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This paper was prepared for presentation at the 2021 SPE Annual Technical Conference and Exhibition held in Dubai, UAE, 21 - 23 September 2021.
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Abstract
Is this the end of petroleum engineering as we know it? This prescient question led to the most downloaded
paper from onepetro.org in 2019. The events of 2020 resulted in massive layoffs, decreased hiring and
many fewer students studying petroleum engineering. In the 2019 paper the authors claimed that the future
would hold fewer petroleum engineering jobs and very different types of jobs. This paper incorporates a
broader range of data and proposes some specific ways to improve prospects for the discipline of petroleum
engineering.
The opportunity for a near-term recovery is very high as the world overcomes COVID-19 issues, oil
demand recovers and the impact of chronic underinvestment in oil and gas production looms. The world's
largest producers have very different abilities to respond to a near-term uptick in demand. Energy transition
pressures continue to cap growth in demand; however, demand for petroleum engineers is expected to
grow under almost every scenario, but not to pre-2015 levels. Increased demand in CCUS and jobs that
improve sustainability of oil and gas will continue to outpace conventional jobs. Data analytics will play
an increasingly large role in engineering activities.
The "Is it the end?" paper started with a question, a question that I first heard asked in 1977 at the SPE
Annual Fall Technical Conference and Exhibition in Denver to 1972 SPE President M. Scott Kraemer. I have
heard it many times since then and asked it many times. "Would you recommend that your son or daughter
study petroleum engineering?" The answer to that question was pretty easy and unanimously positive in
1977. Keep this question in mind as we review what has happened since the prior paper came out.
rising demand. Complex regulatory structures with lower prices for "old oil" vs "new oil" followed along
with "Windfall Profit Taxes." Higher prices globally spurred conservation, exploration and enhanced oil
recovery. Petroleum engineering demand began to increase significantly for the first time in a long time. The
Wall Street Journal published an article on the demand for petroleum engineers titled "Campus Kingpins."
I was featured in the first three paragraphs.
The next massive shock came from the OPEC oil embargo. Well, the 1979 "embargo" wasn't so much an
embargo as a fairly brief cutback in production which resulted in dramatic price shocks, more than doubling
crude oil prices to unheard of levels of 40 $/bbl or more than $120 /bbl on an inflation adjusted basis. The
output cuts had a more dramatic and long-lasting impact than the earlier embargo. The cutbacks only lasted
three months but changed how the world thought about energy supply and demand. In early 1980, no one
questioned the wisdom of becoming a petroleum engineer and P.E. departments worldwide were about to be
flooded with students. What followed though would be a worldwide oil glut (is this story starting to sound
familiar?). Oil prices in excess of $35 /bbl in 1980 would decline to less than 10 $/bbl in 1986.
What caused the glut? Well, high prices didn't help. Oil consumption the United States, Europe, and
Japan declined 13% from 1979 to 1981 "in part, in reaction to the very large increases in oil prices by the
Organization of Petroleum Exporting Countries and other oil exporters." Not surprisingly, rig activity fell
precipitously, and prices settled in the 15 to 25 $/bbl range for more than a decade (Figure 2). When people
say that the oil industry is "cyclical" they mean variable rather than a more precise definition of cyclicality.
During the 1987-2003 time period something very interesting happened to oil and gas demand, namely gas
demand.
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Figure 3 is US net gas withdrawals from 1980 to present. US production hovered around 60-65 Bcf/
D until mid-2007. For a long time, oil and gas rig counts had been about the same level. Gas prices had
languished at around 2 $/Mcf for a long time and begun to spike to unheard of levels and by the mid-2000s;
prices were high enough to drive gas rig counts well above oil rig counts. Horizontal wells had become
somewhat routine in the early 1990s but stayed less than 10% of the US rig count until May 2004. By April
2009 there would be more horizontal wells being drilled than vertical wells and it does not look like vertical
wells are coming back any time soon.
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When we talk about the "1980s" one could add in most of the 1990s as relatively slow times for the
petroleum industry based solely on prices and rig activity. Employment declined with massive layoffs in
the upstream sector. This was particularly true in the service sector, but operators followed. Petroleum
engineering enrollments experienced sharp declines and many graduates failed to get job offers in the
industry as engineers. For the first time since the early 1970s, petroleum engineering looked like it might
not be such a good career opportunity after all.
Nonetheless, technological advances abounded. This is particularly true in deep water where advanced
capabilities for developing very deep oilfields came into fruition and long horizontal wells could be drilled
in relatively narrow geological targets. The list of technological advances during this period is impressive
and would pave the way for the ability to respond quickly to increased demand and improved pricing.
Advances in hydraulic fracturing and abundant tight gas opportunities provided operators and consumers
with increased confidence in natural gas. The natural gas world was about to change permanently as the
Barnett Shale managed to combine horizontal wells and relatively closely spaced slick water fracs. Declining
natural gas prices, excessive drilling and more attractive opportunities in other gas plays lead to a sharp
drop in activity in the Barnett. Nonetheless in the early 2000s, gas drilling was dominant over oil drilling
for the first time and would not be overtaken by oil drilling until either gas prices declined, or oil prices
increased. Both of these things happened by the end of the decade.
An oil spike in 1998 saw oil prices skyrocket to 145 $/bbl in July 2008 only to collapse to 30 $/bbl
before year-end. That collapse was short lived and oil prices were above 50$/bbl by April 2009 and would
be over 80$/bbl by year end. Prices from January 2010 through October 2014 would average 92.75 $/bbl.
The halcyon days of the oilfield had returned and with it an era of low interest rates, abundant capital and
a seemingly endless supply of drilling opportunities in unconventionals. Oil was back! US oil rig activity
grew from a lowly 179 rigs in June 2009 to more than 1,400 in September 2012 eventually peaking at almost
1,600 rigs in late 2014.
With few new petroleum engineers entering the work force during the late 1980s and 1990s, demand
skyrocketed. Not only did existing petroleum engineering departments fill to the brim (and then some); new
petroleum engineering departments appeared in droves. As SPE 2016 President I recall giving a lecture
at the well-known and well-respected petroleum engineering department at Imperial College in London.
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Local SPE leadership contacted me the next day saying that the "other petroleum engineering departments"
in London wanted to know if I could speak to them. I agreed and the number of students from six other
universities in the London area who attended were much greater in number than those at Imperial! I will
admit that I had never heard of any of the other schools. Petroleum engineering schools, both traditional
and newly formed would pump out a spectacular number of petroleum engineers in order to meet what was
perceived to be infinite demand.
Figure 4—US Total Crude Oil and Petroleum Products (Incl. SPR) Source EIA
Baker Hughes only accounts for rotary rigs and while cable tool drilling is not common today it was
more common in the first half of the 20th century with hundreds of cable tool rigs active. Cable tool drilling
began in earnest in the mid-1860s with more than 500 cable tool rigs active in 1865. If we combine cable
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tool drilling and rotary drilling, May 2016 saw the lowest number total drilling rigs since Abraham Lincoln
was President of the United States.
Crude oil inventories began to decline in 2017 albeit not to historical levels. Prices began to stabilize
and remained in the 50-70 $/bbl region for more than a year averaging almost 65 $/bbl between October
2017 and November 2018. Finally, things were "back to normal" and rig counts were back over 1,000 and
reasonably stable. Figure 5 shows this more recent activity and the 2020 collapse which followed.
International inventories responded similarly to US inventories but are more complex as they are not
reported as frequently and must reasonably include large volumes of ship-borne cargoes. Most of the story
illustrated here with US activity can also be seen in international drilling activity. Figure 6 shows the decline
in international drilling activity by region in the 2014-2016 time period along with Brent crude prices. It
is interesting to note that Middle East activity held steady during this time period. The rise in activity with
2018-2019 price recovery failed to show up internationally. However, all regions would be impacted by the
next, very unexpected collapse.
SPE-206269-MS 7
Now our history lesson is almost over, and we have come to 2020, the first year of the COVID-19
global pandemic. Prices started the year inauspiciously as tensions between Saudi Arabia and Russia over
restricting crude production to maintain prices saw oil prices drop from 60 $/bbl to 40$/bbl even before
COVID-19 exploded. Figure 7 shows WTI prices, new (averaged weekly) US Covid-19 cases and total
US land rig activity. World COVID-19 new cases and Brent crude oil prices are shown in Figure 8. The
pre-Covid price drop is clearly visible. However, as global travel plummeted and world crude oil demand
dropped from just over 100 MMB/D to under 80 MMB/D, crude oil inventories skyrocketed (4) and prices
collapsed followed promptly by rig counts. By August 2020, a new record low rig count of only 244 rigs
was set in the US and international rig activity fell in all regions. A significant pricing recovery which began
I late 2020 prompted a modest increase in rig activity in the US but less so (so far) globally.
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Figure 8—Brent crude oil prices and global COVID-19 daily new cases
Enrollments are down in petroleum engineering schools globally. Many of the newly created departments
of the 2014-2016 boom are gone or are going. London may well be back to one petroleum engineering
department.
SPE-206269-MS 9
In recent news, the University of Calgary suspended admission of new students to the undergraduate
program in petroleum engineering. While existing students can finish their degrees, no new students will
be admitted. Prof. Arindom Sen, Head of the Department of Chemical and Petroleum Engineering in the
Schulich School of Engineering was quoted as saying "It's really been a great program for us; it typically
used to be a high-demand program." How many more universities will refer to petroleum engineering in
the past tense?
During times of high demand for petroleum engineers, oil and gas companies hired a substantial
number of chemical, mechanical and other engineers. Service companies hired from a very broad array of
engineering majors during times of high demand. Mechanical, electrical, civil and chemical engineering
graduates account for more than 70% of all engineering undergraduate majors. Graduates with these degrees
are seen as fungible; when demand drops in a given area, graduates focus on entirely different industries.
Petroleum engineers, mining engineers, textile engineers and to a lesser extent aerospace, marine and nuclear
engineers are tied to a single industry. When those industries experience ups and downs comparable to what
the oil and gas industry has experienced, not only is there wide variations in hiring demands but large-scale
layoffs may be inevitable. Demand for petroleum engineers rises and falls (Heinze) with a correlation to oil
prices and industry activity. Figure 9 shows petroleum engineering enrollments and inflation adjusted crude
oil prices. We have seen the correlation between activity and prices.
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The wide variability in demand and large-scale layoffs during down periods certainly has some impact on
students’ decisions to enter the industry. Wouldn't most of the students who decided to become petroleum
engineers over the 2008-1015 time period have been aware of what happened in the 1980s? I serve on
industry advisory boards at the Department or College level for four Universities and have asked this
question to scores of students. Uniformly they were aware of what many referred to as the "cyclical" nature
of demand yet were confident when they enrolled that they would find long-term career opportunities. In
the last year as I have spoken to many more students who have been unable to find the kind of industry
employment following graduation they had anticipated. While a significant number are evaluating or
planning options that will take them out of the industry, many remain optimistic.
"Real life" petroleum engineers have proven to be more resilient and more fungible than some had
thought. Petroleum engineers have found employment in industry adjacent sectors including finance,
banking, supply chain, software and other digital services. Still, few employers seeking to employ a
mechanical engineer or an electrical engineer will interview petroleum engineers.
Thousands of other engineers adopted personal computers and started changing how we worked.
As personal computers became widespread and greater computational horsepower became affordable,
applications in numerical reservoir simulation, earth modeling, seismic processing, and interpretation,
petrophysics and geomechanics were developed that could never have come about without these advanced
computational capabilities (23). In every computational advance from faster processing to web applications
and throughout the technology transformations that made our society what it was, our industry stayed on the
energy in improving all measures of quality of life is hardly debatable. As a group. SPE members are divided
on the topic of how much anthropomorphic carbon emissions (primarily from CO2 and CH4) contribute to
global warming and climate change. They are even more divided about proposed solutions ranging from
carbon pricing and taxes, regulatory restrictions and taxes designed to disincentivize fossil fuel use and
other actions fitting into the "what to do about it" category.
This level of disagreement is not so widespread among government regulators, legislators, and executives
and service companies continue to invest in other energy transition activities ranging from biofuels to
offshore wind.
Not long ago, most forecasts for future global oil production were limited by supply constraints. Today,
confidence in the ability to supply world demand at the approximate 100 MMB/D level for decades is much
higher. The limiting factor in most forecasts now is demand, in spite of growing energy demands. We do
not know how far fossil fuel demand will fall, but the BP Energy Outlook 2020 has three scenarios, viz.
Not all forecasts agree with BP, but petroleum engineers whose careers will stretch into the 2035 to 2050
timeframe will certainly be concerned about this potential outcome. If you believe either the Rapid or Net
Zero forecasts, how would you then respond to the question of "Should I become a petroleum engineer?"
Judge Larisa Alwin read out a ruling at a court room in The Hague, ordering Shell (RDSa.L) to reduce
its planet warming carbon emissions by 45% by 2030 from 2019 levels.
"The court orders Royal Dutch Shell, by means of its corporate policy, to reduce its CO2 emissions
by 45% by 2030 with respect to the level of 2019 for the Shell group and the suppliers and customers
of the group," Alwin said.
Shell's CEO acknowledged that complying with the orders would require materially shrinking the
business.
On that same day, ExxonMobil management lost a shareholder vote to a relatively small hedge fund
seeking to seat two members to the XOM Board of Directors. The primary differences these new Directors
have with ExxonMobil's direction is dealing with climate change. The company faces what may be a
disproportionate share of media focus on climate change issues in part because of their size and historical
leadership position within the industry. ExxonMobil's CEO Darren Woods recently "apologized and
disavowed statements made by two of the company's top Washington lobbyists after an environmental group
released a video recording of them dismissing its public positions on climate change." ExxonMobil is not
alone in terms of scrutiny and criticism in this regard.
The Biden administration proposed dramatic increases in efforts to reduce Greenhouse Gas Emissions
(GHGs) and increase the use of renewables. It is too early to tell how effective such measures will be. Many
world leaders are committed to moving their countries away from fossil fuels. What this means in terms
of actions, the timing and ultimate results are unclear. Governmental, societal and financial pressures will
continue to mount.
In January 2021, the Biden administration revoked the permit for the Keystone XL pipeline and
subsequently TC Energy the development's operator announced plans to cancel the project. Also, in January
the administration suspended oil and gas permitting on federal lands and waters and may seek a permanent
ban. While this may not be the end of either matter, government regulations can make material impacts on
the ability of the oil and gas industry to function effectively.
Petroleum engineers are uniquely suited to address issues in carbon capture and storage. We combine long
experience in CO2 handling, storage, separation and injection for EOR projects with understanding of the
subsurface, the ability to translate earth models prepared by petrophysicists, geologists, geophysicists and
geomechanics experts into reliable models to forecast the pressures, temperatures, saturations and spatial
distribution of injected CO2. Widespread CCS will require financial incentives to reach the scales required
to make a measurable impact on global emissions. It is unknown what form these incentives will take but
Conclusions
In "The End of Petroleum Engineering as We Know It" we questioned whether we would continue to need
as many petroleum engineers as we had in the past. Counting student and professional members there
were 168,000 SPE members when I served as SPE President. I hope we surpass that number someday.
However, the type of petroleum engineers needed will certainly change. We will need a more digitally savvy
engineer who works as well with machine learning, big data and AI as with mud rheology, pressure transient
testing and hydraulic fracturing. Future petroleum engineers will be as engaged in sustainability, increasing
efficiency and reducing emissions as past engineers have been on improving operating margins and net
cash flow. Becoming a contributor to reducing carbon intensity will be essential to retain a social license to
operate as it is to remain in business. No, it is not the end of petroleum engineering. It is a new beginning.
References
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Know It," 2019. https://doi.org/10.2118/194746-MS.
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Technical Symposium and Exhibition held in Dammam, Saudi Arabia, 23–26 April 2018.
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Yeh, Fengi You, Michael Wang, Adam R. Brandt, Science, (31) August 2018: 851–853
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