Texas, Louisiana petchems hires to peak in 2016-2018

The demand for skilled labor in the Texas and Louisiana chemicals industry over the next five years may have recently hit its peak in Q1 2016, at around 82,000 workers, Brent Sexton, director Customer Relations at the Construction Labor Market Analyzer (CLMA), told Petrochemical Update.

The skilled labor demand in the two states’ refinery and natural gas industries is projected to peak in Q3 2016 and Q3 2018, respectively, at around 15,000 and 75,500 workers.

Collectively, Texas and Louisiana have $361 billion in put-in-place industrial project spending between 2015 and 2020.

The current imbalance of skilled labor supply and demand on the U.S. Gulf Coast will likely remain in the near term – even as markets are adjusting – since labor shortages, high attrition rates and falling productivity are seriously affecting in the region, Sexton said.

Overall, the U.S. non-residential construction sector could potentially see a peak shortage of about 1 million workers over the next five years, according to CLMA.

The forecasts are based on the latest project-driven demand data from more than 3 million projects across the U.S., valued at around $4.3 trillion, tracked and analyzed by the CLMA.

Petrochemicals labor demand spans the chemicals, refinery and natural gas (processing) industries. Source: Construction Labor Market Analyzer®, April 2016.

In the next five years, Louisiana and Texas are likely to see shortages for boilermakers, electricians, insulators, instrumentation technicians, ironworkers, millwright, pipefitters and combo welders, among others.

The demand for electricians and heavy crane operators in industrial construction is expected to peak in Q2 this year at about 18,000 and 3,000, respectively, according to CLMA projections.

Heavy equipment operators and reinforcing ironworkers in industrial construction in the two states are likely to see a peak in Q2 2017, while the demand for millwright, boilermakers, instrumentation technicians and pipefitters, and combo welders is projected to peak in 2018.

Falling productivity

A major challenge moving forward will be the high attrition rates in the construction industry, Sexton said.

Even with aggressive recruitment and training, the construction sector is seeing and will continue to see a precipitous reduction in skilled, experienced workers as more baby boomers reach retirement age over the next 10 years.

About 20% of the U.S. construction workforce, or about 900,000 skilled workers, are likely to retire in the next decade, based on analysis of data from the Bureau of Labor Statistics, and the percentage of retirements among supervisory personnel will be even higher, Sexton said.

Age attrition among industrial craft workers is expected to be around 11% in the next two years, 17% in the next five years and 28% in the next 10 years, according to CLMA-participating contractor payroll data.

Productivity rates will also likely continue to deteriorate as a result.

Some 79% of U.S. companies have problems finding qualified labor and 65% have problems finding and retaining professionals, according to a February 2016 survey conducted by the CLMA among owners, contractors and other industry participants across the country.

About 20% of the respondents also said their productivity decreased over the past year by more than 10%, with the U.S. Southeast and Gulf Coast regions suffering the most from poor productivity and labor shortages.

In 2015, 79% of companies reported that their productivity had not improved or actually dropped further by more than 10%, primarily due to the tight skills market. By comparison, in 2014, 56% of surveyed companies were seeing a productivity decrease and 91% reported a decrease or no change in productivity rates.

Interviews the CLMA has conducted among contractors on the Gulf Coast in the past 1-2 years show that companies are “routinely seeing 2.4 – 2.5 productivity [rates in the] Gulf Coast on jobs” and that a 2.1 productivity rate is the new average for the region, Sexton said. The Gulf Coast is now averaging a perceived productivity between 66% and 47%, according to the most recent survey.

By contrast, the Mid-Atlantic is experiencing rates of 1.25 on average (80% productivity) and New England is averaging 1.25-1.5 (around 73% productivity), according to the February 2016 survey conducted by CLMA.

The two regions are seeing an uptick in announced industrial projects and projects under construction, including several proposed ethane crackers, especially in the Marcellus region.

2016 trends

All in all, companies on the Gulf Coast could expect worsening labor shortages and continuing productivity challenges in 2016, which could further prompt project owners to consider modularization & pre-fabrication for their projects to help offset the impact of the tight skills market.

The low crude oil prices and the overall slowdown in upstream oil and gas activity will not significantly change the overall trajectory of supply and demand among skilled crafts in the U.S. energy sector, especially as attrition rates will continue to be a major problem moving forward.

“When we have attrition that is happening at a much higher rate than new employment, it increases project labor risk despite a decrease in [labor] demand, because there’s also a concurrent decrease of [labor] supply that is happening,” Sexton said.

Another trend in the last year has also been the downsizing of the in-house engineering and construction departments in many owner companies, particularly following mergers and acquisitions, Sexton said.

“Even aside from mergers and acquisitions, owners have started to take a step back and evaluate the necessity of in-house engineering & construction costs,” he added.

This further exacerbates the attrition among professional positions as many take severance packages and do not continue in the industry.

More and more project owners are instead relying on contractors or third parties to complete the engineering and construction for their projects.

Although this offers opportunities for EPC companies, it could also harm the industry as a whole as the value of an integrated owner, engineer and contractor relationship becomes much more transactional, according to Sexton.