Lake Charles Braces for Upcoming Labor Storm

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Researched by Industrial Info Resources (Sugar Land, Texas)--The U.S. Gulf Coast is at the heart of what most will categorize as the biggest innovation in energy development so far this century, shale energy. While crude oil findings are important to domestic petroleum refiners and continue to fuel the debate about whether to open up U.S. crude oil exports, the sudden abundance of natural gas and natural gas liquids is the main driver of industrial project activity in the Gulf Coast region--and these projects are large. Currently in the Gulf Coast region, Industrial Info is tracking 67 projects that have a total investment value (TIV) of $1 billion or more, resulting in a combined TIV of $168 billion.

Natural Gas Drives Record Project Activity
From Brownsville, Texas, to Pascagoula, Mississippi, U.S. natural gas is fueling construction of the biggest projects that the area has seen in decades for industries that are benefitting from inexpensive natural gas and natural gas liquids. These include liquefied natural gas (LNG) producers that have their sights firmly set on the European and Asian natural gas markets, where natural gas demand is strong and prices are significantly higher than in the U.S. Along the Gulf Coast region from Brownsville to Pascagoula, 15 LNG liquefaction plants, valued at $104 billion, are in various stages of development.

Petrochemical producers are also benefitting from cheap natural gas feedstock. In the Gulf Coast region, 11 new world-scale ethylene crackers are being proposed, and six of these projects, valued at $11.8 billion, have been approved and are proceeding with construction. In addition, the construction and expansion of methanol and propylene production facilities is also bringing about significant capital projects.

Increased Labor Demand
While construction on a handful of these major projects, including some of the LNG production facilities and ethylene crackers, is already under way in the region, these are the projects that are ahead of the curve. Most of the larger major projects remain in the planning, permitting and/or engineering stages, with construction set to begin in the next few years.

As these projects kick off and construction times overlap, craft labor that is needed for both capital and maintenance projects will be in high demand for the area. Industrial Info's current forecast for the entire Gulf Coast region estimates that labor will rise from 104 million man-hours in 2013 to a peak of approximately 184 million hours in 2016 for 12 different crafts, including welders, pipefitters, millwrights and others.

Depending on planned project activity and timing, different metropolitan areas along the Gulf Coast will experience labor deficits at different times. Areas of expected high labor deficit include Corpus Christi, Greater Houston, and Beaumont in Texas, and according to Industrial Info's forecasts, the largest deficits by far will be in Lake Charles, Louisiana.

Lake Charles Labor Deficits
Several large capital projects are currently planned to be under construction simultaneously in the coming years in the Lake Charles area. This, coupled with planned maintenance activity for the area's several existing plants, is leading to a dramatic spike in labor demand, which is presently forecast to peak in 2017. With the amount of project activity planned for the area, current forecasts indicate that for the 12 crafts covered in Industrial Info's Gulf Coast Region Labor Market Analysis, the Lake Charles area is on track to experience the most extreme labor deficit in the entire region.

Exactly how this will play out remains to be seen. With a potential hourly price increase of 12% to 20% for labor by 2017, some of the large multibillion-dollar projects are at risk of being canceled, delayed or put on hold. While not necessarily due to labor costs, over the past 12 months, Industrial Info has tracked 18 projects valued at $1.37 billion in the Lake Charles area that have been canceled or placed on hold. However, this represents only a fraction of the projects proposed for the area, and project fallout in the Gulf Coast region is significantly lower than for the rest of the country.

Over the past 12 months, in terms of value, the Gulf region has experienced a project fallout rate of only 15.6%, compared to the national rate of 46%. Additionally, significant fallout in the nearby Baton Rouge area, including the cancellation of Shell's proposed gas-to-liquids plant in Geismar, has done little to stem the growth in the forecast labor deficit in the Lake Charles area.

Preparations
While some project fallout is almost certain to happen, the area's labor demand seems certain to exceed supply, which will increase wages and draw an influx of workers from other locations. Thousands of travelers are expected in the area in 2017, a majority of which Industrial Info expects to be drawn from the Baton Rouge and Houston areas, which, according to the most recent project information, will be declining from their peak labor demand times as Lake Charles' demand continues to grow. Contractors, unions, private industry, and state and local governments are making preparations for the large amount of workers coming into the area.

Perhaps the most obvious preparations are the construction of workforce housing camps in Lake Charles and the surrounding area. Greenfield Logistical Solutions of Louisiana (Lake Charles) in November broke ground on its Pelican Lodge project in Lakes Charles. The facility, located on a 200-acre parcel of land, will be able to house as many as 4,000 workers and is planned for completion in mid-2015. The company has also recently proposed another temporary employee housing project in nearby Vinton, which may also accommodate up to 4,000 people. In addition, First Flight Holdings LLC (Baton Rouge) is planning to construct a 2,500-person worker camp in Carlyss, just down the road from Lake Charles.

Both unions and non-union contractors are expanding training facilities, establishing recruitment offices in new areas, and facilitating training classes at night to accommodate workers' schedules.

The state of Louisiana is giving the Southwest Louisiana (Sowela) Technical Community College in Lake Charles a $20 million grant to construct a training center, with specialized equipment focused on industrial technology, whichthat will be completed by the end of 2016.

Wages
Contractors are already taking steps to remain competitive and retain their workforce. From Industrial Info's wage surveys, several contractors indicated that they were raising their workers' wages across the board by $1 per hour in 2014. Industrial Info expects that most skilled crafts will see a 5% to 10% increase in 2014 for higher demand regions such as Lake Charles.

Crafts with the highest potential of increase include welders, pipefitters, I&E technicians, and electricians. While work has not hit its peak, wages are rising, and at this rate they could be 16% to 20% higher by 2016 if shortages are not addressed.

Regional Trends
While the Lake Charles area represents the most extreme case of upcoming labor demand and deficits, labor demand is reaching unprecedented levels across the entire Gulf Coast region, with other substantial labor shortfalls occurring in areas including Corpus Christi, Beaumont and Houston.

Industrial Info's Gulf Coast Region Labor Market Analysis, recently updated for 3Q14, provides detailed, insightful information on craft labor supply, demand and wage rates for 12 skilled crafts in eleven metropolitan areas along the Gulf Coast. Industrial Info conducts direct telephone interviews with key plant personnel to better determine current and future changes in wage rates. The analysis is updated quarterly to reflect the most recent changes in industrial project activity and includes:

• Historic and forecast labor hour needs for each metropolitan area through 2020 for 12 skilled crafts.
• Industrial capital and maintenance spending estimates through 2020.
• Current wage rates and expectations for the future.
• An executive summary detailing the causes and expectations for changes in labor supply and demand, and more.

To learn more about this product, contact Industrial Info's VP of Labor Analytics, Tony Salemme, at tsalemme@industrialinfo.com or by calling (209) 547-9878.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and ten 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.