Europe’s oil and gas industry gears up for a shrinking workforce

Can European economies keep growing with a shrinking workforce? The question will be crucial to the next decade: Europe, already the only continent in demographic decline, is projected to see its working-age population decrease by 5% by 2033. This trend will particularly impact major economies such as Germany, which is expected to lose 5 million workers or 10% of its total labour force.

This demographic change will have far-reaching consequences, ranging from labor shortages to lower productivity and growing pressure on public budgets. Industries whose workforce is close to retirement age could experience a “triple whammy,” as large cohorts of employees retire, few young qualified candidates are available to replace them and increasingly restrictive immigration policies exacerbate shortages. This applies particularly to heavy industries that already struggle to attract younger candidates.

The oil and gas sector could be among the first industries affected. Globally, 20% of its workforce is over 55 and it has struggled for years to attract younger workers. Skills shortages have already become the norm in fields like engineering and maintenance and specialised trades like welding. Leading companies are, therefore, making significant investments to transform their operations and digitise, automate or perform processes remotely whenever possible.

Taking a page from Japan

If Europe is the only continent with a shrinking workforce, some countries can offer guidance to navigate this challenge. Japan’s working-age population, for example, has dwindled from 86 million to 73 million people since 2000.

This trend has led Japanese oil and gas companies to act decisively to function with fewer workers and preserve the operational know-how of their older workers. For example, when confronted with the imminent retirement of large cohorts of its workers, the ENEOS Kiire Terminal corporation digitised key operational processes and information transfers, such as shift handovers or incident management.

This effort also helped automate some tasks that were consuming working hours, such as preparing reports or extracting data. In a context where companies will increasingly vie for a limited pool of candidates, eliminating low-value clerical tasks can not only enhance productivity but also talent retention.

New technologies help offshore routine tasks

Another strategy to minimise the effects of upcoming labour shortages and high labour costs is to offshore tasks that used to be performed on-site, which removes the geographical factor from the equation.

Offshoring, of course, is nothing new. However, recent advances in imaging technologies, such as drones and handheld laser scanning, have helped extend the scope of tasks that can be performed by providing remote workers with a precise picture of the machinery and layout of the site. Many industrial firms have also implemented digital twins of their facilities that provide direct access to maintenance history and technical documentation.

These technological advances mean that facilities can be monitored from thousands of miles away and some processes, such as line walks, performed entirely remotely. This perspective is particularly attractive to oil and gas companies, whose sites can be remote and spread across a large territory: offshoring tasks can not only address labour shortages but also result in material safety improvements.

Using imaging technologies like laser scanning data and a digital twin that housed all operational data and documents, Harbour Energy, the largest British North Sea leading North Sea oil and gas producer, was thus able to conduct certain inspections and line walks entirely remotely from India.

Such strategies are part of a broad reconsideration, spurred by the pandemic, of which tasks should be performed on-site and which can be eliminated, automated or offshored.

Zeroing in on labor productivity

The decline of Europe’s working-age population will accelerate this trend, giving an edge to companies that have optimised their operations to make them less labour-intensive. This is particularly true for sectors traditionally relying on on-site workers, such as oil and gas. According to the International Energy Agency, 40% of energy jobs could potentially be offshored.

This reconsideration will lead to leaner industrial facilities but also to smarter ones. For example, shifting from reactive maintenance interventions to predictive ones prompted by automated data analyses has been shown to drive productivity gains of up to 25% according to Deloitte, a consultancy.

Artificial intelligence will have an important role in accelerating the shift. Companies are already exploring how AI and conversational interfaces, coupled with digital twins, can help junior and mid-level employees rapidly acquire operational knowledge and learn procedures faster – with the objective of flattening their learning curve and raising the productivity of a 5-year employee to that of a 20-year veteran.

Similarly, data silos, pen-and-paper processes and other poor information management practices all represent potential productivity gains. At a time when European companies -and oil and gas companies in particular- are burdened by rising labour costs and the perspective of a gradually shrinking workforce, their ability to zero in on these productivity impediments will shape their fortunes in the coming decade.