Europe faces a pressing question: Can its economies continue to grow with a shrinking workforce? This issue is critical as Europe, the only continent experiencing demographic decline, is projected to see its working-age population decrease by 5% by 2033. This trend will particularly impact major economies such as Germany, which is expected to lose 5 million workers or 10% of its total labor force.
The implications of this demographic shift are profound, leading to labor shortages, reduced productivity, and increased pressure on public budgets. Industries with a workforce nearing retirement age could face a three-pronged disaster: a wave of retirements, a decline in young qualified candidates and restrictive immigration policies exacerbating the shortages. This scenario is particularly cumbersome for heavy industries which already struggle to attract younger workers.
The Oil and Gas sector is poised to be among the first affected. Globally, 20% of its workforce is over 55 and historically the sector has struggled to retain young talent. Skills shortages are already prevalent in fields like engineering and maintenance, and specialized trades such as welding. As a result, leading companies are investing heavily in transforming their operations through digitization, automation, and remote processes.
Leveraging insights from Japanese operations
While Europe grapples with a shrinking workforce, some countries offer valuable lessons. Japan’s working age population for example has decreased from 86 million to 73 million since 2000. In response, Japanese oil and gas companies have taken decisive actions to maintain operations with fewer workers and preserve the expertise of their aging workforce. For example, ENEOS Kiire Terminal digitized key operational processes and information transfers, such as shift handovers and incident management, to address the retirement of large employee cohorts.
This has also helped to automate some tasks that were consuming working hours, such as preparing reports or extracting data. In instances where companies will increasingly vie for a limited pool of candidates, eliminating low-value clerical tasks can not only enhance productivity but also talent retention.
Harnessing Offshoring and Remote Monitoring
Minimizing the impact of labor shortages and high labor costs through offshoring is another effective strategy allowing companies to offshore tasks that used to be performed on-site, and minimizing the geographical factor from the equation.
Recent advances in imaging technologies, such as drones and handheld laser scanning, have also expanded the range of tasks that can be performed remotely. Several industries have also implemented digital twins of their facilities, providing remote workers with accurate visual representations and access to maintain historical and technical documentation.
These technological advancements allow facilities to be monitored from thousands of miles away and enable processes, like line walks, to be conducted remotely. This is particularly beneficial for oil and gas companies, with remote sites spread over large areas: offshoring tasks not only address labor shortages but also improve safety.
For instance, Harbour Energy, the largest British North Sea leading North Sea oil and gas producer, utilized imaging technologies like laser scanning data and a digital twin that housed all operational data and documents to conduct certain inspections and line walks entirely remotely from India.
Enhancing Labor Productivity
These strategies are part of a broad reconsideration accelerated by the pandemic, in determining which tasks should be performed on-site versus those that can be eliminated, automated or offshored.
The decline of Europe’s working-age population will accelerate this trend, favoring companies that have optimized their operations to be less labor-intensive. This is especially relevant for sectors traditionally relying on on-site workers, such as oil and gas. According to the International Energy Agency, 40% of energy jobs could potentially be offshored.
This shift will lead to leaner, smarter industrial facilities. For example, transitioning from reactive to predictive maintenance prompted by automated data analyses can help drive productivity gains of up to 25%, according to Deloitte, a consultancy.
Artificial intelligence will play a crucial role in this transformation. Companies are already exploring how AI and conversational interfaces, coupled with digital twins, can help junior and mid-level employees to rapidly acquire operational knowledge and learn procedures faster, effectively flattening the learning curve and raising the productivity of less experienced employees.
Similarly, data silos, pen-and-paper processes and other poor information management practices all represent potential productivity gains. With European companies susceptible to rising labor costs and shrinking workforces – their ability to focus on productivity enhancements and effectively address potential obstacles will determine their levels of success in the coming decade.
Oil and gas operations are commonly found in remote locations far from company headquarters. Now, it's possible to monitor pump operations, collate and analyze seismic data, and track employees around the world from almost anywhere. Whether employees are in the office or in the field, the internet and related applications enable a greater multidirectional flow of information – and control – than ever before.