April 2013, Vol. 240 No. 4


Natural Gas Demand, The Upcoming Knowledge And Experience Gap

William M. Hutton, Ph.D.

The shale plays in North America with their enormous reserves of natural gas-related resources offer extensive opportunity for multiple national and industry payoffs. In addition to providing the potential gift of energy independence for years to come to our nation, the development of this vast resource has the chance to positively impact our nation’s general economy and its job creation capability.

For certain, the benefits are not within grasp without several “hurdle jumps” that require clearing. Although it is apparent that political, regulatory, and environmental issues require active management by the energy industry, the intelligence/human capital requirements to service the rather dramatic demand increase is also high on the list of “hurdle jumps”. Two fundamental and basic questions pertain to intelligence/human capital: what is the magnitude of the human resource requirement (how many jobs)? And is there sufficient intelligence (skilled, experienced talent) available to meet the demand?

The overall demand question has been well documented by numerous sources. We know the demand for the natural gas energy source has been and will be experiencing significant growth in various market segments. Electric generation (which has been provided primarily through coal burning, nuclear power, and natural gas in our recent past) heads the list as the primary user for the new abundant gas reserves. However, commercial and industrial users, including applications in a few specialized chemical processes, also show significant future demand growth. In addition, there is an impressive export opportunity for LNG into the global economy. This opportunity can improve our country’s balance of trade.

For certain, it has been the technology advancements to the fracturing process that have yielded our ability to economically recover the natural gas and its derivatives. With the resources becoming economically available, our storage and transportation infrastructures are being readied for the volume increases. Assuming the political and environmental hurdles can be constructively managed to allow infrastructure improvement projects to become realities, the planned and required pipeline projects continue to grow in numbers.

These increases in pipeline capacity and transportation capabilities will eventually require similar growth in the distribution systems needed to carry product to the end-users (electric, commercial, industrial and residential). Additionally, LNG exports, shale play liquids, CNG applications (mostly vehicles of goods/people transportation) will likely all add to the picture of growing demand.

We now understand that our vast new natural gas-related resources are sufficient to fulfill the energy demand for our country for the next 150 years or so. Therefore, the overall seriousness of the situation demands that each of the hurdles be addressed and navigated.

Demand Details
To better understand the magnitude of the effort, the Interstate Natural Gas Association of America (INGAA) estimates that $205 billion will need to be spent over the next couple of decades to remedy the quality and capacity issues related to transmission and distribution. We now realize that the U.S. also needs the 41,000 miles of pipeline that is either under construction or being planned in anticipation of the growing demand.

With regard to distribution mains, we have more than 1.3 million miles of pipe in the ground and almost 10% of it is in need of replacement. Also, in excess of 72 million distribution services are in service and about 8.5% of these require replacement. Obviously, the magnitude of the infrastructure issue is quite significant and the intelligence/human capital requirement is equally dramatic. However, this does not yet complete the picture.

As we better understand the full range of economic and environmental benefits associated with LNG and the potential of exports, we acknowledge another area for significant intelligence/human capital. As an example, a recent report in the November issue of Pipeline & Gas Journal discusses the possible economic and job impact associated with a single LNG facility construction project. The Alaska “Mega Project” will require “up to 1.7 million tons of steel, a peak workforce of up to 15,000, a permanent workforce of more than 1,000 …” The article goes on to say that this single LNG project will cost somewhere between $45-65 billion!

From an overall standpoint, Mark Mills, a senior fellow at the Manhattan Institute for Policy Research, states in his recent report, “Jobs In a Ripple-out Economy Come From Oil, Gas, Coal And Then the Cloud,” that our country stands to create “4 million jobs in the near future” as a result of the shale play energy resource boom being granted to us through technology breakthroughs in the fracturing process.

As all of the benefit data becomes available, we certainly see the incredible potential to our nation and industry in terms of energy independence and economic growth. Even if the estimates on all the benefits are somewhat optimistic, the hurdles to realize these “gifts” are substantial and multiple. The political, environmental, and economic hurdles are receiving some level of proactive attention, but our industry must also recognize the size and nature of a potential intelligence/human capital deficiency and take steps to manage it.

The Intellectual/Human Capital Hurdle
Organizational psychologists look at the issue of intelligence capital as being comprised of three primary elements. Organizational capital, social capital and human capital are the elements that make up what describes an industry’s total knowledge asset – intelligence capital. As we briefly examine these three elements in light of the opportunities and hurdles facing the pipeline and gas industry, we get a view about what measures are necessary to “jump the hurdle.” Fortunately for the industry, it is unlikely that all three of these dimensions are equally challenging. But first, let’s basically define each element and the relevant trends in the industry that relate to each one.

Intellectual Human Capital Defined: For our purposes, organizational capital is that which is associated with the formal intellectual property along with the organization’s intelligence that has been memorialized and managed. This is information that is instrumental to the operation of the organization (specialized work processes, trade secrets, etc.). The social capital component has much to do with the cultural behaviors and mindsets of the organization, especially when it is related to innovation management (problem-solving methodologies).

Human capital has a great deal to do with the total sum of the human population in employment (capacity) and their combined experiences, learning investments and specific work routines (efficacy). The combination of all three of these assets provides incredible capacity and capability for the organization to operate effectively, solve problems, transfer new technologies and manage innovation.

The Trends: In the energy industry (gas and oil), several trends over the past decade or so have arguably resulted in some level of concern for organizational capital building and the sustainment of human capital. The social capital element trend is critical in the mix, but our industry has demonstrated significant efforts to ingest new technologies and work processes over the past decade or so. Therefore, this element might be of less immediate concern.

As our overall workforce has aged into retirement and as companies have provided incentives to even “go early,” the industry has experienced what is commonly referred to as a “brain drain” phenomenon. Essentially, as seasoned and knowledgeable members of the workforce (at all levels) have slipped into retirement, they have all too often taken their knowledge and experience with them. After amassing years of learning, many of the industry’s most highly trained assets regarding knowledge of systems, methodologies, and specialized processes have literally “walked out the door.”

Formal memorialization of organizational capital is typically performed regarding highly regarded assets such as patents, copyrights, registered logos, etc. However, it is often the case that specialized work procedures, trade secrets and in-house created innovations often receive little, if any, formal documentation. Unfortunately, even in today’s world of electronics media, these knowledge assets are frequently neglected in terms of documentation.

As we review another human capital trend, we note that too many of our young people tend to be channeled away from industries that have been regarded as “smokestack,” dirty, non-ecological, unhealthy, and “old”. Young talent in the business, engineering, science, and trade areas tend to think about their careers in directions other than oil and gas. However, we also understand that even when talented young people become convinced that the oil and gas energy segment is worthy of their career focus, they come into the industry only as raw talent. They have to learn the industry and the company.

A Hurdle

With regard to the talent required to respond to the industry’s opportunities, the categories include trade laborers of numerous types, supervisors, managers, engineers, scientists, and leaders. The skilled labor talent requirements certainly include mechanics, construction workers, welders, equipment operators, gas mechanics, systems specialists and many others. Supervisors who are technology-astute, infrastructure-knowledgeable, quality-procedure-educated, and trained people handlers are needed in growing numbers.

As is the case in any technology-oriented business, engineers and scientists are required in considerable numbers. Managers and leaders typically need years of grooming in an industry prior to being capable of being in charge of a highly demanding environment. In short, as the industry opportunities ramp up and the demands on the intellectual/human capital grow correspondingly, past trends and perceptions of the industry will require adjustment.

Closing The Gap
Closing the intellectual/human capital gap in an industry is always a challenge. The medical, manufacturing, software industries as well as others have all suffered the intellectual/human capital gap. Regardless of the industry, and as it is with most problems, this one begins with problem recognition.

The “brain drain” aspect of the gap can be managed because the knowledge has not gone missing – it has simply been put into “unused inventory.” It exists and therefore can be accessed and utilized through various approaches. Although professional consulting is a means to use the brain drain resource, one can also consider formalizing the mentor process.

Mentoring differs from just consulting in terms of intimacy of the knowledge transfer process – teaching, coaching and advisement become personalized. Also, these brain drain human capital assets can still be captured and memorialized through a variety of recording means. Building a library of “learnings” regarding work processes, practices and techniques can be done much more effectively than in the past. Manuals are still useful but other forms of recording the information with all sorts of media is quite beneficial.

For certain, continued and even ramped-up industry training in critical skill areas needs serious consideration. Professional associations, state/federal agencies and new formations of knowledge and training consortiums can all be considered and brought to bear on the human capital component.

Technology astuteness is a critical component of the intelligence capital building game plan. Technology and human capital unlocked the shale play resources; government had little to do with this innovation. Similarly, understanding and knowing critical technologies in the rest of the value chain is enormously important.

Knowing the capabilities of prevailing and emerging technologies is required to formulate the best and most effective solutions. Making full use of others’ knowledge and experience around the world is a necessity. A willingness to use best practices regardless where they originate is smart.

The magnitude of the talent requirement needs to be anticipated and planned for in advance of need. Attracting many of the country’s (and elsewhere) best and brightest to an industry that has been too characterized as becoming obsolete (a fossil fuel phobia) and unattractive (declining) must be reversed. Promotional efforts of various styles aimed at aspiring young people will help to shift perceptions and attract resources. Given the state of employment in the U.S. and elsewhere, human resources are available in numbers.

The future managers and leaders needed to meet the growth projections of the industry might be developed through a typical inside/outside approach. This simply indicates that as has been the case, many will come from the internal experiential accumulation process currently under way. However, formalized (organizational assignments) mentoring is often an efficient supplement that energizes and escalates the human development process.

What the entire landscape of opportunities offers the country and the industry is magnificent. However, the hurdles that need to be cleared to realize the maximum benefit are significant. The industry stands at the precipice of a transformation and as is the case with most transformational events, the difference in meeting these challenges and achieving success is leadership. No doubt that leadership in this situation requires the best from both our government and our industry. Here’s to jumping the hurdles!

William M. Hutton, Ph.D. is a managing director at JMJ Summit Services, a professional research and advisement firm for technology and organizational development. He also teaches in the Graduate Program at DeSales University. He can be reached whutton@jmjsummitservices.com

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