Thirsty Dragon- China’s Energy Security

In little more than a decade China has changed from being a net exporter of oil into the world's second-largest importer, trailing only the United States. Despite the current economic slowdown the country’s oil demand is still forecast to grow by 2.3% this year. With some of the world’s largest and fastest growing cities and an emerging middle-class, demand is coming from both consumer and industrial sectors, including rapidly expanding automobile ownership. This growth in demand cannot be met from domestic production - currently domestic crude oil production supplies only two-thirds of the country’s needs. China’s government estimates that it will need 12 million barrels/day of crude oil by 2020 from the current demand of 7.95 mb/day (IEA).


Securing stable access to oil and gas supplies has become central to China’s economic growth which in turn underpins political stability. So China has been looking outside, in different corners of the world, to find its energy supplies. Until recently the country focused primarily on the Middle East for oil supplies. It was one of the few countries trading with the former regime in Iraq and had large production sharing contracts which were cancelled with the US and allies invasion in 2003. China has also been doing deals in Iran; earlier this year a Chinese state-owned enterprise signed a $2 billion deal to develop the Azadegan field. Nevertheless China recognizes the geopolitical issues and the significance strategically of the Middle East for both the United States and Europe so has set its sights on other areas. China has been prospecting aggressively in the Caspian region and Africa.


Although Africa holds only about 9% of the world’s total proven oil reserves compared to more than 60% in the Middle East, it may hold significant untapped resources. From 2002 to 2003, trade between China and Africa doubled to $18.5 billion; by 2007, it had reached $73 billion – including substantial crude oil imports from Sudan and other African countries. Hydrocarbon rich African countries have decade long relationships with Western oil companies. Wood Mackenzie estimates Chinese companies hold under 2 percent of Africa's known oil reserves – many of these assets were previously held, explored and relinquished by the IOCs. And much of the potential resource growth is in technically challenging deepwater blocks in Angola and Nigeria.


China’s share of Africa’s oil is however growing. Two factors have been driving this. Firstly China’s foreign policy of non-interference in the domestic affairs of its trading partners. Sudan’s government resisted international pressure over its actions in Darfur. How significant was the combination of China’s veto in the UN Security Council and the export of 60% of Sudan’s oil production to China? China also uses aid to provide leverage, supplying easy credit and development knowhow in places as diverse as Gabon and Congo. The Council on Foreign Relations put out a very thoughtful paper last year detailing the growth of Sino-African relations. Oil is the common denominator and China is expected increasingly to use a combination of aid, trade and knowledge transfer to expand its influence in the region and increase its imports. Will the new Obama administration’s clearly stated preferences for reducing its oil import dependency and diversifying to alternative sources of energy give China an opening to construct more deals and expand its presence in Africa in the coming years?


We’ve also recently seen China adopt a model of more direct ownership, fully or partly, of foreign companies. The US congress shot down CNOOC’s attempt to buy into Unocal during the last phase of industry consolidation - but that was in a very different world and has not stopped China’s NOCs from evaluating other options. Will the announcement earlier this month of Chinalco’s proposed massive investment in Rio Tinto be a precursor of similar deals in the oil & gas industry ?



About the author:
Ian Rushby had a 30-year career in BP plc where he held various business leadership, commercial, planning and control positions in BP’s Head Office and Exploration, Finance, Coal and Gas divisions, working in London, the Netherlands, Indonesia, USA and Russia. His most recent assignment was Group General Auditor of BP plc, reporting to the Group Chief Executive, the Board Audit Committee and the Ethics and Environment Assurance Committee. He is also a non-executive Director, Ministry of Defence, UK and Chairman of the Defence Audit Committee.

Oil & Gas hiring amidst Global Recession

Now that the global recession has become a household term and lay offs & pink slips have become a part of our daily vocabulary, you might find it odd to find large number of ads by oil & gas companies on job classifieds. Oil prices are less than half of what it used to be a few months back. So, why are the oil companies still hiring?

Sure, the worldwide economic growth is slowing and the low crude oil price IS affecting new projects. Prospects aren't too bright for any job, be it in Oil & Gas or any other sector. But if you work in the field, there are still plenty of interesting positions. Companies that have started new upstream activities will continue with their effort. Recession or not, that is still a lot of work waiting for workers to complete. In recent report on The Daily Times, a few local oil companies have stopped their hiring, larger companies continue to hire.

There are two major reasons behind it.

First reason is the basic economic principle of demand and supply. Demand for oil and gas remains high due to the emergence of new economies like China and India. Though China has come down from a blistering two digit growth, the current growth rate is at an enviable 9%. India too is not far behind. Even if oil demands slack from traditional giants America and Europe, new economies will continue to drive up the demand. Recently, the International Energy Agency predicts that China and India will need 300% more crude oil for their economies by 2030. This is good enough reason for oil companies to continue investing in exploration & production projects, either greenfield or in prepping older wells through enhanced oil recovery techniques.

The second major reason for this continuous hiring effort from the oil companies is talent shortage. Today, there are so many jobs, particularly in technical fields, filled by graying workers hired in the 1970s. Most of them will be reaching retirement age in a few years. While the oil and gas companies looking to rejuvenate its work force with young blood, your prospects of getting positions in this sector s remains strong.

SPE Salary Survey

Society of Petroleum Engineer (SPE) recently released its annual salary survey for the Oil & Gas sector. I must say that I was delighted to find the result of the survey which is very promising and reassuring especially in this period of economic gloom! At a time when global giants are tumbling, people are being laid off in the thousands, the report findings are in stark contrast to the global economic slowdown. You can download the complete results here.

This survey was SPE’s second effort. Last year a similar survey was carried out among SPE members. This time around, the scale of respondents was higher and so was the diversity in their demography. Unlike last year, more than half of the respondents are working in countries other than the United States. In total, there were respondents representing 125 nations, working in 116 different countries around the world including a sizable number from North Sea/North Atlantic and Middle East regions.

A quick overview on the findings of the survey –

The average annual increase in base pay is reported as 8.1% overall. The work region with the highest increase is Australia/New Zealand, at 10.6%, while Canada is lowest with 7.3%.
This is great in comparison to other sectors where growth in the mid/high level is much less and in many cases, almost stagnant.

The United States, Australia/New Zealand, and North Sea/North Atlantic have the highest average pay in the industry while Southeast Asia being distinctly the lowest paid.

The average age of respondents is consistent around the globe – around 39 to 45 years.

If you’re looking to join this sector, here’s proof positive of the amount of money you can make. If you’re already in the business, you can do a quick benchmark against professionals in other geographies, disciplines and experience brackets.

Double trouble: deflationary oil prices & financial meltdown

Overlapping Crises

The current financial crisis has ballooned around the world economy and there are fears that this international recession could even trigger a global economic meltdown. Most economic analysts are predicting that it will get worse before it gets better. This is reflected in some of the recent downswings in stock markets worldwide as near term recessionary expectations are being priced in today. The channels of credit have dried up and businesses small and large have been plagued by a credit crunch.

The other key trend is in the sharp volatility of hydrocarbons prices. After a remarkable run up over the last two years, crude prices have plummeted over the past few months. We hit $58 for crude today; and will probably drop further as the global demand cycle weakens in the near term. While there are many factors driving the price of oil (demand- supply, speculation, political risk, etc), it is undeniable that there has been some demand destruction due to unsustainable high prices in the $150 range.

Effect on Projects
So how is this price deflation and the economic crisis at large going to effect the industry, and industry jobs in particular?

In the last few years, quite a few operators were able to leverage cheap credit and high commodity prices to finance large new exploration projects in some new areas. However with the squeeze in the credit markets, some of these projects are either being put on hold or delayed. Small cap companies are scaling back operations, seeking new partners or have become targets for acquisition. There are other companies are also restructuring their project plans to tide over the current period of economic uncertainty. Shell recently announced the delay of its oil sands project in Canada, Yemen has also delayed its gas production outlook. However, most large cap integrated oil companies are not cutting back as they did not factor in prices in the $140 range while making their investment decisions. This is also the case for most national oil companies.

In the long term, my sense is that the demand-supply equation will be unbalanced. The IEA predicted last week in its World Energy Outlook that by 2010 oil companies will have to commit to projects producing almost as 7m barrels a day – if the world is to avoid a supply crunch by the middle of the next decade. This is due to the steep rates of decline in existing fields to meet demand of growing economies like China and India. Further investments should stanch the natural rate of output decline of 9% down to 6.7%. As a result they have predicted a price range greater than $100 by 2015.

Outlook
So the question is how will the credit crunch and lower oil prices affect the labor market in the Oil and Gas industry? Will it stall the recruitment and talent acquisition process? Are we going to see a repeat of the layoffs of the 1980s?

It’s early to say right now; we may have more volatility coming down the pike. But over the medium term once key economies right themselves, demand should increase. China has taken a good step in that direction this week. Only time will tell, but I feel pretty optimistic.

What do you think?

Engineering Students: Career aspirations, expectations & needs

As a part of our campus outreach program, we have been interacting with students from various engineering colleges all across India. On of our primary objectives has been to understand the mindsets of young graduating engineering students’ vis-à-vis their career aspirations, expectations and needs. We are in the process of compiling the findings and implications from a very extensively commissioned ethnographic research and we hope to share it with you soon.

Meanwhile, i would like to dwell upon a few very interesting observations and revelations that came out in the process.

One very heartening trend we noticed is a strong 'anti-IT' sentiment that is brewing among most students. I could never fathom how and why half my mates from regular engineering disciplines ended up with a software company! Perhaps the economic recession and saturation in the IT sector are accountable for this change. But most students we spoke to were pretty uncluttered in their minds - they didn't want to pursue a career where their core academic expertise had nothing to contribute.

Students today take a much more proactive role in planning their careers. The Internet epitomizes information for them and they are adept at using it for academic and professionals reasons too. They have increased awareness of career choices coupled with better exposure and understanding of most industries. They consequently seek information that will help them make more informed career choices. However the Energy industry still seems to be in an information black hole - they encounter only a few sources on career related information and none of them is detailed and credible enough.


Another finding of the research was the emphasis students placed on maintaining an equitable work-life balance, even though they haven’t entered the workforce yet! Money is important, but they also feel the need for quality time to actualize themselves. Students also rate work satisfaction as more important than remuneration packages and are keen on seeking out challenging work environments and getting to a personal sense of fulfillment.

To be continued...

Climate-Change Management: Managing the Environment

The world is gradually moving from fossil fuel to greener substitutes. The western European countries’ governments especially are spending millions of Euros on alternative power source. However, one can not deny the need of fossil fuel to keep the world moving on. Whether we like it or not, Oil and Gas are the still the basic source for all our primary energy needs – 65% to be precise.

Even though developed countries are looking for alternative, renewable energy, it will be unfair to expect the same from the developing countries to follow suit. Growing economies like China and India have rapidly increased their fuel consumption, resulting in even higher demands. The technology and reliability of renewable energy use on a widespread commercial basis are not yet established nor are expected to be for several decades. Exorbitant cost is another major factor.

The best bet in view of the environmental effects like Global Warming, is that we should be more responsible towards the nature before we disturb its fine balance. This new sense of responsibility has given rise to academic fields like Climate Change Management and allied jobs in the Oil and Gas sector like Environmental Engineer, Environmental Geologist and Environmental Scientist for Petroleum etc.

Presently, a large portion of money is being pumped into the climate-change management studies is flowing from government sponsored grants apart from corporate or academic Research & Development. The U.S. Global Change Research Program has invested almost $20 billion in the areas of climate change and global change research. As we speak, more and more corporations are jumping into the foray to get access to specialists who can help them anticipate and mitigate the business impact of climate change.

The field is relatively new – not just as a course of study, but also as a career path. However, one can find many related environmental services jobs, drawn from diverse disciplines such as meteorology, geology and engineering. Companies are in a lookout for environmentally-savvy managers who can deliver energy efficiency, low carbon emission, smart buildings as well as sustainable business practices. Many of these corporations are willing to pay a premium to get out in front of the macro trend. Most of the current entry-level jobs demands academic qualifications like a bachelor’s degree in engineering or environmental fields or even a science-related graduate degree. If you can mix environmental management with a business degree, there is a lot of scope.

If you’re prospecting for work, bear in mind that there’s no environmental job gold rush yet but if you are the type to plan ahead, this is a career path destined for important things.