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HR challenges in the

Indian oil and gas sector

Knowledge Partner
01
Contents
Overview of the Indian oil and gas sector
1.1 Oil and gas in Indias energy portfolio 2
1.2 Changing business landscape 2

02
Talent shortage
2.1 Manpower requirements 4

03
Key HR challenges
3.1 Aging workforce 6
3.2 Retirement 6
3.3 Attrition 6
3.4 Attracting talent 7
3.4 Inadequate supply of talent from institutes 7

04
Global HR challenges
4.1 Employment cycles 8
4.2 Aging workforce 8
4.3 Inadequate supply of talent and dwindling course intake 9
01
Section

Overview
1.1 Oil and gas in Indias 1.2 Changing business
energy portfolio landscape

of the
With a GDP of US$1.25 trillion, India India is currently facing a substantial
is currently the worlds fourth-largest crude oil deficit, as its current production
economy. The countrys oil and gas levels are lagging behind the fast pace

Indian oil
sector has contributed significantly to of the economy. This has resulted in
the GDP, and the sector is expected to significant imports of crude oil. The
become increasingly critical for Indias demand-supply gap is set to widen in

and gas
economic development, since it fuels the future with a consumption increase of
growth of other sectors. India is already 47% between 2008 and 20181 and with
the fifth-largest energy consumer in production poised to increase by around
the world, with oil and gas accounting 12% in the same period2.

sector for 45% of the countrys energy needs.


However, the proportion of natural gas
consumption in India to total energy
Indias heavy dependence on import of
crude oil has compelled the Government
of India (GoI) to provide a long-term
consumption in the country (around
policy for the hydrocarbons sector
9%) is one third compared with the
in order to meet the countrys future
proportion of natural gas in the worlds
energy needs. There are significant
primary energy consumption.
implications for the oil and gas sector in
With a 53% share in the primary energy terms of the growth path it has charted:
sector, coal remains the dominant
The introduction of the New
fuel, but its share is projected to
Exploration and Licensing Policy
decrease with the thrust on gas and
(NELP) and the subsequent entry
other renewable sources increasing.
of multinational companies (MNCs)
With Indias growing population and
in the exploration and production
rising living standards, the demand for
(E&P) sector have given impetus
energy is expected to increase in future.
to the countrys oil and gas sector.
Indias fuel needs are likely to grow at a
Unexplored sedimentary area of 50%
significant rate, considering the growth
in 199596 reduced to 15% in 2009 3.
pattern of the countrys GDP in the past
few years. Currently, Indias per capita
consumption of energy is well below 1 India Oil & Gas Report, Business Monitor
that of the world average (around one International, via OneSource, accessed 27
September 2010.
fourth).
2 .India Oil & Gas Report, Business Monitor
International, via OneSource, accessed 27
September 2010.
3 . Sedimentary basins, DGH website, www.
dghindia.org/SedimentaryBasins.aspx, accessed 30
September 2010.

HR challenges in the Indian oil and gas sector | 2


I n the past five years, the refining The petrochemical sector is poised for by the Hydrocarbon Vision 2025
sector has witnessed additions significant growth due to significant report, infrastructure is likely to
in its refining capacities, and this demand for petrochemical products. witness significant growth, especially
trend is expected to continue with The demand is expected to touch in the pipelines sector. IOCL and GAIL
the implementation of major new 10 million tons by 2010, thereby are cumulatively expected to add
capacities. It is anticipated that this witnessing annual growth of 9%10%. around 5,000 km to their existing
sector will witness large investments With various refining companies pipeline networks.
for capacity augmentation, diversifying into the petrochemical
I t is expected that the GoIs emphasis
quality upgrades, the clearance of segment, existing capacities in this
on clean fuel will lead to a marked
bottlenecks, and the revamping of sector are likely to double in the next
increase in the city gas distribution
various refineries. India is likely to five years.
(CGD) business, with around 40 cities
boost its refining capacity by 45% by
On the back of growth in petroleum expected to fall under the ambit of
20112012 as against 2008 (150
production and refining, as envisaged CGD by 2012.
MTPA).

3 | HR challenges in the Indian oil and gas sector


02
Section

Talent
2.1 Manpower requirements T
he upstream sector is expected
to see the maximum shortfall, with
Anticipated business growth in the sector a requirement for around 7,600

shortage
is contingent on the availability of skilled employees in the next five years
manpower in the country. As such, on account of high attrition and
the report on Ernst & Youngs study retirement.
Manpower Demand and Supply Study for
Oil and Gas sector, conducted in 2009, I n the downstream sector, the refining
provides an assessment of the manpower and petrochemical sectors are likely
demand for critical skill sets across the to require around 6,000 and 2,700
countrys oil and gas value chain and the professionals, respectively. The
corresponding supply of such resources. refining and petrochemical sectors
Key findings of the study include: are witnessing substantial capacity
additions that are translating into
Indias oil and gas sector is likely to significant manpower requirements.
require around 25,000 additional
professionals in the next five C
GD is projected to require around
years due to business growth and 4,500 people in the next five years
retirement or attrition in the sector. due to exponential growth in pipeline
This is equivalent to around 48% of infrastructure and the network, while
the current employee strength. the marketing sector is expected to
need close to 3,600 people.
C
ore (technical) functions are likely to
account for around 80% of required
manpower.

HR challenges in the Indian oil and gas sector | 4


03
Section

Key HR
Manpower projections for the oil and gas not expected to manage offsetting
industry predict a substantial demand impending manpower requirements.
for oil and gas professionals over the Existing academic institutes are not

challenges
next five years. The sector needs to sufficient to ensure industry stability
tide over the challenges of attraction in terms of manpower supply. The
and retention efficiently to support gap between the demand for trained
current operations and execute planned manpower and its supply is widening
growth. One of the common challenges annually. Some of the key issues include
all sectors within the oil and gas value an aging workforce, retirement, attrition,
chain currently face is planning for the and talent acquisition and supply.
sustained availability of a competent
workforce. Although technological
development has garnered benefits that 3.1 Aging workforce
have allowed oil and gas companies
Largely in line with the global trend, the
to reduce manpower requirements,
average age of workforce employed in
future technological advancement is
the Indian oil and gas sector is high. This

5 | HR challenges in the Indian oil and gas sector


is a major challenge, particularly for 3.3 Attrition
upstream companies, which are expected
to find it particularly difficult to replenish Attrition is another major reason for the
talent loss due to heavy retirement in loss of talent in the Indian oil and gas
the next five years. Intermittent hiring sector. It is estimated that in the next
by oil and gas companies has led to the five years, around 7% of the current
majority of the workforce being skewed workforce will leave the oil and gas
at the top of the organizational pyramid. sector in India5 . A study of total attrition
Around 50% of employees have more by level reveals that the upstream oil
than 20 years of experience, and the and gas sector is faced with significant
majority is due to retire in the next 510 attrition at the middle-management level,
years. while other sub-sectors are facing this
challenge at junior-management levels.
Middle-management attrition in the E&P
sector is due to various international
3.2 Retirement
opportunities available for employees
As a natural consequence of the with more than 10 years of experience.
aging workforce, impending employee The lack of career opportunities and
retirement in the sector is expected extreme working conditions are other
to peak over the next five years. primary reasons for employee attrition.
Around 11% of the current workforce4 In the downstream (refining and
is estimated to retire in the next five petrochemical) and marketing sectors,
years. This is likely to significantly around 75% 6 of attrition is expected at
reduce experienced talent in the oil the junior-management level, indicating
and gas sector. Further, public sector the absence of a robust talent-retention
undertakings (PSUs) are expected to mechanism in organizations.
be considerably impacted as a result
of projected retirement rates. It is also
anticipated that the sector will witness 3.4 Attracting talent
34% of retirement at the middle-
management level, which implies a Attrition and retirement are not unique
significant loss of experience. Core to the oil and gas sector. In fact, sectors
technical functions will face major such as IT-ITeS, retail and telecom face
manpower challenges due to retirement. far more attrition than the oil and gas
Three-fourths of all retired people are sector does. The loss of manpower due
expected to hail from technical or core to retirement is common in core sectors
functions such as geosciences, reservoir, such as power and heavy engineering.
production, maintenance, technical The key cause for concern around the
services and R&D. loss of industry talent is that skill sets in
this industry are highly specialized and

5 Manpower demand and supply study for oil and gas


sector, Ernst & Young, 2009.
4 Manpower demand and supply study for oil and gas 6 Manpower demand and supply study for oil and gas
sector, Ernst & Young, 2009. sector, Ernst & Young, 2009.

HR challenges in the Indian oil and gas sector | 6


difficult to develop and acquire. Thus, the The sector currently relies heavily on Exhibit 2: Availability of skills in India
impact of losing industry professionals level 1 and level 2 technical institutes
with five or more years of experience is and universities for talent sourcing. 120%
likely to be of high magnitude. These institutes produce high-quality
100%
technical manpower. Over the years, the
Therefore, a strong talent development 80% 40%
inflow of talent from these institutes to 54%
strategy needs to be developed and
core sectors, particularly oil and gas, has 60% 62% 60%
followed at all levels in an organization.
been dwindling.
Significant efforts to attract talent 40% 50%
27%
from engineering campuses are the 37%
As evident from Exhibit 2, around 20% 36%
need of the hour. Lack of awareness
60% of technical skill sets available 10% 19% 3%
among people about this sector in India 0% 2%
is another challenge. Certain negative Level 1 Level 2 Level 3 Total
Exhibit 1: Technical institutes (by level)
perceptions around the sector have Core skills Related skills Other skills
become common over time among Level 1
Sources: AICTE, IIT and relevant universities
students, parents and counselors. It is Indian Institute of Technology (IIT) /National
largely presumed that working conditions Institute of Technology (NIT)/Indian School
of Mines (ISM)/ Institute of Technology - 1 institutes is can be primarily attributed to
in this industry are generally hazardous
Banaras Hindu University (IT-BHU) the following reasons:
and that postings are typically restricted
Level 2
to remote locations. This impacts talent Periodic hiring pattern of oil and gas
attraction and acquisition relevant Oil and gas sector institutes/universities companies
courses in the oil and gas sector in India. Level 3
U
nstructured internship process
As such, a dedicated communication Other institutes
Competition from global oil and gas
campaign highlighting various career
companies
options in the sector needs to be (close to 0.45 million) fall under the
developed. The communication campaign non-relevant category for the oil and F
aculty crunch
is likely to motivate students to opt for gas sector. This indicates the growing
Lack of a strong industry-academia
courses in oil and gas and subsequently demand and popularity of courses such
interface
join the sector. as IT, computer science and electronics.
Level-1 institutes comprise only around
4% of total institutes in India (around
3.4 Inadequate supply of 1,400). According to industry estimates,
talent from institutes only 10% of students equipped with core
skills are inclined to join the oil and gas
The sector is also facing issues around sector 7.
the availability of a solid talent pool from
universities and institutes that typically The magnitude of the problem can
contribute to its talent base. To analyze be gauged from the fact that of all
the magnitude of the problem, technical engineering graduates from Level 1 and
institutes were categorized into various 2 institutes, only 2% join the oil and gas
levels based on the industrys preference sector annually. Sector interest in Level
for these institutes:
7 Manpower demand and supply study for oil and gas
sector, Ernst & Young, 2009.

7 | HR challenges in the Indian oil and gas sector


04
Section

Global HR
Talent shortage has become a critical the principles of oil economics, with
challenge for the oil and gas industry at sharp increases in prices followed by
a global level. The challenges are largely rapid declines. This made it one of the

challenges
similar to those prevalent in India due most volatile industries to be employed
to variations in employment within the in. A massive recruitment drive due to
industry. The significant variation in increased production typically followed
employment figures for the industry is sharp increases and, subsequently,
a result of the intrinsic boom and bust a decline in oil demand resulted in
cycles that have afflicted the industry. substantial layoffs. Thus, employment
Globally, companies have struggled to in the oil and gas sector has largely
recruit, retain and develop sufficient followed crude oil price trends and
manpower to sustain operations. lags behind the price peaks illustrated
Manpower deficits are leading to in Exhibit 3. The industry has also
project delays and cost overruns, and not managed to preempt trends and
this problem is more serious in the take corrective action, as it is difficult
upstream sector. The following sections to predict oil and gas prices. Several
detail some of the issues the industry is factors, including the state of the
currently contending with in the global economy and a number of geopolitical
context: factors, are responsible for price
fluctuations.

4.1 Employment cycles


4.2 Aging workforce
The global oil and gas industry has
witnessed several business cycles in Extended periods of low hiring in the
the past 40 years, mainly dictated by sector have had a detrimental impact on

Exhibit 3: Annual variation

50%
100%
80%
10%
Oil and gas employment

60%
Oil price

40% 5%
20%
0% 0
-20%
-40% -5%

1972 1982 1992 2002

Source: US Bureau of Labor Statistics

HR challenges in the Indian oil and gas sector | 8


the demography of the industrys current 4.3 Inadequate supply of well as on college campuses, has been
workforce. Since the recruitment of new adversely impacted during downturns
talent and dwindling course
graduate petro-technical professionals in the economic cycle. This has affected
has been low for a long period, the global intake its image as a preferred recruiter and
average age of employees in the sector The oil and gas sector currently faces an continues to hinder recruitment efforts
has increased, and age distribution has acute skill crisis due to challenges arising to date.
bulged in the middle. This bulge, which from an aging workforce. Lack of student
peaks at employees in the 45 to 49 age interest in petroleum and geosciences
range, represents the last period of courses has only compounded the
large-scale hiring of college graduates problem. A marked decline has been
in the late 1970s and early 1980s. witnessed in the number of petroleum
The issue is far more critical in western degrees granted in countries such
countries, which are facing a maturing as the US, where even enrolments
population. These countries have been have decreased more than 90% since
struggling to replace aging employees 19828 . Irregular periods of hiring have
with new engineers and companies are dented the image of the oil and gas
now heavily investing in training and industry. The sectors reputation as a
development programs and creating competitive employer in the media, as
management succession plans to
generate a steady talent pipeline. 8 Manpower demand and supply study for oil and gas
sector, Ernst & Young, 2009.

9 | HR challenges in the Indian oil and gas sector


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