People risks evolving as the energy transition advances 

Twenty months ago, Mercer conducted an original piece of research in North America to understand the likely impact of the energy transition on people risks, including skills, reskilling, upskilling, and on legacy petro-technical roles and environmental, social and governance issues.

Given the monumental geopolitical and economic shocks that disrupted the wider energy industry during 2022, we were keen to understand how these pivotal events may have affected our original research. Reaching out to leading energy companies in North America across upstream, midstream, downstream/chemicals, services, and integrated energy, we sought to capture a condensed update from HR leaders on how they are now viewing the energy transition (ET) and the degree to which their people-risk agendas have been materially affected.

In our initial 2021 research, energy organizations acknowledged that the ET would disrupt their current business models with an average rating of 3.18 -- just above moderate (3) -- on a five-point scale and just over a quarter of participants anticipated high (4) or very high (5) levels of disruption. At our 2023 check-in, organizations are now anticipating the ET to be significantly more disruptive, with an average rating of 3.60 and 60% expecting disruption to be high or very high.

We conclude that as organizations are getting more granular with the delivery of their individual business model transformations, they are also more fully realizing the nuances of the challenges before them (for example, managing new segments with different margins, delivering on shareholder requirements to deliver returns while transforming, making effective decisions and investments amid emerging technology solutions and evolving regulatory environments).

From our 2023 North America ET check-in update, we identified the following top people-risk priorities for energy organizations:

• Attracting and retaining talent
• Understanding what new skills are required for the ET, as well as upskilling and reskilling talent with legacy skills
• Building pace and culture at scale

These priorities are likely to affect parts of the business in different ways. A more granular level of people analytics, skills planning and regular employee listening will be key to navigating and course-correcting these people risks over time.

Other key people priorities included skills, reskilling and strategic workforce planning. We see this prioritization as a strategic response to the key people questions associated with the ET, such as “Which roles and skills will we need, and by when?” We also recognize the challenge inherent in answering this question: only 38% of energy companies reporting that they know what skills they have in house today, and 65% reporting that their business plans are insufficiently clear to know what skills they will need for the ET.¹

Workforce health continued to be a priority across both North America ET studies, reflecting the reality of a post-COVID world and increased awareness of total employee well-being. Mercer’s 2023 US Health & Welfare Energy Survey corroborated these results, with 80% of energy companies currently enhancing their mental health support programs with primary focuses on reducing stigma, increasing training and enhancing benefits.² Efforts focusing on total wellbeing are perhaps most important to blue- and grey-collar workers — a 2023 study found that shift work was significantly associated with a higher risk of depression and anxiety.³

In Mercer’s latest check-in, we asked energy companies to identify which skills would be the highest priority for the ET and to evaluate their level of confidence in being able to obtain those skills.

Top priority skills included:

• Analytical thinking/complex problem solving
• Innovation
• Adaptability/growth mindset

Respondents cited innovation as the skill they were least confident in being able to develop or acquire to meet anticipated demand.

The Mercer North America ET results align strongly with the World Economic Forum’s 2023 The Future of Jobs Report,⁴ which cited the top skills for the energy industry as:

• Analytical thinking
• Creative thinking
• Leadership and social influence

Over the summer of 2023, Mercer conducted a cross-industry Skills Snapshot Survey covering practices, future pay and effectiveness for more than 1400 organizations. Energy HR leaders indicated attracting and retaining critical skills as the top benefits of adopting a skills approach, followed by employee development/opportunity and workforce agility/flexibility. This is not surprising, given continuing tight labor markets and the degree of transformation taking place in the industry.

These and additional in-demand benefits of skills-based talent practices are reflected in the following continuum, with companies shifting to more flexible ways of connecting talent to work and increasing focus on career personalization.

Within the survey results, we also found an interesting variance between energy versus non-energy responses in terms of whether workforce productivity was an expected benefit of adopting a skills approach. Just under 70% of all respondents cited workforce productivity as a benefit, but only 55% for energy. We suspect this might be due to the early development stages for several technologies underpinning the ET and uncertainty around how various skills may be utilized.

Relative to other industries, the research clearly indicated that energy HR leaders did not view lack of funding or lack of a business case as barriers to implementing a skills approach. The top three barriers for energy companies were the lack of HR capacity and capability, fear that adoption would lead to too much change and, somewhat worryingly, that the subject of skills was yet to be discussed (this last barrier was cited by 30% of energy respondents, significantly higher than the all-industry results).

The final observation from Mercer’s skills research was that 55% of the energy firms currently using a pay-for-performance philosophy indicated a belief that skills, not performance, will become the primary driver for salary reviews in the next three years.

Should this transpire, we believe this demands considerably increased alignment between business leaders, energy talent teams and their reward colleagues, especially around the need for clear definition of the skills required and accurate skills reward benchmarks to drive their acquisition and talent development.

The tight labor market continues in North America, which has driven many of the talent acquisition and retention challenges that we see across the energy industry.

In terms of securing the skills necessary for the ET (on a four-point likelihood scale), our 2023 check-in was consistent with our 2021 analysis regarding plans to build existing talent through upskilling and reskilling and to pursue efficiencies through automation.

However, we saw significant shifts toward bringing in additional (individual) hires and buying talent en masse through M&A. This reflects the strong cash position across the industry given sustained higher oil prices and profits and the forecast for further growth opportunities in some segments and industry consolidation in others.

Our 2023 check-in also suggests that energy organizations plan to slow their use of contractors as they map out their future workforce strategies.

Mercer’s 2021 North America ET survey sought to understand when the workforce composition would change as the ET accelerated. In 2021, indications were that the pivot from more traditional oil and gas roles to clean energy/renewable roles would take place midway between 2025 and 2030.

At our recent check-in, the timeframe for this pivot had shifted. The anticipated timeframe for elimination and reduction of some legacy oil and gas roles and likely termination of workers unable to be reskilled or upskilled to power the ET has been extended to 2033. This shift was not unexpected given higher oil and gas prices and the pivot to increased energy security triggered by the Russian invasion of Ukraine in 2022.

What has not been fully reflected and remains a key variable is the impact of the US Inflation Reduction Act (IRA) and the US Infrastructure Investment and Jobs Act on the acceleration of the ET and new skills requirements. Bank of America reported in August 2023 that more than 270 new clean energy projects anticipated to create in excess of 86,000 jobs had been announced in the first 12 months following passage of the IRA and that jobs in the clean-energy sector now account for over 40% of all energy jobs in the US.⁵

At Mercer’s 2023 check-in, we saw that employment for carbon capture, utilization and storage; low-carbon; and renewable energy roles for legacy oil and gas companies was indeed increasing rapidly as a percentage — with the forecasted number of employees in these roles doubling roughly every five years. However, given the low starting base, these roles are still projected to represent less than 10% of the workforce for oil and gas legacy companies by 2033.

Our research indicates the energy industry has gained some much-needed breathing space to plan for a more orderly skills transition, but several variables could upend that timeline.

Mercer is watching one such variable carefully: the rapid decline in petro-technical graduates. Over the last five years, the number of graduates from US petroleum engineering programs has plummeted from 2,300 to around 400 (an 83% decline), according to statistics provided by petroleum engineering professor Lloyd Heinze at Texas Tech University. And this is not just a US challenge.

Attracting and retaining technical skills and jobs across the energy industry remain an ever-present challenge, and we have heard from HR leaders that hiring and retaining talent in enabling functions (Finance, HR, Accounting, Supply Chain, IT, etc.) has become equally arduous. Energy talent in both technical roles and enabling functions is increasingly seeking employment outside of the industry, where they perceive greater job stability along with better and clearer career-progression prospects, given the energy transition.

If, as our data suggest, legacy petro-technical skills will be needed for longer and with fewer graduates, we could well see the war for talent raging for petroleum and reservoir engineers with the same intensity as for low-carbon energy roles (wind and solar engineers) and the digital/automation skills in demand across each and every industry.