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Understanding people risk – Part One

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LNG Industry,

Following Australia’s recent gas boom, some industry commentators believe that it will take Qatar’s crown as the world’s biggest LNG exporter by 2020. The astounding level of LNG project investment in the region (over AU$ 200 billion in capital expenditure) would suggest their optimism is well founded.

However, the future of the industry’s growth in Australia, and the Australasian region as a whole, is far from certain. With a potential second wave of LNG projects in the offing, it is important to note that the first wave has not been without its challenges. Cost overruns, workforce issues and fierce competition for resources have all contributed to numerous project delays and even cancellations. 

None of these factors are likely to abate any time soon, and additional LNG projects may exacerbate workforce costs and shortages, feeding into a cycle that throws up more hurdles and risk. LNG projects are dependent on a contingent workforce and many risks encountered are rooted in people issues. Overruns and delays are not unique to Australia’s LNG market – they are just as applicable to any highly-technical, capital intensive industry in any region.

Though many professionals are aware of this underlying workforce risk, few are confident in assessing which risks will be relevant for which projects on a case-by-case basis. The lessons learned in Australia’s LNG sector can be used though, to develop methods that can identify the highest risk factor for each specific project.

Root causes of people risk

People risk should now be front of mind for any company in the oil and gas industry. While most are accustomed to dealing with manpower services, people risk mitigation is a different animal entirely, and is rarely addressed with the rigour it merits. The engineering base has traditionally focused on technical risk and safety, whereas the people element has proved much harder to manage and quantify.

The difficulty in quantifying people risk is partly due to there being more than 50 distinct types of risk connected with workforce services during a major LNG development project. However, they can be boiled down to two interrelated root causes – an ageing workforce, and the ongoing skills shortage – both of which present a risk in terms of the recruitment and retention of both permanent and contract staff. It is already difficult to ensure that the right people are in the right place at the right time and, crucially, are employed at the right cost. As project demands rise, this is set to become even harder.

To look once more to Australia, skills shortages are anticipated across most professional and managerial roles, with problems reaching their zenith in 2015 and 2016 (see Table 1). Despite its mining prowess, Australia has relatively little domestic expertise in oil and gas; less still in LNG. This forces companies to look outwards to the international stage, but this is not always a viable solution – the skills shortage is a global phenomenon and it can sometimes take up to three or four months to fill a role. Furthermore, when looking overseas, it becomes even more difficult to mobilise people quickly and compliantly to where they are needed on projects. This can have a major impact on schedules and therefore costs.

Data gathered by Air Energi bears out the trend: Figure 1 shows that the majority (51%) of the workforce holds 31 years of experience or more. Taken at face value that hardly indicates a skills shortage, but coupled with the realisation that less than 3% have 0 - 10 years of experience, it points to a difficulty in finding candidates with the necessary skills and experience. Moreover, it reveals the second root cause of people risk – the ageing of the workforce.

Figure 1. LNG talent pool data, levels of experience. (Source: Air Energi, 2013.)

Written by Matt Smith, Air Energi, UK. Edited by

Part two of this article is available here: 'Understanding people risk - part two'

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