Gulf Coast craft labor hours forecast to peak in 2018
Craft labor hours for industrial construction on the Gulf Coast will peak during 2018 and not next year as previously thought, according to Industrial Info Resources’ Tony Salemme.
Some 163.6 million craft labor hours will be needed at peak, revised up from previous expectations of 160 million hours, Salemme said at Petrochemical Update’s Refining, Engineering & Construction Conference 2016.
Craft labor hours jumped 29.5% to 153.4 million between 2013 and 2015. IIR initially predicted that the peak would come in 2016, and it then revised this to 2017 before revising again to 2018. It foresees a fall to 128 million hours in 2019 and 115.6 million hours in 2020 as major downstream projects come into completion.
Construction starts on billion-dollar projects spiked around June 2014, October 2014, January 2015, and June 2015, followed by “total collapse in project starts, a very deep trough,” said Salemme, VP Craft Labor Forecast at IIR. During that trough, the Gulf Coast saw starts on 810 smaller projects with a total investment of about $20 billion (at an average investment of almost $25 million).
Spending on billion-dollar projects has remained fairly constant since early 2015, and is expected to hold at similar levels through to 2018. This is due partly to overlap of several ethylene mega-projects, namely: Dow Chemical, Chevron Phillips Chemical, ExxonMobil Chemical, and Formosa Plastics plants, all being built in Texas, all in the 1.5 million-ton-per-annum capacity range, and all on track for start-up in 2017; and Sasol’s 1.5 mtpa and Axiall-Lotte’s 1 mtpa plants in Louisiana, scheduled for start-up in 2018 and 2019 respectively.
Optimism in the air
Dean Wenner, Executive Vice President at contractor Richard Industrial, sat alongside Salemme in the opening session to the conference, and he expressed an equally optimistic outlook for downstream construction.
Some $135 billion worth of downstream projects are in the pipeline in North America, of which liquefied natural gas (LNG) export projects account for 47%, ethylene plants for 34%, methanol 9%, plastics 6%, and other petrochemical derivatives for 4%, according to Wenner. These figures were calculated by taking those projects that are likely to go ahead from about $100 billion worth of backlogs and $70 billion in planning.
“Our industry is being dominated today on the process side with the ethylene complexes and LNG. Not that the other industries are small… but our industry is being dominated by these very large projects,” Wenner commented.
“The portfolio of projects: if it’s healthy, (if) it’s robust, if the business case makes sense, and we have the ability to impact our performance improvement, things can start to come together with a strong outlook.”
Salemme expressed optimism that the results of the November U.S. elections would see an end to political obstruction of midstream – and by extension, downstream – projects.
“You have a natural resource in West Texas. You have a natural resource in North Dakota, (in) western Canada. You’ve got a natural resource in the Marcellus. What is the one thing that’ll make all of this work? Moving that asset from where it is, in the ground, to some place it can be processed or refined. And you need a pipeline to do that. So, we’ve got 8,000 miles of pipelines in this country. We’ve got 250 miles that’s under debate, on that large Keystone pipeline,” he said.
“If you can move it from where it is, to where it’s value added, you have a new economy. And quite honestly, we’re seeing reversals in pipelines, and so... no political obstruction, as long as market conditions, commodity prices hold up, I see it going nowhere but up for the next several generations.”
Taking ownership of the situation
What can owners do to prepare for favorable conditions? James Kleiss, Director – USGC Supply Chain Optimization at Valero, recommended in a separate panel session that owners always keep a backlog of project or improvements that they want to make.
“Have them ranked, so that when conditions move your way you have them project ready,” he said. “I tell my guys: I want you to have a list of ideas, and I don’t care if they’re wild or whatever. If they’re good ideas, that’s great; if they’re bad ideas, that’s great. That’s why we have a process, and good or bad, we’ll work it through the process and figure out if it’s something we’re interested in or not.”
The audience was polled on several questions at the end of Salemme and Wenner’s presentations, and it was found that three-quarters believe there have been adequate numbers of craft-labor personnel for recent projects. However, about half of the audience attested to experiencing problems with retaining journeymen, due to the attraction of per diems or higher wages on rival projects.
Some 40% of the audience said labor has been a primary reason for schedule delays and cost overruns, while a further 16% said it has possibly been a reason, 11% were unsure, and 33% said it has not been a reason.