The Covid-19 pandemic not only devastated oil demand in 2020 but also forced the global oil and gas industry to severely downsize its staffing levels. However, not all producing countries were affected in the same way. A Rystad Energy analysis shows that the world’s top oil and gas employer, China, lost only 5.3% of its massive workforce. The toll in the US was more devastating, estimated at 11.1%, thereby faring worse than its European peers and Russia.
Starting with China, where most oil and gas production is nationalized, job cuts are difficult to make. Operators must instead optimize costs by curtailing new project investments and controlling production.
The high labor-intensity of the country’s oil and gas industry pressures operators to limit headcount reductions in a bid to maintain high production levels. This is best evidenced by China’s 900,000 E&P and drilling support workers compared to only 450,000 in the US, despite the fact that China produces only 25% as much oil and gas as the US does.
At the end of 2020, China’s total oil and gas jobs amounted to about 2.92 million workers, down from almost 3.09 million in 2019.
The high employment numbers in China are in part driven by low technology adoption across the country’s oil and gas sector, as well as significantly lower wages. Historically, oil and gas wages in China have been less than half those of workers in the US and Norway. Consequently, Chinese operators can compensate for supply chain inefficiencies and low technology adoption with a high headcount.
However, China’s workforce policy is unlikely to be feasible in the long run, as its low-wage advantage is disappearing. As China continues to work on stimulating its economy, Rystad Energy expects a renewed momentum for wage growth in the latter part of 2021. From 2022 onwards, wages will increase even further, reinforcing our belief that employment levels in the country’s energy sector will struggle to recover to pre-Covid-19 levels in the coming years. Our analysis suggests that the headcount is likely to fall by another 50,000 workers this year.
In the US, the world’s third largest oil and gas employer, staffing fell in 2020 to about 960,000 employees, down from around 1,080,000 in 2019. As the Covid-19 downturn has not yet run its course and there is a rollover effect into 2021, staffing will likely take another hit and fall further to 950,000 workers before the tide turns.
Across the Atlantic, oil and gas employment in Russia – the world’s second largest employer – declined by only 1.5%, with just 18,000 workers losing their jobs in 2020 from 2019’s total of 1,242,500 employees. Operator spending in the country is more resilient compared to many other producing nations, hence the decline is minimal.
In Europe, the UK lost 6.3% of its oil and gas workforce last year, while Norway’s headcount was reduced only by about 3.6%, helped by government support and furlough policies. In Brazil, meanwhile, workforce levels were trimmed significantly during the previous downturn, hence the job count fell only by 1.8%. Also, national oil company Petrobras has a large number of large field development projects lined up for the coming years, and therefore needs to retain a sufficient quantity and quality of personnel to meet that challenge.
Amongst the leading oil and gas producers that Rystad Energy includes in this analysis*, Australia was the worst-hit country in relative terms. Its workforce is estimated to have fallen by as much as 26% in 2020 from 2019 levels, losing nearly 30,000 employees from it pre-pandemic level of 110,000.
“Despite China’s resilience compared to the US, its oil and gas industry and workforce is about to see structural changes. Historically, only state-owned companies had access to upstream blocks. Now, however, other domestic and foreign players – even without any joint venture partners – will be able to bid, thus threatening the monopoly of the NOCs,” says Sumit Yadav, energy service analyst at Rystad Energy.
China is also revamping its midstream sector by setting up an independent pipeline operator that will help new industry players gain access to existing pipeline infrastructure, thus significantly reducing capex requirements for newcomers. These changes, combined with the high costs that operators will have to take on board to hold and transfer assets in addition to high development costs, could force companies to be more prudent with their workforce levels.
Meanwhile, as state-owned operators increasingly explore new shale assets in China, which have more complex characteristics compared to conventional assets, the development costs are likely to spike. This could support the large-scale adoption of remote drilling, cloud computing and artificial intelligence in the country – similar to what we are witnessing in the Permian Basin in the US – and reduce staffing requirements. Therefore, while a rebound in operator spending after 2021 will lead to more hiring, it will be at significantly lower levels than China has seen previously.
