The Fuse

Petroleum Engineering Enrollment is in Decline: Should Industry Worry?

by Paul Ruiz | @pmruiz | May 23, 2019

Thousands of students will graduate from American colleges and universities this weekend. Amid the usual pomp and circumstance accompanying the festivities, this year’s graduates have reason to be especially enthusiastic. Earlier this month, the Labor Department’s March jobs report said monthly unemployment was just 3.8 percent of the labor force.

For the nation’s newly minted petroleum engineers, the opportunities seem boundless. Yet, strikingly, there are fewer of them entering the workforce than at any time in the last four years.

This year the nation’s 22 petroleum engineering programs enrolled nearly 2,000 seniors—roughly 1,800 fewer than in 2016

According to data provided to SAFE from Texas Tech University, this year the nation’s 22 petroleum engineering programs enrolled nearly 2,000 seniors—roughly 1,800 fewer than in 2016. In total, more than 4,500 U.S. undergraduates were perusing petroleum engineering degrees in 2019, down 60 percent from three years ago.

The decline may seem to be surprising for two reasons. First, the current period of prosperity that has lifted the American economy generally coincides with a tremendous boom in U.S. oil production. Since 2008, the United States added six million barrels of daily crude output, roughly equivalent to the combined present production of Algeria, Angola, Libya, and Nigeria—OPEC’s African oil producers. In addition, more investment is flowing into U.S. shale plays, especially as global oil prices increase above $70 per barrel.

And second, the field of petroleum engineering offers attractive compensation. According to the National Association of Colleges and Employers, petroleum engineers earn starting salaries of approximately $84,000 with standard licensure and a Bachelor of Science degree. This exceeds the second-highest starting salaries of chemical engineers by more than 15 percent. Last year, on average, the Bureau of Labor Statistics (BLS) says petroleum engineers earned $137,000.

Significant oil price declines can make it hard for upstream producers to reliably attract young talent

Despite these draws, enrollment nonetheless fell with oil prices. A sometimes-underreported aspect of oil price volatility, significant oil price declines can make it hard for upstream producers to reliably attract young talent, with approximately a two-year lag in petroleum engineering enrollments (freshmen who start their course of study when prices are high, may not complete it when prices fall). U.S. oil companies are only now feeling the recruiting pinch of OPEC’s price war with American shale producers.

Will this low be any different than the last?

Delayed impact of oil prices on enrollment trends
Petroleum engineering enrollment figures track the volatility of crude oil prices by about two years, the Texas Tech data shows. July 2014 prices peaked at approximately $98 per barrel; one year later, as prices started to decline, nationwide enrollment reached a 12,000-student high and remained at that level through the 2016 academic year. Including the delay, oil prices and enrollment figures track nearly linearly over the past decade, with the number of petroleum engineer majors following closely with changes in prices.

“Students are even more aware of what oil prices are and how they might impact their jobs,” Dr. Lloyd Heinze, a professor of petroleum engineering at Texas Tech University, told The Fuse. “We talk about it with our students when they start their sophomore and junior years. Oil prices have rolled up and down every seven years or so; it’s part of our industry.”

From 2014 to 2016, OPEC and its de facto leader Saudi Arabia refused to cut global production, causing oil prices to crash. More than 238,000 Americans lost their jobs as monthly West Texas Intermediate crude prices fell from $106 per barrel in July 2014, to $30 per barrel 21 months later. Thirty years ago, petroleum engineering enrollment encountered a similarly steep decline when an oil glut caused a rapid price decline.

In the early 2000s, enrollment figures and prices steadily climbed following the U.S. invasion of Iraq and growing Chinese oil demand. Enrollments peaked, and prices collapsed in 2016, sending many graduates into the workforce at an inopportune time. Since then, enrollment figures have declined. The last time there were so few undergraduates pursuing Bachelor of Science degrees in petroleum engineering was 1986 and prices were approximately $31 per barrel ($2015).

“The one thing that’s different about petroleum engineering over other standard engineering programs is that we are dealing with a raw material. Other engineering programs build something from raw materials. The economics of our business is very different,” Dr. Heinze explains. “Any industry that uses raw materials is significantly influenced in price by governments.”

Strictly speaking, oil is no different than other commodities: prices are largely a function of supply and demand. However, unlike other commodities or primary produced products, petroleum is, in fact, very different: it powers more than 40 percent of all energy consumed, and 92 percent of the energy used in transportation. Supply shocks caused by events like civil conflict or natural disasters can create distortions that ripple throughout the economy. And many governments through their state-owned oil companies regulate production to influence prices, keeping oil far from the free-market ideal.

Make oil ‘cool’ again
In the short term, a winnowing pool of graduates could make it tougher for the industry to attract new talent. In total enrollment terms, petroleum engineering is already a small field—so small, in fact, that statistical analyses sometimes lump it in with the broader discipline of mechanical engineering. Still, the medium- and longer-term outlook is positive; BLS notes the total number of petroleum engineering jobs are expected to rise by more than 15 percent nationwide between 2016 and 2026 from approximately 34,000 to 39,000.

Over the past decade, the industry has used petroleum engineering programs for recruiting top-tier, new talent. Prior to the 2015-16 oil price collapse, enrollment in many programs swelled at colleges and universities throughout the shale patch. Today, campuses located in oil-rich states are hotspots for finding the next generation of qualified engineers. At least for now, there are fewer graduates—a trend that, if history is a guide, will reverse itself as higher prices attract more students to the field over the next year.

As petroleum engineers age, the industry will need to replace a retiring cohort of Baby Boomers

As petroleum engineers age, the industry will need to replace a retiring cohort of Baby Boomers. To manage this employment “crew-shift,” oil majors are engaged in a wide-ranging public relations effort to improve the attractiveness of the discipline. Specifically, they want to appeal to Millennials and Generation Z through marketing and advertising that emphasizes environmental stewardship. Major oil companies such as Equinor, Shell, BP, and Chevron are featuring advertisements declaring how their companies reduce carbon emissions through technical expertise and innovation. The central aim of these ads is to recast century-old oil as cool, cutting-edge, and innovative, when in fact there are tech companies that may sometimes seem equally if not more alluring.

Given the competition—why would any matriculating undergraduate choose a career in oil?

The answer is because oil is critically important for the American economy. Accordingly, petroleum engineering knowledge and skills are in high demand and the field pays well. The effectiveness of oil’s marketing and advertising effort is not yet known, but the industry will have a better sense next September when an incoming class of freshmen join Dr. Heinze’s classroom. Whether enrollment figures jump, or decline will signal either an expected uptick in registrations with the oil price recovery, or, potentially, a worrisome shortage of talent.