Into the nitty-gritty of Biden’s Clean Energy Plan: Engineering jobs to benefit but project costs will rise

Source: press release, 30 July 2020

Percentage of US engineers* employed in upstream oil and gas (source: Rystad Energy Cost Solution, Labor Market Trends dashboard, July 2020)
Percentage of US engineers* employed in upstream oil and gas (source: Rystad Energy Cost Solution, Labor Market Trends dashboard, July 2020)

US presidential contender Joe Biden’s Clean Energy Plan aims to achieve “net-zero” greenhouse gas emissions by 2050, a feat he proposes to bring to reality through the investment of USD 2 trillion across a multitude of sectors. Jobs will be created, and the plan would shift domestic labour supply and demand fundamentals, a Rystad Energy analysis reveals.

“Regardless of the political implications, this ambitious strategy would cost the domestic upstream oil and gas industry greatly and propel green energy segments forward, changing the energy landscape in the United States,” says Rystad Energy’s Vice President at Energy Services Research, Matthew Fitzsimmons.

To execute the huge volume of work required, the Clean Energy Plan would draw on US engineering labour, an area which has seen steady growth over the last decade averaging a 2.6% increase per year. In contrast, domestic engineering labour demand from the upstream oil and gas industry is usually quite cyclical, and typically fluctuates based on market conditions and operator workloads.

Since 2012, demand for engineering labor in the US has either remained flat or decreased. It is true that 2018-2019 showed the first year-over-year growth in domestic engineering demand for the US oil and gas industry, however, the COVID-19 pandemic has erased these gains and then some. Biden’s plan will be welcome news for those who have been laid-off from the oil and gas industry, but it will also serve to inflate project costs when upstream work begins to pick up again.

During oil and gas up-cycles, increased wages have typically been able to entice workers and grow the oil and gas engineering labour force. This has helped maintain predictable productivity and meet the staffing needs that arise from a robust pipeline of projects, a phenomenon Rystad Energy would expect to see in the near term as domestic engineering contracts increase in 2022 and 2023.

The proposed Clean Energy Plan will increase competition for these engineering resources, boosting the engineering labour base to nearly 1.5 million. Normal premiums, meaning the difference in labour rates in oil and gas relative to all industries, have ranged between 20%-30% during up-cycles, but higher than normal premiums will be required to attract talent back into the oil and gas industry when opportunities abound elsewhere. Given these changes to the engineering supply-demand balance, premiums will outstrip previous highs despite not exceeding the required full-time equivalents from the previous up-cycle.

Engineers will not be the only group in high demand, as the strategy for the infrastructure, transit, power, buildings, housing and conservation segments will all require onshore construction resources. While engineers have seen a 3% swing from peak to trough in oil and gas labour demand, most onshore construction trades have seen labour demand fluctuations of less than 1%.

The difference is predominantly due to the regional nature of the work; a US engineer can work internationally, while onshore construction work must be completed at the worksite (and thus, increased international project investment won’t increase the demand for US onshore construction workers).

Rystad Energy expects oil and gas onshore construction expenditures will decline from USD 7.9 billion in 2019 to under USD 4.0 billion in 2021 (real). Yet when the industry rebounds in 2023, rising to over USD 8.5 billion, Biden’s plan will directly compete for the same onshore construction resources as the oil and gas sector.

“We expect oil and gas premiums to rise an additional 10%-15%, on top of normal cyclical premiums – an increase which will be required to bring workers back into the industry and execute a high volume of work post-pandemic,” Fitzsimmons points out.

Biden’s plan also calls for the increased unionisation of labour. The US can look to their neighbours in the north to see how high degrees of unionisation will impact future wage negotiations; while traditional US construction trades in oil and gas industry have seen wages ebb and flow with market conditions, Canadian labour unions in Alberta have prevented wage cuts despite poor market conditions.

If Biden’s vision for high construction unionisation is achieved, operators and service companies alike will have to account for this changing dynamic in their upcoming project estimates and contracts. Wage reductions to counter-balance poor market conditions could become a thing of the past, echoing the stability of Alberta’s labour market.

Learn more in Rystad Energy’s Cost Solution.