Engineers walking at oil fermentation plant

How do low oil prices affect chemical engineers?

The oil and gas industry employs many thousands of chemical engineers across the world. But what impact does oil price volatility have on their work security?

For those working as engineers in the petrochemical industry, the price of crude oil carries enormous significance. In the first ten months of 2016, for example, a downturn in oil prices led to 103,000 jobs cuts among US-based energy companies.

But why are low oil prices seen as a negative within the oil and gas sector? Surely cheaper oil denotes a healthy industry and is better for consumers?

Despite calls for greener energy sources, oil still helps the world go round whether we like it or not. In this article, we examine how chemical engineers working in the oil and gas industry can be affected by falling prices.

What is crude oil?

Crude oil (also known as petroleum) and its derivates are essentially the feedstock for all petrochemicals, including ethylene and propylene.

It consists of elements like carbon, hydrogen and sulphur, and originates from the long-buried remains of plants and animals that existed millions of years ago. This is where the ubiquitous term “fossil fuels” stems from.

In its purest form, crude oil is of little use to anyone. In order to produce energy, an array of engineers (including chemical engineers) must refine the crude oil via a process that creates useful products such as liquefied petroleum gas (LSG), petrol, diesel fuel, jet fuel, kerosene all of which are currently vital to the global economy.

Crude oil is classed as a commodity, meaning that the product has the same economic value no matter where it’s produced (much like other commodities like corn and coffee beans, as well as raw materials like gold and silver).

How does the oil market work?

The oil and gas sector involves many interrelated processes, including oil exploration, drilling, refining and distribution.

The industry can roughly be divided into two primary categories: upstream and downstream companies. Upstream operations in the E&P (exploration and production) stage identify oil deposits, drill wells, and extract raw materials from the ground. Downstream companies refine and distribute finished petroleum products to customers. Most major oil companies today have a foot in both camps and are referred to as integrated oil companies.

The oil market moves in cycles. There were four major oil cycles between 1960 and 2012, with two periods each of surplus (when oil prices fall) and tightness (when prices rise).

What causes oil prices to fluctuate?

The price of oil is constantly changing because it depends on global supply and demand. In 2014, for example, a slowdown in the Chinese economic market one of the largest importers and exporters in the world meant there was suddenly less global demand for oil. On top of this, financial woes in Europe meant that consumers had less money to spend on any commodities. These conditions led to the price of oil falling from a peak of above $100 a barrel to below $50 a barrel.

Another factor that can cause oil prices to fluctuate is the influence of OPEC (the Organisation of Petroleum Exporting Countries, consisting of 14 nations), a consortium that controls 40% of global oil supply. By regulating the production of oil in its member states, OPEC can drive the price either up or down.

Finally, disasters — both man-made (such as the prolonged conflict in the Middle East) and natural — can cause oil prices to rise.

In 2005, for example, Hurricane Katrina damaged hundreds of oil and gas platforms in the Gulf of Mexico, affecting 19% of the United States’ oil production. This disaster caused oil prices to increase by $3 a barrel and gas prices to reach $5 a gallon.

Chemical engineers in the oil and gas sector

In this nebulous industry, qualified chemical engineers are a critical resource. They ensure petroleum and oil materials go directly into gas tanks. They manage, control and maintain systems in industrial and chemical plants, And they ensure that the correct chemicals are used to get crude oil into a usable form.

For major employers in the industry such as BP, ExxonMobil or Shell, chemical engineers can work in a variety of roles. Their expertise is needed in the upstream, where catalysts, polymers and new molecules help to boost production. Opportunities are also available in the laboratory setting, as well as downstream operations that focus on what happens to hydrocarbons once they have been extracted from the ground.

Typical chemical engineer jobs in the oil and gas industry include:

  • Lab assistant
  • Lab chemist
  • Field engineer
  • Production shift engineer
  • Civil works engineer
  • Drilling engineer
  • Safety engineer
  • Estimate specialist

A combination of increasingly difficult conditions for extracting oil and continued investment in the sector means that chemical engineering jobs are highly desirable. The industry pays well, with chemical engineer salaries regularly surpassing £70,000. Even graduate chemical engineers starting off in the industry can expect to earn over £30,000.

 

As a chemical engineer in petroleum, there’s plenty of scope for travelling. There are also numerous opportunities all the way through the supply chain, from the upstream to the downstream, and even into customer-facing roles.

 

In a typical refinery position, chemical engineers have a range of responsibilities. Controlling and upkeep of the operational status and plant safety. Adjustment and operation of production plant appliances and their machines.

 

How do falling oil prices affect the jobs of chemical engineers?

Fluctuating prices have a direct effect on the production, investment and financial decisions of petrochemical companies.

Low prices can compel companies to hold investments, postpone or cancel new chemical plants, and cut dividends. And, as we saw earlier, low prices can lead to widespread layoffs.

When oil prices decrease, upstream companies are hit the hardest. This is because the price at which they sell oil is determined by the market

Though this does not signal particularly good news, there’s no need for chemical engineers working in the oil and gas industry to panic.

For one, chemical engineers have a transferable skill set that is highly sought after across various industries, giving people plenty of career options. Secondly, employment in the oil and gas industry has now returned to pre-downturn levels.

Of course, oil prices will continue to fluctuate, with recent tensions between the United States and Iran emphasising the unpredictability of the market.

Likewise, the move towards green energy has the potential to present problems for those working in the oil and gas industry. Whether or not green energy signals the decline of Big Oil or merely represents its future trajectory is yet to be seen.

Thanks to a technical skill set, however, chemical engineers are in a strong position to anticipate and benefit from the widespread changes that are sure to impact the sector in the coming years.

For more insights into the fast-moving life sciences sector, stay tuned to the SRG Science Blog.

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