100 New Mega-Projects Spell Billion-Dollar Investments and Extreme Workforce Demands

A renaissance is under way in the natural gas sector, and the numbers say it all. At least 100 new mega-sized industrial facilities will be operational by 2020, driving change throughout the U.S. economy and creating thousands of construction jobs for civil and industrial contractors. As natural gas supplies have gone up, so has the demand to build the infrastructure to store, transport, pump, process and refine the newly abundant resource.

“Natural gas production is at an all-time high,” says Jennifer Fordham, vice president of markets for the Natural Gas Supply Association (NGSA). “Natural gas production peaked in 2010 for the first time since 1975, and it’s still growing. This new growth impacts other industries—including the industrial, power generation, petrochemical, fertilizing and steel markets.”

According to the NGSA’s estimates, project owners are investing $90 billion to $100 billion in natural gas facilities between 2012 and 2019. About 60 percent of the projects in the pipeline are brand new, 30 percent are expansions and 10 percent are restarts of existing facilities.

Breakthroughs in fracking technology have unlocked the industry’s ability to economically develop natural gas that is found in abundance in shale formations across the United States, leading to a remarkable 40 percent increase in annual production in just the last decade alone, NGSA says. Utility companies are retiring coal facilities and moving toward natural gas facilities, which is a cleaner burning fossil fuel and has smaller siting and acreage requirements than other energy sources.

“Before, activity was concentrated only in the Gulf of Mexico. With shale production, natural gas is entering the market from several geographical locations,” Fordham says. “There are still pipeline constraints, but the fact that natural gas is now so geographically diverse in terms of where it enters the interstate grid really changes the availability in the market. In Pennsylvania, Ohio, Louisiana and Texas, we are seeing hundreds of wells along with new pipelines going in, and this is also where we see new gas-fired power plants and new industrial facilities. We are also seeing major infrastructure for the fertilizer industry in the Midwest: Illinois, Iowa, Michigan and Indiana. The trend for the foreseeable five years is nothing but growth.”

While the rest of the economy faltered during the recession, natural gas exploration was booming, setting the industry up for a massive supply, and now the demand to use it.

With this more affordable feedstock available to various industries downstream, energy projects that would have been built overseas during the recession are now feasible in the United States, driving strong job growth during construction, as well as local economic benefits once these mega-projects begin to reach completion within the next few years.

“The United States is sitting on one of the largest natural gas reserves in the world, and we can now tap into it. With a massive supply of natural gas, the price has plummeted,” says Brandon Mabile, business development director for Performance Contractors’ Houston office. The company performs construction, turnaround and maintenance services for the chemical, petrochemical, pulp and paper, fertilizer, refinery, power, automotive and steel industries, and it operates three pipe fabrication facilities in the Gulf Coast. “The petrochemical sector was slowing during the recession, but now it’s really seeing a renaissance because of low natural gas prices.”

The lower cost comes down to science. Before the abundance of cheap natural gas, industrial systems had to crack the chemical naptha (an oil byproduct that is more expensive to process) to produce ethylene and propylene, Mabile explains. Ethylene is used as the basis for plastics such as beverage containers, food wrap, polyvinyl chloride (PVC), polyester and chemicals found in antifreeze, solvents, urethanes and pharmaceuticals.

Heavier feedstocks, such as naphtha and crude gas oils, require cracking furnaces to have at least two quench towers  downstream to process water and recirculate the derived gasoline. On the other hand, only one water quench tower is required to run ethane crackers, which take ethane, a component of natural gas found in abundance in the Marcellus shale, and process or “crack” it into ethylene by heating and breaking apart its molecular bonds. Natural gas also has a higher energy output.

Mega-Projects on the Horizon
Performance Contractors’ primary concentration in the natural gas sector is building infrastructure and facilities for polyethylene and ethylene crackers, as well as facilities to produce ammonia and nitrogen fertilizers, polypropylene and other chemical derivatives.

One of its mega-projects is the $1.7 billion expansion of CF Industries’ Port Neal nitrogen fertilizer complex near Sergeant Bluff, Iowa. Performance Contractors is one of the general contractors for a plant that will turn liquid urea solution into dry granules, allowing the facility to produce 3,850 tons per day of granular urea fertilizer, a product not currently produced at the site. As part of the expansion, CF Industries is also building a warehouse that will store 154,000 tons of granular urea.

Standard Ready Mix supplied the concrete for the mass pours that took place this summer—involving more than 7,000 cubic yards of concrete, more than 500 piles reaching 60 feet deep, and nearly a ton of rebar.

Another chemical company leveraging shale gas-based feedstock is Dow Chemical, which began construction in June of a world-scale ethylene production facility at the Dow Texas Operations site in Freeport, Texas. The project is part of Dow Chemical’s overall investment of $4 billion in U.S. Gulf Coast projects. When it is completed in early 2017, the facility will have the capacity to produce 1,500 kilotons per year, connecting raw materials to Dow’s downstream plastics businesses.

Together with all of Dow’s other planned investments nationwide, the Freeport project will demand up to 5,000 workers at peak construction and is purported to create 3,500 jobs in the broader U.S. economy.

“For the first time in over a decade, U.S. natural gas prices are affordable and relatively stable, attracting new industry investments and growth, and putting us on the threshold of an American manufacturing resurgence,” says Andrew Liveris, Dow chairman and chief executive officer. The company calls the Freeport expansion a game-changing move that will increase access nationwide to low-cost, natural gas-based feedstocks. 

Construction is booming in the earlier stages of the natural gas project life cycle, as well. Ref-Chem, a large Houston-based heavy industrial construction, engineering and maintenance company, is involved in the midstream of the cycle: building compressors and pumping stations to safely move the gas where it needs to go before it’s used for power generation, refined into other chemicals or converted to liquefied natural gas (LNG) for export.

“With U.S. exploration finding more and more natural gas sources and with the fracking of the shale formations, there is a significant need for natural gas producers to build infrastructure from where they are drilling to where they’re processing the product,” says Rodney Page, chief financial officer for Ref-Chem. “In North Dakota and Pennsylvania, where there are a lot of reserves, old facilities are at capacity and need new infrastructure to be built from scratch. This is a need in South Texas, as well. The need creates a lot of work for us.”

Ref-Chem’s business volume has increased from $100 million during the 2008-2009 downturn to $225 million now that several pipeline-related projects are under way. 

For example, Ref-Chem recently finished a nearly $50 million job that involved the construction of a metering and pumping station along a natural gas pipeline that extends from Colorado to the Texas panhandle.

“This natural gas growth pushes into enormous projects for the chemical and refining industry, and eventually into projects to build LNG terminals for export, affecting the global economy. It’s all coming together to create an explosion of demand,” Page says. “It’s quite a boom going on, and capacity needs to get higher to handle that boom.”

Preston Contractors, Kingwood, W.V., an oil and natural gas, coal, quarry and landfill contracting company, works further upstream in the project life cycle. Ethan Rouzee, Preston Contractors’ director of business development, says the company is seeing a major demand for well pads, compressor stations and site development for natural gas extraction and transport in north central West Virginia, eastern Ohio and western Pennsylvania.

“Project owners need more transmission, more pipelines, more compressor stations and more cracker plants,” Rouzee says. “From the gas industry, there is such demand that contractors can’t keep up with the amount of work that they want to get done.”

As a result, working in the natural gas sector means extremely stringent timelines and a need-it-now environment. “For example, the company will send out a request for bids on a Monday, then they want the bid back on Wednesday, and they want to start the job the next Monday,” Rouzee says. 

To stay ahead, Preston Contractors invests in its own fleet of equipment so it does not have to search for suppliers on short notice. “When clients call to say they want it done right now, they mean right now,” he says. “One of the strengths of the company is having the best people—those that can lend their expertise in the oil and gas industry, and be available 24 hours a day, seven days a week.”

With many companies jumping on board to perform work in this booming sector, having an impeccable safety record is the key to winning new work and keeping employees on board. “You might be the lowest bidder, but if your safety record isn’t up to par, you’re not going to be awarded the project,” Rouzee says. “Every time we bring in new hires, they go through safety training so that everyone ‘gets it,’ from operators and laborers to upper management.”

Severe Workforce Shortages Ahead

With the natural gas renaissance comes a powerful demand for skilled labor. At the Port Neal nitrogen fertilizer project in Iowa, the workforce is currently at approximately 900 employees, with that number doubling at peak construction before the project is completed in 2016.

“The big challenge for everyone is going to be workforce development and finding skilled employees to perform these projects in the next few months to the next few years,” Mabile says. To overcome the challenge, Performance Contractors is reaching out to even younger future candidates than they were before the boom. Recent legislation passed in Texas allows high school students to receive vocational training while they’re earning credits toward their diploma, which Mabile says should help attract future workers sooner rather than later. In addition, the company is recruiting within the military, reaching out to discharged veterans and working with the U.S. Department of Defense to open a life skills reorientation and construction job training center at Fort Polk, Texas.

“While we have not had any trouble recruiting so far, we fully expect that the workforce is going to dwindle right as project demand increases. We’re working with Associated Builders and Contractors (ABC) and as many training organizations as possible to get as many people into the workforce as we can,” Mabile says.

Likewise, Ref-Chem is devoting significant effort toward training helper-level workers to become certified craft professionals through programs offered by NCCER, ABC and the Construction Manufacturing Education Foundation. “It’s going to be very tough for the industry to find workers for all the upcoming jobs. It will hurt the whole industry if we cannot meet this need,” Page says. 


Lauren Pinch is a contributing writer to Construction Executive. For more information, email pinch@abc.org, visit www.constructionexec.com or follow @ConstructionMag.


How Much Cheaper Is Natural Gas?
A recent report by the CME Group, “Energy Price Spread: Natural Gas vs. Crude Oil in the U.S.,” outlines the dynamic relationship between natural gas and crude oil. Natural gas gives a lot more energy bang per buck than crude oil, according to the report. In BTU terms, $1 of natural gas can generate 200,000 units of energy (at a spot rate of $5/million BTU) compared to $1 of light sweet crude oil, which garners 60,000 units of energy (at a spot rate of $97/barrel).

“This is a whopping 330 percent energy content price gap,” the CME Group says.

In tandem with large discoveries of shale-related natural gas, new technologies (fracking and horizontal drilling) have allowed shale-related natural gas production to increase 417 percent between 2007 and 2012. This surge made up a large portion of the overall increase in natural gas production, which expanded more than 20 percent in that same period.

With a much larger supply, natural gas prices fell by more than 50 percent from 2006 to 2013. Natural gas prices averaged about $7/million BTU during the 2003-2008 period, with the average price dropping to less than $4/million BTU during 2010-2013, according to CME Group.

- Lauren Pinch

 
Workforce Recruitment: Closing the Back Door
Workforce competition is fierce in the natural gas industry, and it’s essential for employers to keep up with wage trends and recruitment efforts in order to attract and retain the highest skilled workers.

“Looking at project escalation in the Gulf Coast from Corpus Cristi, Texas, to Baton Rouge, La., there’s never been anything like it,” says Dennis Noland, human resources consultant for Alpha Resources, a Birmingham, Ala., firm that researches and reports on industrial craft compensation and monitors developing projects.

“Workforce demand related to shale work in North Dakota, Texas and Pennsylvania is causing high needs not only in LNG pipeline work, but also in ethylene and refining expansions. It’s a stunning array of work,” Noland says. “But, there’s not enough depth in the labor pool.”

In particular, Alpha Resources reports a dramatic need for welders, with average wages for these skilled craft professonals escalating monthly. Currently, welders are earning an average of $32-$34 per hour. Despite this high pay scale, recruiters report they’re still not getting the numbers of welders they need.

While the skilled worker demand is concentrated in the Gulf Coast, these wage trends will affect employers elsewhere, such as the Rockies and the Rust Belt. “Everything that happens on the Gulf Coast ripples across the country in the open shop sectors,” Noland says. 

Project owners and contractors that don’t invest enough resources into recruitment efforts will find themselves in an even more difficult position in the years ahead. “You have to devote adequate resources to go after these folks. It takes a team of recruiters—one recruiter on a telephone won’t get it done in this escalating market. You have to do everything you can to retain these workers; you have to close the back door,” he says.

“You might be able to staff your project once, but if you have to staff it repeatedly, that’s a huge cost. From both a contractor employer’s standpoint and an owner’s site facilities standpoint, you have to treat your employees well and train your supervisors.

“Recruiters are savvy to sending out tweets, texts and emails about new jobs, and everyone’s got a cell phone. These guys are getting hit up all day with new work, so you need give employees a reason to stay rather than start looking for other options,” Noland says.

- Lauren Pinch