Pennsylvania to See More Workforce Supply Shortfalls Amid Marcellus Development

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Researched by Industrial Info Resources (Sugar Land, Texas)--Boilermakers, ironworkers, operators and millwrights will be in short supply in Pennsylvania during the next five years as a result of the region's Oil & Gas Industry shale boom, according to a new labor analysis by Industrial Info.

Industrial Info has completed a Labor Analysis and Forecast of the Marcellus Shale play for 2015 through 2020. The analysis includes supply of and demand for specific crafts for each year.

For many years, the U.S. industry has neglected to develop its skilled craft labor force; today, regions around the country are feeling the pinch, as there are not enough local workers to carry out construction projects in residential, commercial and industrial development. That picture could be changing soon in some areas of the country, where the pull-back on crude-related infrastructure and processing projects will lower the labor demand expectations.

However, Industrial Info anticipates no sign of relief for the state of Pennsylvania.

As crude oil prices tumble, oil and gas companies are announcing budget cuts for oil production and exploration projects, which will free up labor in regions around the oil sands extraction fields of Alberta, Canada, and the liquids-rich shale play in North Dakota's Bakken and Texas' Eagle Ford and Permian basins.

But in Pennsylvania, the relief may not come soon, if at all. The Marcellus Shale formation, which spans Pennsylvania, West Virginia, eastern Ohio and counties in lower New York, is a mass producer of natural gas. According to the U.S. Energy Information Administration (EIA), the region surpassed 16 million cubic feet per day of natural gas production in December 2014, up 17% from a year before. Industrial development in the region is being driven by pipeline construction and gas-processing capacity to reach its end consumers.

For many years, natural gas flowed up through the Gulf Coast region into the Northeast market; yet today, several plans are on the table to reverse pipeline capacity and bring gas back down to consumers in the Gulf Coast region. New petrochemical complexes, specifically ethane-based ethylene complexes and downstream units being built by Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), Dow Chemical (NYSE:DOW) (Midland, Michigan), Chevron Phillips (The Woodlands, Texas), Sasol (NYSE:SSL) (Johannesburg, South Africa), Formosa Plastics Corporation USA (Livingston, New Jersey), Occidental Petroleum Corporation (NYSE:OXY) (Houston, Texas) and LyondellBasell (NYSE:LYB) (Houston, Texas).

Other big consumers include new methanol capacity and agricultural chemical plant expansions being planned and built throughout the Gulf Coast and Midwest regions.

Crude prices are having a positive impact on the Chemical Industry, and it's obvious with the amount of activity around the county. Recently, Huntsman Corporation (NYSE:HUN) (The Woodlands, Texas), a $13 billion global chemical manufacturing company, released this statement:

"President and Chief Executive Officer, Peter R. Huntsman issued a statement today in response to inquiries regarding the business impact of lower priced oil.
"We expect our margins to improve as the cost of our raw materials decrease. We also expect a meaningful working capital release, which will help strengthen our balance sheet. Lower priced oil should provide more discretionary spending for consumers; approximately one-third of our business is consumer-oriented.
"We have a number of growth projects under way; I expect our business to improve throughout 2015."

Other customers for natural gas continue to grow in number around the country. Throughout the Northeast, Great Lakes and Southern regions of the U.S., more than 360 power generation units with a combined generation capacity of 43,200 megawatts (MW) will be retired in the next three years. Most of this capacity will be replaced by new natural gas power-generation capacity, drawing on more demand for gas feedstock supply.

The build-out of these plants also will put labor pressure on parts of the Great Lakes and Northeast regions, including Pennsylvania. In 2014, new natural gas power-generation capacity should run at 7,100 MW for the U.S., down from 8,028 MW in 2013. In 2015, Industrial Info has accounted for 7,328 MW of new capacity utilizing natural gas fuel that's already been approved and is under construction, with another 662 MW planned.

Prospects for exports of liquefied natural gas (LNG) are looking bleak as global natural gas prices drop and tolling agreements are becoming harder to secure. Out of the 20 export terminals proposed along the Gulf Coast region, only five facilities look promising: Cheniere Energy's (NYSE:LNG) (Houston) Sabine Pass and Corpus Christi projects, and Sempra Energy's (NYSE:SRE) (San Diego, California) Cameron LNG, Freeport LNG and Lake Charles LNG projects. On the east coast, Dominion Resources Incorporated's (NYSE:D) (Richmond, Virginia) Cove Point project is moving ahead. Labor constraints will be felt in the Northeast region when this project is in full swing.

In Industrial Info's analysis for the state of Pennsylvania, industrial labor demand for craft labor is expected to reach 31.1 million hours in 2015, up from 23.3 million hours in 2014. Over the next six years, demand will average 29.5 million hours annually, up from 23.6 million from 2007 to 2014. Such an impact will be beneficial to labor unions in the region.

The labor market drivers in the Marcellus region include increased construction spending in direct relationship to gas, terminals, pipelines, production and processing, and refining markets. These markets have seen a five-fold increase in construction investments from 2009 through 2014. Construction expenditures in indirect markets, like steel mills, pipe mills, chemical plants, pulp/paper mills and natural gas-fired power plants, increased threefold since 2006 pre-recession levels.

The Oil & Gas Industry has been on an accelerated growth path since the beginning of the Marcellus/Utica Shale developments in 2006. Construction and maintenance spending reached $5 billion in 2013, growing 61% from the previous year. The industry created more than 4,600 construction jobs in eight trades, and the upward trend continues. In 2014, $6.5 billion has been committed.

In the last six years, about 35.8 million labor hours came from major plant capital and maintenance work in the oil and gas segment and indirectly related industries, with an annual growth rate of 30.7%. Labor hours reached an all-time high in 2013, with more than 9 million hours recorded. This represents a 40% increase over 2012.

Developing the Marcellus Shale has resulted in a sharp increase in infrastructure construction and processing capacity. Since 2008, more than $3.8 billion has been invested in gas-processing facilities. Natural gas liquids (NGL) are the most profitable product coming out of the region, and investments in processing facilities for NGLs have exceeded $1.8 billion during the past five years. Another $1.96 billion has been invested in natural gas processing capacity.

Developers include M3 Midstream LLC (Houston, Texas), MarkWest Energy Partners (NYSE:MWE) (Denver, Colorado), Dominion Resources, Williams Companies (NYSE:WMB) (Tulsa, Oklahoma) and Caiman Energy (Dallas, Texas).

According to Industrial Info's data, 2015 will see the execution or completion of about double the pipeline projects of 2014 by investment value. Last year finished with more than $24.6 billion in crude, gas and liquids pipeline projects coming online or beginning construction in the U.S. In the Marcellus and Utica Shale plays, more than $19 billion in natural gas and natural gas liquids (NGL) pipeline projects are in various stages of development. This figure is more than the traditionally prolific Southwest region, which is expected to execute or complete roughly $2.5 billion in natural gas and NGL pipeline-related projects in 2015.

The natural gas and NGL development in the Marcellus/Utica region follows the general pattern of the energy industry as product goes from wellhead to market. The pattern is for surges in midstream/pipeline development to occur during lulls in new production capacity. Regional NGL fractionation capacity is predicted to plateau after the first quarter of 2015, signaling the end of a surge in production growth. On the heels of this surge, the number of pipeline projects will surge to accommodate the new capacity coming online.

See chart below for a list of major pipeline projects that will impact the Northeast region, specifically Pennsylvania.

The region also has seen several storage terminal projects of decent size. Sunoco Incorporated (NYSE:SYN) (Philadelphia, Pennsylvania) is building a $550 million NGL storage terminal at its Marcus Hook refinery. Columbia Gas Transmission, which is owned by NiSource (NYSE:NI) (Merrillville, Indiana), continues to invest in natural gas storage caverns, and Dominion Transmission (owned by Dominion Resources) in the Pennsylvania storage terminals at Sabinsville and Greenlick.

Industries that use natural gas as a feedstock or primary fuel benefit from the abundance of supply and long-term price outlook. As the Marcellus Shale area develops, investments that are tied to natural gas production are realized across several industries.

The steel industry is the largest benefactor, as reflected in investments in plant expansions and new facilities. Projects include Allegheny Technologies Incorporated's (NYSE:ATI) (Pittsburgh, Pennsylvania) $1.2 billion, 84-inch hot strip mill addition at its site in Brackenridge, Pennsylvania, which was completed in third-quarter 2014.

The second-largest beneficiary of the Marcellus Shale boom is the power generation sector. More than 3,000 MW of new capacity has been added, and 900 MW repowered, during the last four years, accounting for $3.4 billion in spending. One of the largest projects is Moxie Energy's 700-MW Patriot station in Williamsport. The Patriot station project, valued at $900 million, has a planned kickoff in first-quarter 2015, with completion in second-quarter 2019.

Pennsylvania, as a whole, will experience construction expenditures that are 34% higher in 2015 than in 2014. For the state as a whole, there will shortages in six of the 12 crafts being tracked by Industrial Info.

Industrial Info quantifies by craft the need for travelers and the wage progressions. Williamsport is the focal point for increased demand with expenditures increasing 23% from 2014 to 2015, and some 70% higher expenditures from 2016 than 2014. Industrial Info sees shortages in 11 of 12 crafts in Williamsport.

Click on the image at right to see the labor scenario for the Williamsport area.

Philadelphia is seeing a construction spend and man-hours that are 62% higher than 2012 levels. Six of the crafts will have shortages and one will have full employment. Industrial Info forecasts wages and per diems and retention and percent utilization of local labor against future demand.

Click on the image at right to see the labor scenario for the Greater Philadelphia area.

The Marcellus areas include parts of Ohio and all of Pennsylvania. Philadelphia, Pennsylvania, is the area with the greatest number of man-hours, followed by Toledo, Ohio; Columbus, Ohio; and Pittsburgh, Pennsylvania. While Philadelphia, Harrisburg, Erie and Scranton--all in Pennsylvania--might have supplied the travelers, they all have rising demand to keep those local journeymen at home.

The Philadelphia area still only represents one-fifth of the labor-hours that the Houston and Lake Charles areas will require. Philadelphia's total labor-hours going forward will match those of Augusta, Georgia, and Columbia, South Carolina, where large nuclear additions have been taking place.

Industrial Info sees shortages in boilermakers, ironworkers, operators and millwrights, and full employment in pipefitters, in Pennsylvania going forward from 2015 through 2020.

Industrial Info has built Labor Analysis and Forecast solutions for the Marcellus, Great Lakes, Southeast and Gulf Coast areas. Industrial Info also forecasts wage rates, per diems, and quantifies the number of travelers and the Percent of Utilization of Local Labor by craft by Metro. Please contact Tony Salemme, Vice President of Craft Labor at tsalemme@industrialinfo.com.

Company	Pipeline Project (New/Conversions)	Miles of P/L	Cost ($ Millions)	States Impacted
Columbia Gas Transmission Corporation	Leach Xpress Pipeline	160	$1,400	OH, WV
Creastwood Midstream	Tygart Valley Pipeline	42	$70	WV
Dominion	Atlantic Coast Natural Gas Pipeline	550	$4,500	WV, VA, NC
Energy Transfer (ET Rover)	Rover Pipeline	800	$4,300	WV, PA, OH
Kinder Morgan Energy Partners LP	MarkWest Utica Pipeline Conversion	1,005	$170	PA, OH
Mountain Valley Pipeline LLC	Mountain Valley Pipeline LLC	330	$545	WV
National Fuel Gas Supply Corporation	National Fuel Line N Westside Expansion	25	$48	PA
Regency Energy Partners	Regency Utica Trunkline Pipeline	45	$65	OH
Spectra	Team 2014	34	$323	PA, WV, OH, KY, TN, AL, MS
Texas Eastern	Carolina Project	427	$4,000	PA, VA, MD, NC, WV
Spectra	Access South	618	$490	PA, WV, OH, KY, TN, AL, MS
Spectra	Adair Southwest	330	$430	PA, WV, OH
Spectra	Appalachia to Market (A2M)	450	$455	PA, NJ, MD, OH
Sunoco	Mariner East Pipeline	350	$1,445	PA
Tennessee Gas Pipeline	Northeast Energy Direct	140	$130	PA, NY
Williams	Leidy Southeast	30	$212	PA, NJ, VA, MD
Williams	Constitution Pipeline	120	$255	PA, NY
Williams	Atlantic Access Pipeline	238	$350	PA
Williams	Atlantic Sunrise Pipeline	110	$488	PA, VA, NC
Columbia Gas Transmission Corporation	Eastside Pipeline	10	$30	PA
Tallgrass Energy	Rockies Express Pipeline Reversal	1,679	$177	OH, IL, MO, IN, MO, NE, CO
Total		7,492	$19,883

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three 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.