USGC skilled labor demand to peak in 2017 on downstream spending
The demand for skilled labor in the current wave of US downstream construction projects is expected to peak in 2017 based on the pipeline of committed capital and maintenance projects in the petrochemical, LNG and NGL sectors, according to Michael Bergen, vice president for Research Global Oil & Gas at market intelligence provider Industrial Info Resources (IIR).
Five of the seven new ethane crackers under construction on the US Gulf Coast are expected to be completed by the end of 2017. At least six major polyethylene projects are also expected to come on stream in the region by year-end 2017.
Most of the large, billion-dollar petrochemical projects underway on the US Gulf Coast will be peaking out between 4,000 and 6,000 workers on the job site, according to Bergen.
Cumulatively, the new crackers currently underway will require at least 22,000 to 27,000 workers, according to Petrochemical Update estimates. There are also several ethylene expansions and one smaller new ethane cracker under construction, which would require between 9,000 to 11,000 workers.
Two on-purpose propane dehydrogenation (PDH) units, aimed at replacing supply lost when steam crackers shifted to light feedstocks, will also come online in the same time period, based on company projections.
In the methanol sector, four projects – Natgasoline’s project in Texas, G2X Energy’s Big Lake Fuels facility in Louisiana, South Louisiana Methanol’s plant in Louisiana and Yuhuang Chemical’s facility in Louisiana – are also expected to begin production in the next four years out of a total of 15 announced facilities.
In the East Houston area alone, major ethylene projects from ExxonMobil Chemical, Chevron Phillips Chemical, Dow Chemical, BASF and Freeport LNG’s three-train LNG export project in Freeport, Texas are headlining over $50 billion in project work, Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston's Bauer School of Business, said at a construction conference in Houston on March 2.
Out of those, more than $31 billion in projects are expected to wrap up in 2016 or 2017. From 2018 onward, confirmed construction awards are at $5 billion/year and declining by year, Gilmer said.
“What’s happening is that you have another wave of spending that could be introduced, which is through methanol and even in so far as going into some major turnaround work that’s going to happen in 2016. And so as you bring in more projects into the landscape of what’s currently under construction, then the demand for workers increases again,” Bergen said.
Brian Ames, Dow’s senior vice president for Portfolio Development, recently told Petrochemical Update he expects labor at the company’s 1.5 mtpa ethylene cracker in Freeport, Texas to peak at around 4,500 workers in the second half of 2016, slightly lower than the 5,000 peak at its recently commissioned PDH plant in Oyster Creek, Texas.
Meanwhile, Sasol’s 1.5 mtpa ethane cracker and derivatives complex in Lake Charles, Louisiana is expected to employ about 7,500 workers at peak construction over the next three years and generate 400-500 full-time operations and maintenance positions.
USGC cracker labor costs
Most of the labor demand and spending will occur during the projects’ construction phase.
Total labor costs, including design, engineering, procurement and construction, vary by project but typically make up about 45-50% of total capital expenses at a world-scale ethane cracker, according to Bergen.
A typical 1.5 mtpa ethane cracker on the US Gulf Coast is estimated to cost between $1.77 billion in a low-case scenario, $2.1 billion in a base case scenario and $2.38 billion in a high case scenario during the first wave of petrochemical construction projects (2015-2020), with labor costs varying between about 49% and 51% of the overall capital project spending, according to Petrochemical Update cost data from January 2016.
The highest costs for bulk materials are associated with piping systems, which have the highest materials cost, as well as the highest labor cost. Of the indirect costs, the majority are associated with labor expenses, but heavy lift cranes and other construction equipment still carry a significant materials cost.
Total labor costs for a 1.5 mtpa ethane cracker on the Gulf Cost in a base case scenario are estimated at slightly over $1 billion, representing a total of about 11,714,245 man-hours.
Construction labor costs – including total major equipment, bulk materials and indirect costs – account for about 68% of total labor spending on a project, followed by detailed design and engineering at 20% (see chart below).
The cost estimates have been developed using a bottom-up analysis, of four major components: major equipment, bulk materials, indirect costs and detailed design.
Indirect costs comprise contingency costs, contractor fees, equipment rental, freight, field supervision, overtime, temporary field support and scaffolding, among others. Major equipment costs include compressors, electrical, heat exchangers, instrumentation, pumps, reactors, tanks, towers and vessels, among others.
Bulk material costs include buildings, concrete, demolition/removals, insulation, piling, piping, site preparation, structural steel/platforms, painting and miscellaneous items.