Labor Market is Hot Topic at Refining Conference

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Researched by Industrial Info Resources (Sugar Land, Texas)--More than 1,000 attendees had plenty to say at the Refining Engineering & Construction 2016 conference on November 14 and 15 in Houston, Texas. Professionals from the Chemical Processing and Refining industries, as well as the downstream markets for liquefied natural gas (LNG), methanol and petrochemicals, shared concerns about the direction and volatility of their labor markets.

Industrial Info's Tony Salemme, among those on the keynote panel who discussed labor and scheduling issues, noted that many in the downstream market were facing difficulties finding and maintaining craft workers, especially those involved in the massive buildout along the U.S. Gulf Coast. He noted that the predictability of capital projects has become a major concern, with some fixed-cost engineering, procurement and construction (EPC) projects losing value amid repeated scheduling delays.

Gulf Coast construction starts from 2013 to mid-2015 were at a historically high level, and many of these projects are still in construction. From July 2015 to June of 2016, roughly 800 projects have started with a total value of more than $20 billion-- a big number, but still a considerable contraction from the previous period.

By 3 to 1, attendees said that labor issues, such as shortages in some crafts and full employment in others, were a major concern and created additional costs for their projects, according to a poll taken at the conference. For examples from two industry leaders, see November 7, 2016, article - Fluor Incurs High Cost for U.S. Petchem Project, Backlog Grows, and September 13, 2016, article - Sasol Faces Big Writedowns, Vows to Cut Costs as Prices Affect Natural Gas Projects in Louisiana, Alberta.

According to data presented at the conference, it is estimated that 7 out of 10 projects are 10% over budget and 10% over schedule due to engineering and labor issues. About one out of four are more than 30% over budget and more than 30% over schedule.

Refiners and chemical owners in Houston already had anticipated problems in skilled crafts, such as operators, high-end riggers and certain welders, but some now are experiencing shortages for even soft crafts, such as scaffold builders and insulators. Some owners said they are losing run and maintain journeymen in substantial numbers, as they leave for larger projects with per diems and higher wages.

Salemme said that this poses an especially big problem across large LNG and downstream petrochemical projects, where maintenance turnarounds are expected to grow more than 5% in 2017 to their highest level in years; in the Petroleum Refining Industry, they are expected to grow as much as 38%, as many such maintenance projects can no longer afford to be put off.

Most attendees agreed that the first half of 2017 will see remarkable labor shortages and a high demand for current man-hours, and owners likely will have to increase compensation to keep run and maintain journeymen on hand. The problems will be exacerbated by a finite number of skilled travelers, while many contractors will slow their work opportunities. Roughly 30% to 40% of high-end skilled journeymen are shared among all contractors, and popular Tier 1 contractors are overbooked.

Dean Wenner, the vice president and general manager for Richard Industrial Group's Houston office, noted that the downstream industry is dominated on the process side by large-scale LNG projects, but is optimistic that more work is on the way, citing findings from the U.S. Energy Information Administration (EIA) that global liquid fuels consumption is on an upswing. Wenner expects that an uptick in industrial production will drive downstream spending growth in the second half of 2017.

Still, Wenner noted that the downstream project supply chain is "not as effective as it could be," as it faces frequent problems with inaccurate deliverables, late and/or incorrect materials, and challenges in bringing needed equipment to project sites.

Industrial Info's Craft Labor Analytics Group conducts direct surveys to gain information about craft labor supply, demand, wage rates and per diems for 12 crafts, providing both historical and forecast data for the coming years. In addition, Industrial Info also quantifies the number of shortages and travelers for each craft. For additional information on this tool, please contact Tony Salemme at tsalemme@industrialinfo.com or at (209) 547-9878.

The conference was hosted by Petrochemical Update, a division of U.K.-based consultancy FCBI Energy (London). Petrochemical Update plans to hold the Downstream Engineering & Construction conference June 15-16 in New Orleans, Louisiana, and the Northeast U.S. & Canada Petrochemical Construction 2017 Conference June 19-20 in Pittsburgh, Pennsylvania.

Copies of the presentations and panels (both PowerPoints and Audio Files) presented at the Refining Engineering & Construction Conference & Expo 2016 are available by request from Petrochemical Update at a cost of $495. IIR subscribers receive a $100 discount. Please email Theo Larn-Jones at theo@petchem-update.com for more information.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.