While price volatility and rise in costs make the financial side of things harder for energy players, the interplay of other factors such as climate change, energy transition agendas, rising power demand, and emerging technologies and innovations, including market evolution, automation, and progress in unleashing the benefits of artificial intelligence (AI), have also played their part in shrinking the job market. The spike in headcount cuts that are expected to be made by the U.S. and European oil and gas majors like BP, Shell, Chevron, and ExxonMobil serves to illustrate this.
Key highlights:
As global corporations and companies embrace cost reductions to ensure profitability, downsizing moves across the labor market have become a frequent feature of measures undertaken to combat inflation and keep companies afloat.
These workforce curbs indicate a slowdown in job market openings, creating the perfect storm for an uptick in unemployment rates across many sectors and industries, including the energy arena, despite the surge in demand for energy sources.
The growing consolidation trend is another factor that serves as a double-edged sword, as it assists companies in streamlining their operations in response to shifts in policies, consumer dynamics, climate action, and economic pressures, but job overlaps usually lead to workforce reductions.
On the other hand, job consolidations are a boon for tight budgets, however, workers may find it challenging to pick up the slack, emphasizing the need to strike a balance between operational needs with budget cuts and employee retention and layoffs.
With no industry appearing immune, the recent upturn in employment reductions raises concerns about the global state of the economy which seems to be in the early stages of recession, as slower economic growth, rising costs, and supply shortages expose even the most profitable industries and companies to job losses.
AI growth often gets the blame as another factor that places even some of the high-paying jobs in multibillion-dollar industries, like the oil and gas sector, at risk, with automation and remote operations making certain positions and roles redundant while also improving the workers’ overall safety. These trends, along with a few others, are likely to continue to shape the employment landscape over the coming years.
As the global energy machinery navigates the complexities of declining oil prices, gas market volatility, geopolitical woes, energy market evolution, the transformation of the energy mix, rise in alternative fuels and sources of supply, decarbonization goals, climate change pressures, and associated net-zero aspirations and policies, which are among the key trends that are affecting the offshore energy industry.
These trends seem to be hitting workers in the offshore energy industry, especially its oil and gas branch, hard as they seem to have drawn the short straw while headcount keeps slimming down even in the Big Oil camp, whose members are still raking in millions and billions in profits.
Cash is king: Financial doldrums water down shift to ‘greener’ pastures
While the offshore wind industry has gained momentum over the years and is considered one of the key ingredients of a net zero energy future, it has come across many bumps in its growth journey, even hitting a profitability snag recently. This prompted Jerome Guillet, Managing Director of SNOW, to write a piece on ‘How utilities and big oil broke the economic model of offshore wind,’ which he considers ‘self-explicit.’
While discussing the so-called ‘heads I win, tails I whine’ business model and its consequences, he provides his take on the offshore wind industry, deeming it to be “broken” as big energy names like BP, Equinor, Shell, Vattenfall, Total, Ørsted, Corio or Bluefloat, take steps to downsize their exposure to the sector amid rising concerns about cost hikes and ‘degraded’ economics.
He puts the blame for the woes the offshore wind industry is going through on the large utilities and energy firms, which pushed away competition, creating a fertile ground for current issues to spring up through a combination of “hubris, ignorance, and reliance on lobbying rather than good business acumen.”
Despite issues that have cropped up, Guillet ends his piece on a positive note, emphasizing: “Offshore wind will not happen everywhere, as it is not always cost competitive against onshore wind and solar, but it is a competitive source of electricity and does not deserve its current doldrums. Now is the time to invest – but you have to stop listening to the often clueless public statements of utilities on the sector.”
With financial strain being felt across many sectors, including the entire energy industry, companies are increasingly pondering whether they are getting a bang for their buck, as they work on revising strategies and adjusting their set course to remain in business.
While the oil and gas industry continues to enjoy a profit bonanza, many companies in this line of business, including supermajors, have been making plays to widen their energy horizons, especially in light of growing climate litigation, which often puts them in environmental activists’ crosshairs, forcing them to navigate stormy legal seas.
When the first baby steps were made in rebranding, the oil and gas industry was enthusiastic about its foray into emerging low-carbon and renewable technologies, embracing strategic diversification with gusto to come to grips with the energy trilemma and reach its decarbonization and net zero goals. However, time has chipped away at the initial fervor as these new energies and green solutions did not magically bring pots of gold.
These types of projects, especially the more innovative ones that combine multiple clean energy sources, require a lot of spending to get off the ground but have not been able to rake in substantial profits, or even be profitable in some cases. This process takes time, and as one of our interlocutors said, the industry is just not there yet.
In line with this, Stratkraft cited money problems as the main issue for abandoning some of the projects, as explained by Birgitte Ringstad Vartdal, the firm’s President and CEO, who underscored: “The market conditions for the entire renewable energy industry have become more challenging. We are therefore sharpening our strategy to allocate the capital to the most value-creating opportunities with the best strategic fit.”
With the payday from renewable projects being slow in coming, the rising interest rates and costs are increasingly putting the financial stability of such projects at risk, especially since they take years to develop and put into operation before any money starts to trickle in.
The cards offshore energy firms have been dealt now are different not only for those fossil fuel giants that are dipping their toes into renewables and other low-carbon and green pursuits but also for their pure-play brethren in the hydrocarbon arena, depending on the global areas in which they operate.
Those that did make a profit were not able to reach the same or even similar level that the energy industry’s fossil fuel darlings, black gold and the ‘bridge fuel’ or ‘transition fuel’ as gas is often called, have been making.
The lack of substantial profit, rising costs, regulatory delays, and grid bottlenecks, combined with other specific sets of challenges such projects need to overcome, have made things difficult for developers with investors’ confidence taking a hit.
In light of such woes, some energy players are putting their renewable and clean energy projects on ice until circumstances change to make pursuing such developments more financially rewarding for investors.
Shareholders of big companies, especially those in the fossil energy sector, that took significant steps to diversify their operations and portfolios through bold steps to blaze new trails in emerging energy markets are increasingly expressing concerns about green policies eating into their profits.
Nearly all the oil majors appear to have been hit with the cost-cutting fever, which is currently buffeting and adversely affecting the job market by spurring a headcount decrease.
The overall unfavorable investment climate for hydrocarbons and a drop in oil prices, driven by geopolitical tensions and global market fluctuations, have left their mark on many markets, especially fossil fuels, spearheading the companies’ downward revision in financial performance.
BP targeting multimillion-dollar savings by downsizing its human capital
The complexities were recently hammered home by the speculation which continues to run rampant over BP‘s alleged plans to implement a hiring freeze, downsize its spending on renewables, primarily offshore wind, which was among the key pillars of its energy transition growth drivers but is among projects analysts expect to be put on hold.
This would enable the UK oil major to turn its attention to oil and gas once again in the wake of its shareholders’ growing opposition to its net zero strategy since these green projects are not likely to bring returns anytime soon due to the amount of time it takes to bring them online and the financial hardships developers are facing.
As the latest energy giant to disclose job cuts, BP intends to downsize its workforce by 5%, resulting in 4,700 internal job removals and the loss of over 3,000 contractor positions. As a result, the oil major’s global headcount is expected to decrease by 7,700 jobs.
With this move, the company is targeting a cost reduction of around $500 million this year, leading to total savings of at least $2 billion before 2026-end, which is the goal its CEO previously set. This employment reduction is driven by the efforts Murray Auchincloss, BP’s Chief Executive Officer, is undertaking to curb costs and increase the revenue streams after the company suffered the biggest profit hits compared to other oil majors.
Auchincloss has confirmed that additional cost-cutting measures are on the agenda for this year and even beyond, after the firm hit the pause button on many projects or headed for the exit, primarily in the renewables, clean energy, and low-carbon domains, to focus on more profitable ventures, mostly in the oil and gas arena.
Energy experts and analysts expect the firm to shift its primary business focus back to oil and gas, as the UK-headquartered player’s fall from grace is largely being attributed to a costly miscalculation in the diversification strategy, which Auchincloss’ predecessor, Bernard Looney, embraced with the pivot to low-carbon and green energy on the prediction that global oil consumption had hit its peak, bringing the industry to a phased decline and spelling the gradual end of the fossil fuels era.
Yet, the forays made in offshore wind, hydrogen, solar, and other less emission-intensive sources have not curbed the demand for coal, oil, and gas, as demonstrated by the lion’s share of the global energy mix, which is powered by fossil fuels.
Analysts argue that Looney may have been ahead of his time, underlining that his expensive excursions into emerging energies and cuts in hydrocarbon investments and oil and gas production may have come far too soon for a company whose profits stemmed from the fossil fuels industry.
Market connoisseurs point out that it would have been wiser to earmark funds to bankroll the diversification into new energy plays on a smaller scale and wait for these new energy industries to start making a profit before introducing more significant additions to the company’s policy and changing the course of its investment strategies.
Seemingly in agreement with these views, BP has taken multiple steps to readjust its sails by tweaking its policies to temper down the previously announced cuts in oil and gas production, hit the brakes on some projects from new energies and low-carbon pile, and even halt other projects from the same group of greener ventures, including hydrogen and wind businesses.
A few weeks ago, BP revealed the spin-off of its entire offshore wind business portfolio, as reported by Adrijana Buljan, Senior Editor at Offshore Energy’s sibling site: offshoreWIND.biz. Auchincloss, emphasized last year that BP was determined to drive focus across the business and reduce costs while scaling back plans for new biofuels projects, as a way to deliver “a simpler, more focused and higher value company.”
Shell’s layoffs to bring up to $3 billion
BP’s compatriot, Shell, is also said to be contemplating job cuts and pulling further away from the green energy playground to go back to its oil and gas roots, in response to the ongoing global economic challenges and investors’ discontent.
This return to basics and the loss of confidence in renewable and clean energy projects among some investors is the consequence of the divide between the record-high profits the oil and gas industry generated in 2022 and the abysmal returns renewables managed to secure on rather much higher investment costs, turning the energy transition into a far more expensive financial burden for those in the private sector that are developing such projects.
Some argue that renewables are now cheaper than fossil fuels. Nevertheless, Shell’s restructuring endeavor is anticipated to end in a 20% headcount decrease, with its oil and gas exploration and development branches in Houston, Texas, and the Netherlands expected to be hit the hardest by the layoffs, which are part of the firm’s cost-management.
Predictions of high gas demand in the future keep growing against the backdrop of uncertainty that continues to shroud the transition journey to renewables. The UK-headquartered player made certain reductions in its renewable and low-carbon business ventures as a way to come to grips with rising costs and unfavorable energy market dynamics.
The firm’s layoffs across the exploration, development, and subsurface divisions are expected to enable cost-savings of $2-$3 billion by the year-end. The British oil major has set its cap on unlocking “more value with less emissions” as Wael Sawan, Shell’s CEO, confidently pursues a boost in profitability with structural operating cost reductions. Sawan underlined in August 2024 that he oversaw cost savings of $1.7 billion.
The achievement is perceived to be the result of simplifying the business with moves that spanned curtailments in renewables and low-carbon alternatives, encapsulating solar, offshore wind, and hydrogen, together with the sale of its retail power businesses, refineries, and some hydrocarbon production.
Shell’s restructuring plan is composed of a cost-saving goal of $2-$3 billion by the end of 2025; asset divestments such as the Deer Park Refinery, which was sold to Pemex in 2022, and the Mobile refinery, which was purchased by Vertex Energy in 2022; and a weakened outlook on further investments in the renewables, even though the pressure on markets to slash emissions in line with the Paris Agreement continues to ratchet up.
Several legal experts have pointed out that at least some people affected by the announced downsizing will probably seek legal aid and turn to lawsuits to thwart the oil majors’ layoffs. Depending on local laws and contracts the employees have signed, many workers will likely be entitled to full severance packages, if they have not been given such a package, due to job loss, regardless of the reason behind it.
Canada is one of the countries that has put a lot of thought into protecting workers from sudden job losses, as non-unionized employees are entitled to a severance pay that could cover as many as 24 months.
Regardless of the strict laws certain countries have put in place to protect the workforce, a flurry of layoffs has market 2024, with giant corporations, such as Amazon, Netflix, Goldman Sachs, Wells Fargo, spearheading the job cuts.
After taking over the helm from Ben van Beurden as CEO in January 2023, Sawan has worked tirelessly on upping the firm’s profits by abandoning oil production cuts and embarking on a penny-pinching mission to economize different aspects.
This includes plans to shrink the firm’s employment pool through hundreds of job cuts from its low-carbon solutions division, which sparked climate campaigners’ ire, even prompting a couple of employees to write an open letter to urge its CEO to give up plans related to curtailment in funding for renewable energy projects.
Shell is investing not only $10-15 billion in low-carbon energy solutions between 2023 and the end of 2025 but also about $13 billion a year for oil and gas developments with a focus on LNG, adding up to potentially over $100 billion in total by 2030.
The firm is adamant that LNG helps provide secure energy, offering a lower-carbon alternative to coal for power and industry and delivering stability to electricity grids alongside wind and solar, thus, the company plans to grow its LNG business by an expected 20-30% by 2030.