Bill Arnold talks about the challenges in the oil and gas industry and the energy independence of Europe
Besides exclusive visits to companies such as Halliburton, Exxon Mobile or Aramco Services, students of the MBA Energy Management will of course not miss out on lessons at top American universities. During their last residency, Prof. Bill Arnold, Professor in the Practice of Energy Management at the Jones Graduate School of Business at Rice University and renowned government relations expert, held a workshop on “Energy & Geopolitics”.
In the interview, Bill Arnold talks about the global challenges in the oil and gas industry, strategies how leading companies in the industry can recruit qualified employees and how Europe could become more independent from an energy point of view.
Currently, the oil & gas industry is facing difficult times. Hundreds of companies had to file for bankruptcy, others were forced to lower fees and more than a million jobs were cut worldwide. What are the biggest challenges for companies to hire highly skilled employees?
The U.S. oil industry has rebounded dramatically, although volatility in prices remains a big part of the picture. Although US domestic prices lag Brent markets by about $10, they are well above full production costs. The industry did shed hundreds of thousands of jobs worldwide during the downturn, and bankruptcies in the US were numerous. But many of those companies did not liquidate, they reorganized just in time for the rebound. The US is now the largest oil producer in the world at 11 million barrels per day, ahead of Saudi Arabia and Russia. The biggest constraints in the US are infrastructure to get oil and gas to market, labor in somewhat remote areas, and environmental issues – especially water. The situation for natural gas is not as robust, with flat prices. This is partly explained by the fact that natural gas is often produced in association with oil and must find a market at whatever price it can command – sometimes even free!
How do companies deal with this difficult situation? What are their long-term strategies to get and retain highly qualified staff?
Companies were forced to take a very hard look at their operations, to squeeze out costs and apply technology more effectively. This has been more successful than many anticipated. Part of the strategy was to take a hard line with their contractors, which only now, after the 3-year price slump, are beginning to gain some of the benefits. The oil industry has the highest pay structure in US economy, and this ranges from truck drivers in the Permian Basin paid in excess of $100,000 a year, to highly trained field and technical staff. One of the learnings for the industry from the downturn, was to put more responsibility with employees in the field. It was a successful approach both in driving down costs and building morale. The industry is also focused on Big Data. They have long collected it, but are now finding innovative ways to apply it operationally. Finding the right staff to do this now puts oil in competition for talent with Silicon Valley.
During your guest lecture of last year’s international residency of the MBA Energy Management, you also tackled the topic of US and European sanctions on Russia and the difficult co-dependent energy relationship with Russia as supplier and Europe as consumer. In your view, is there any way that Europe can become more independent in its energy policy? What scenarios do you see? What would you advise the decision-makers responsible?
Exports of US LNG have dramatically changed scenarios both for US gas producers and European importers. In the past the cost of building an LNG import infrastructure was exceedingly high (over $1 billion) and time consuming. But with the option of floating LNG (FLNG) a country like Lithuania was able to acquire the vessel and negotiate directly with Cheniere Energy in the US for its first cargo. The point was not lost on Gazprom which subsequently lowered its prices to Europe.
The MBA Energy Management includes topics like the energy transfer and its implication for the economy. For more information about the program, please click here.