monetary policies to become more evident. This will reduce macro labor demand and significantly offset the impact of retirements and stagnant labor force participation, tempering the pace of wage growth.
