UPDATE 1-People, not fuel or rigs, key oil industry shortage

(Adds quotes paras 3, 6, 10)

KUALA LUMPUR, June 11 (Reuters) - The oil industry’s most pressing shortage is not fuel, or rigs, or even access to fields in increasingly protective nations, executives say.

It’s people.

Asia’s state oil companies with ambitious growth plans in particular are feeling the pinch as they lose staff to peers with deeper pockets, raising safety and expansion risks as the industry’s most experienced workers head into retirement.

“It is human capital that will truly drive the future of the oil and gas industry,” Malaysian Prime Minister Abdullah Ahmad Badawi told the Asia Oil and Gas Conference in the Malaysian capital.

The spike in demand for trained engineers, geologists and other technical personnel has been evident for several years as the trebling in oil prices to $70 a barrel fuelled a surge in drilling at the same time as a shortage of world refining capacity prompted a wave of investment in the downstream sector.

While the industry has responded quickly to the lack of spare oil production and refining capacity, and there appears hope for some easing in the oil equipment sector, executives and officials fear that refilling the people pipeline will not be as easy.

"More than half of the current technical workforce will reach retirement eligibility within the next 10 years," ConocoPhillips COP.N Chairman Jim Mulva told the conference.

“In the future, we’ll be using new strategies to recruit and retain people, and utilise them in more efficient ways.”

A new survey by Citigroup found that the lack of personnel was the biggest constraint on oil exploration and production spending, Argus Media reported last week.

That ranked just ahead of funding uncertainties and the lack of access to reserves, other major obstacles as both state-owned and international oil companies struggle to replace depleting reserves through new exploration.


Malaysian state oil company Petroliam Nasional (Petronas) [PETR.UL] was one of only six oil companies last year to discover more oil than it produced, says it’s chief executive, Hassan Marican.

“There continues to be a tremendous shortage of human capital throughout the entire chain,” Hassan told Reuters on Friday.

“We have been replenishing our pipeline of people continuously, and because of that we have suffered. Suffered in the sense that our talent has been poached.”

Salary inflation has also been part of the reason for the leap in project construction costs that is in some cases doubling or trebling the price of a new project.

As much as 3.8 million barrels per day (bpd) of refining capacity that had been planned in Asia and the Middle East may now not be built due to higher costs, Fereidun Fesharaki, Chairman and CEO of consultancy FACTS Global Energy, said in May.

“If not not properly addressed, (the personnel shortage) is a real risk of a global supply crunch due to capacity constraints and project delays,” Hassan said on Monday.

Hassan, who himself is less than two years away from the Malaysian government’s suggested retirement age of 56, says the lack of expertise may last a decade or more, long after most analysts expect the oil price boom to subside.

Arun Balakrishnan, Chairman and Managing Director of Hindustan Petroleum Corp. Ltd. HPCL.BO, said the state-owned Indian refiner sees a 30 percent attrition rate for new engineers within the first two years, many drawn to huge investments in the nearby Middle East, up from a 5 percent rate earlier.

“There is a strain, but it’s not debilitating in the sense that it doesn’t stop anything, but we’re spending more time on recruitment and training,” said Balakrishnan, who ran HPCL’s human resources division before becoming CEO in April.

“As a public sector company there are certain limitations on our flexibility for paying (employees). The private sector is willing to pay any price,” he said in an interview on Sunday.