The aftermath of the petroleum downturn has not yet shown signs of slowing down as companies have started taking counter measures to brace themselves against the crunch.
The massive 9000 job cuts announced by Schlumberger earlier this year indicates that the oil and gas industry continues to be one of the most volatile markets around. There appears to be a lack of job security given the unpredictability of crude oil prices. This situation represents a nightmarish scenario for senior students who have found themselves caught in the crosshairs of this cycle.
Given the current uncertainty in the oil and gas industry, would it still be advisable to pursue a career in it?
In order to address the volatility of the market, it is important to identify and understand the roles of the major stakeholders in play.
The Organization of Petroleum Exporting Countries (OPEC) is a cartel formed by several Middle Eastern countries and a few in South America (Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, UAE and Venezuela) and it controls approximately 40% of the world’s production.
A cartel is an agreement between competing firms to control prices. In 1973, an oil embargo was proclaimed by OPEC, causing the prices of oil to skyrocket as a result of less supply in the market, highlighting the political influence on the oil market. However, a cartel’s influence can be weakened if another strong player with a large market share enters the picture, which in this case is the United States.
The United States has recently become the world’s largest oil producer due to the shale revolution. The surge in oil production has allowed the United States to heavily cut down on oil imports from exporting countries, creating a surplus of export oil in the market. The main exporting countries such as Russia, Iraq and Nigeria have been hit hard as a result of both declining prices and lack of demand for their exports.
It would seem that the simple solution to this problem is to curb production to push the prices back up. However, the oil and gas industry is not just a simple supply and demand market. Instead, political agendas and interests are ever present affecting the market. Instability in the Middle East and Ukraine have increased the uncertainty in the oil market, while the upcoming election year will mean the politicians will not respond to the oil and gas business.
Dr. Kazemi, the Chesebro’ Distinguished Chair in Petroleum Engineering and professor with more than 30 years of teaching experience at Colorado School of Mines, frankly admitted that the year 2015 will not be a good year for job seekers in the industry, nor does he expect 2016 and 2017 to be great either.
One practical method of dealing with the downturn, according to Dr. Kazemi, is to be versatile. This includes working for other departments and learning how to use the laboratory equipment. It would be useful to learn the fundamentals of devices especially given that the industry is currently more technologically driven.
There may still be light at the end of the tunnel as far as the industry is concerned. The low prices will force companies to be more prudent in spending and ensure projects are planned in financially responsible manner. Ultimately, the cut in drilling and production activities should gradually lead to a reduction in oil supply and an increase in oil prices.
The population is expected to grow, which will increase demand. We are also becoming more efficient . With the usage of natural gas instead of coal, the United States has already reduced pollution level by approximately 30 to 35 percent.
The current downturn in the industry has given students reasons for concerns and pessimism for the future. The need for many students to pay off college debts also leaves little room for judgment error in choosing career paths. Past industry cycles however have demonstrated that mistakes were made when massive layoffs were sanctioned, creating an unwanted experience gap between the workers. Also, the market forces will equalize and push the price back up as future drilling and production activities will be scaled down. Meanwhile, not many sources of energy can be as cheap while also being efficient at such a large scale.
Students, especially sophomores, juniors and seniors, need to brace themselves for tough times in the industry. Entering freshmen hoping to pursue a four year degree in petroleum engineering should not be overly concerned as the prospects will be very different four years down the road. The outlook may be different after the 2017 presidential election during which the mood of the country will change. Actions may be forthcoming to replace the workers who were cut-off during the downturn.
So to answer the question of whether or not to pursue petroleum engineering, one should decide whether or not it is worth it to weather the current storm for the prize of getting to ride the upside of the volatile cycle.