John Floren’s plans to dismantle two petrochemical plants in Chile and rebuild them in Louisiana didn’t include paying welders and pipe fitters more than $100 a hour, almost 20% more than expected.
That’s one reason the project has run at least $300 million over budget, said Floren, chief executive officer of Vancouver-based Methanex Corp. (MEOH)
A growing surplus of cheap natural gas from shale drilling is driving a boom in the U.S. chemical industry, which uses gas as a raw material for plastics, fertilizer and paints.
Plans by chemical companies to build or expand 215 plants worth $133 billion in the US, however, are overwhelming the construction work force in the primarily rural areas where they would be located, boosting costs and causing delays.
“We’re all competing for the same limited workforce,” Floren said. “The only way to address that is train people, which takes time, or bring in foreign workers, which is not allowed.”
Other chemical companies are facing the same issues, Nassef Sawiris, the CEO of OCI (OCI) NV, said in a joint interview at Bloomberg’s New York headquarters with Floren and Charlie Yao, chief of the Chinese methanol producer Yuhuang Chemical Inc.
“It’s a shocker,” Sawiris said.
OCI, based in Geleen, Netherlands, is already over budget because of labor costs at a nitrogen fertilizer plant under construction in Iowa, according to Sawiris, and he’s having difficulty finding trained construction workers at a methanol facility in Texas that’s expected to open in 2016.
Some companies are probably reconsidering building plans as a result of the labor crunch, he said.
“There were like 10 projects announced after our project got started,” Sawiris said. “None of them in the last 18 months has hit the ground.”
The specialized skills needed to build these plants haven’t been in demand for decades. With so much cheap gas, companies are now planning chemical facilities across the region, and the wave of investment has boosted employment around the Gulf.
The Houston metropolitan area added 12,900 construction jobs in the year through October, more than any other region, according to an analysis of federal employment data by the Associated General Contractors of America.
The trade group found in a September survey of 1,086 construction firms that 83 percent had trouble filling some craft positions and 62% had difficulties finding people for professional jobs.
“The biggest worry for most contractors these days is the availability of construction labor, especially for specialized projects” like chemical plants, said Ken Simonson, the industry group’s chief economist.
“So many projects requiring the same skill set have been announced or planned that there are sure to be delays, either in fabricating and delivering components, or in erecting them.”
