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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Labor Shortage Threatens Energy Transition Targets

  • The transition is impossible without massive amounts of copper, steel, and lithium.
  • Labor shortages in the extraction industry are the next major obstacle to a speedy energy transition.
  • McKinsey: talent shortage had become a top priority for the mining industry because of its unprecedented scale.
Mining

Governments in Europe, the United States, Canada, and Australia have set themselves ambitious targets for a transition to a low-carbon energy system. These targets are overwhelmingly dependent on the mining industry.

The transition is impossible without massive amounts of copper, steel, lithium, and a host of other elements found in the Earth’s crust. But there is a problem: taking these elements out takes people. And there are not enough people to do that.

The labor shortage problem first became obvious during the pandemic, when lockdowns essentially froze much of the movement of people across borders. Reuters mentioned the problem in a 2022 article about the headwinds facing global mining majors, which also included elevated production costs.

With the pandemic now over and no more lockdowns, people should once again be moving freely where their job takes them. Yet this does not seem to be the case for engineers, miners, and truck drivers. There are simply not enough people with the respective qualifications, it seems.

Barron’s reported in February that the unemployment rate for the mining industry in the United States was an impressive 0.3% at the start of the year. The shortage was quite serious in oil and gas, too, and became one reason why production was seen growing more slowly than otherwise possible. The same went for mining output.

“We could have in 2022 produced more if we were fully staffed,” Kathleen Quirk, president of copper major Freeport-McMoRan, said on the company’s 2022 earnings call. “And I believe that is the case again this year.”

This is a problem for the transition plans of governments. It is perhaps the most serious problem because, with less raw material supply for wind and solar installations, electric cars, and transmission lines, the ambitious targets these governments set themselves might never materialize. Because the problem is global.

McKinsey earlier this year produced a report that warned that a talent shortage had become a top priority for the mining industry because of its unprecedented scale. The reason: “Mining is not currently an aspirational industry for young technical talent to join.” In other words, college students are not interested in mining-related degrees. They are choosing other fields. Related: Head Of UAE Oil Giant Says Fossil Fuel Phasedown Inevitable

In Australia, McKinsey said, there has been a 63% decline in mining engineering enrolment since 2014. In the United States, the decline has been more modest, at 39% since 2016, but still considerable. Young people just don’t want to work in mining.

Reputation is certainly one part of the equation, and it is why mining companies are now outing a lot of effort into painting a new, environmentally friendly image for themselves. There is a lot of talk about new mining practices, more sparing for the environment and more responsible from an emissions perspective.

Transition-eager governments could probably help by recognizing the crucial role mining has to play in the transition instead of pandering to any activist group that protests a new copper mine somewhere where a wildflower grows. There is no way of eating the cake and having it, too. The transition needs mining, period.

But it’s not only a reputational problem. With enrolment down and many in the industry reaching retirement age and exiting, there appears to be a net outflow of workers from the mining industry. And these are not all people you could easily replace, even if the work does not require a university degree.

The Wall Street Journal reported this week that the number of people employed in the U.S. mining industry had declined by 39% since 1990, driven by the switch from coal to gas for electricity generation. And that talent is not coming back.

“The problem is that talent isn’t lying around waiting to be paid more—there just isn’t enough of it,” Andrea Brickey, associate professor of mining engineering and management at the South Dakota School of Mines & Technology, told the WSJ.

Even so, companies have few options, and they are using them all: signing bonuses, higher salaries, and additional perks are all being thrown at prospective workers to fill those vacancies. Yet there are not enough people. And it will take years to train some.

What this means is that the price tag of the transition will go higher. Because higher salaries for mining engineers and chemists, project managers and truck drivers lead to higher prices for the end product. It also means the transition will take longer. Because you can’t build all the infrastructure that it requires without raw materials.

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Finally, it means the transition will not be smooth sailing the whole way. The combination between a supply deficit and a labor shortage is a bad one. It’s especially bad when planners operate in an environment fraught with presumably existential deadlines.

At some point, these planners might need to start acknowledging the reality of the various constraints that call the feasibility of a massive energy system overhaul into question.

By Irina Slav for Oilprice.com

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