19 Jul When Enrollments Collapse — The Talent Pipeline Dries Up
Enrollments at U Calgary’s school of engineering petroleum studies have collapsed. What does a future engineering talent shortage mean for Canada’s largest export industry?
History is a fine teacher. In 1998 industry went through a major computer system upgrade. You may be wondering what this has to do with petroleum studies, but read on.
Talent and Y2K
Booms and busts are price signals for careers. I first noticed this phenomenon with the Y2K problem.
In the last century, many computer systems did not store the first two digits of the year (19) in the millions of data fields where dates were stored. There were good reasons for this. Those two digits took up a lot of computer space when expensive disk and tape storage predominated. They slowed down read write times, and they added no value to sorting. Until you need to sort across the century boundary.
Industry embarked on a major program to update all its old computer systems to fix this problem. One solution was to simply migrate the old systems to new enterprise platforms like SAP, Oracle and Peoplesoft. As the scale of the problem became apparent to many organizations, SAP was selling 60 enterprise agreements in the US every month in the late 1990’s. Compensation for SAP professionals went through the roof because the demand was so high and experienced consultants were in short supply. I personally trained up as a Peoplesoft implementer, taking a dozen courses for what was supposed to be a permanent wave of demand.
At the same time, the young presence of the internet triggered a wave of innovative technology solutions which we now reference as the dot com boom. A tsunami of funding flooded into the industry to explore new business models enabled by the internet. Valuations peaked in March 2000. Some amazing brands from that time still exist today—Amazon, eBay and Priceline all started out in the mid 1990s. Young people picked up on the price signal, and inundated computer schools, at the encouragement of Mom, Dad, guidance counsellors and newsworthy geeks.
Busts follow booms, however, and with the economic recession in the US caused by the bombing of the twin towers in NYC, the dot com companies crashed hard. Most did not survive as they had such poor quality business plans. Layoffs were widespread. Mom, Dad, and guidance counsellors now told young people to avoid computer science studies, and enrolments in university computer schools disappeared. I was based in New Brunswick at the time, and UNB actually shut down its school of computer science.
When the economy returned more or less to normal in 2006, I find myself back in the West and visiting the University of Calgary in September to recruit for my new consulting team for the spring of 2007. The head of the school of computer science actually laughs when I ask about hiring possibilities. Five years on from the dot com bust, enrolments in computer studies had still not recovered. It takes that long for the price signal of good jobs and strong salaries to move young people back into the classroom and eventually into the job market.
The Oil Dot Com Parallel
From 2006 to 2014, oil and gas experiences a huge and sustained boom, driven by the twin innovations of horizontal drilling and multistage fracking, misguided US capital market exuberance for oil and gas, and unrelenting Chinese demand for commodities. Supply overshoots demand by 1-2 million barrels per day for a year, clogging up storage. OPEC and Russia make room in the market for the Americans, but by late 2014, Saudi Arabia fatigues from its role as global swing producer and decides to let the market find a new balance. Prices promptly collapse. Capital markets come to their senses, force the fracking businesses to actually make money, and oil markets slowly start to recover.
Calgary optimistically builds lots of new office towers on the strength of its oil resources amidst plans to grow production by 100-200k barrels per day per year, which will need pipelines and ports to get the product to Asia.
We know how this story turns out. No pipelines, no ports, no growth, no Amazon, and empty towers. A pandemic that then destroys 10 years of market demand. The country’s only customer (the US) becomes a competitor. Investment heads to the US as companies such as Enbridge and TC Energy start buying US assets. Layoffs are widespread. In the ultimate repudiation of the Calgary story, Encana, who built the iconic Bow Tower, rebrand themselves Ovintiv and flee to Denver. Mom, Dad, and guidance counsellors now direct young people to avoid petroleum studies, not that they needed much convincing when Mom and Dad lose their petroleum jobs.
In a portent of things to come, I’m in Calgary at an event in early 2020, and the rep from Calgary Innovates passes word that of the 100+ fresh graduates from U Calgary’s geology program, only 3 can find jobs.
So what happens when enrolments dip below sustainable levels? Education is not quite like other products, since tuition alone does not cover the full cost of education. Grants from governments make up the difference so education programs can run at a loss for awhile.
But for every field that is receding, there is a program that is growing. Eventually there will be internal pressures from within the university to reallocate resources to where there is demand. Underused labs, stores, classrooms and other facilities will be gazed upon covetously by the underserved and will be shifted about.
From the dozens of undergrads comes the handful of Masters students, and the 1 or 2 PhD candidates. Dry up the undergrad funnel and eventually there are no PhD candidates. Professors can’t do their research without student PhDs, which impacts professorial academic status, and they leave. Over time educational programs atrophy and become uncompetitive. Marketing for shrunken programs dries up and the school brand loses its cachet. As with UNB, sometimes the ultimate decision is to abandon the program entirely. It takes years to recover from this decision, if at all.
The downward cycle doesn’t take long either—3-4 years, perhaps, enough for the PhDs to graduate or quit.
The residue from the dot com experience is clear—20 years later, aside from Shopify, Canada has almost no global brands in the technology sector.
Young people have picked up the oil industry price signal and are sending one of their own to industry and government. They no longer have enough confidence in the oil and gas industry as a long term employer to risk 4 years of education and many thousands in loans for the few jobs on offer and in what their governments are telling them is a sunset industry.
Risk it for a Biscuit
Cutting off the talent pipeline seeds some real problems down the road.
First, no other nation has oil sands to the same extent as Canada, and the resource needs a steady flow of talent to develop it efficiently. In fact, it’s doubtful that any university outside of Canada would even bother to study the resource.
Next, the pressures to further automate the industry step up because of the talent shortage. This will further erode provincial job rolls and tax take, not to mention accelerate the hollowing out of small towns that depend on the industry.
Running the existing industry gets more costly because young people, at their lower rates of compensation, carry out much of the low-end work as part of their development and apprenticeship in the industry.
Entrepreneurs take their business ideas elsewhere (either to new locations or new industries) when they can’t find the talent to hire.
International hires might not work out because other countries have the same problem. I’ve experienced this first hand from the many career counselling calls I have fielded from the thousands of students of my on-line training course. They are all seeking confirmation that there’s a future in the industry.
Many will feel this is a good thing—talent will go to more promising fields of endeavor. But what the market can’t detect is that the actual demand for fossil fuels and Canada’s oil and gas will linger for years. Globally there are over one billion internal combustion engines in cars alone, and even to replace them all will take 20 years, and that will only reduce oil demand by no more than 50%.
Canada is not nearly at the same level of risk as some OPEC countries. Oil and gas in Canada is just 7% of GDP, compared to 50% or more for most OPEC countries. But still, petroleum exports drive Canadian foreign trade, are worth $180b annually, and more than double the next closest sector (automotive).
The playbook move to demonize legacy energy products that work in the cold dark north in favor of mythical new products with no long term track record of success above the 49th parallel looks like an own goal.
I’m a big believer in nurturing talent in oil and gas. That’s why I’ve devoted the past 3 years, and will devote the next 3, of my time, tools and talent to teaching in the industry. It has saddened me greatly to read the story about enrollment collapse. It does not auger well for energy transition.
What we need is the right narrative—there is a place for all energy products, just not in their current proportions. And we need that message to be delivered loudly, and consistently, from industry and government. Otherwise this four year problem spirals out of control.
Check out my book, ‘Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, coming soon in Russian, and available on Amazon and other on-line bookshops.
Take Digital Oil and Gas, the one-day on-line digital oil and gas awareness course.
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