Plentiful U.S. Gulf Coast worker availability for petrochemical projects may not last

A year following the quick spread of Covid-19 and lockdowns, non-residential construction activity in the U.S. remains significantly below pre-pandemic levels as of April 2021 and particularly in regions that include chemical hubs.

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Another change since the start of the pandemic has been rising material costs, which may have led some owners to decide to wait for costs to decrease to retake turnarounds, expansions and new construction projects.

A large currently idle workforce in Texas and Louisiana may move elsewhere.

Extended unemployment may create labor shortages and hike future costs, Kenneth Simonson, chief economist of the Associated General Contractors of America (AGC), told Reuters Events Downstream.

“Owners that wait to commission projects are likely to find that enough contractors have withdrawn from the business that the remaining bidders start making up for past losses,” he said.

Construction workforce

“Construction employment declined for five years in 2006-2011, with a total loss of 2.3 million employees or 30% of the April 2006 total. When the industry finally began seeking employees, many of them had left the industry or the country or had retired or dropped out of the labor force,” Simonson said.

“That could happen again if owners decide to hold off on construction projects,” he added.

Non-residential construction in March 2021 was 4.9%, or 230,000 employees below the pre-pandemic peak in February 2020, Simonson said.

The AGC carried out during Feb. 19-March 4 a survey of members that obtained 1,489 responses. Only 32% saw a recovery in activity to pre-pandemic levels while 34% estimated it may still take more than six months.

Louisiana saw a 15% construction employment decline between February 2021 and February 2020, according to data sourced by AGC from state and regional employment reports of the Bureau of Labor Statistics (BLS). Texas saw a 7.2% decline over the same period.

Construction employment, residential and non-residential, in the Houston metro area was down by 31,000 or a 13% on-year decline, he added.

“These numbers might suggest there are plenty of available construction workers nationwide and in the Houston area specifically. But the area risks losing these workers to other regions and other industries, and the risk increases with each passing month,” he said.

Rising material costs

“Some owners may be tempted to delay projects because they hear that materials costs are rising steeply and they think they'll get a better price by waiting,” Simonson said.

Costs for lumber and plywood, copper and steel rose between 40% and 63%, between March 2021 and a year earlier. Plastic construction materials rose 10% over the same period, according to AGC data.

“From March 2020 to March 2021, the producer price index (PPI) for materials and services used in nonresidential construction jumped 12%. But the PPI for what contractors say they would charge to put up a fixed set of new nonresidential buildings has edged up just 1.7%,” he said.

“Nonresidential contractors have not been passing along the bulk of the higher materials costs in their bids,” he said.

Fewer contractors

Petrochemical project owners have seen an ongoing reduction in construction contractor availability for projects.

During a Reuters Events Downstream conference in 2020, petrochemical company officials said they anticipated the possibility of a bottleneck of turnaround projects in years ahead after postponement decisions in 2020.

Another threat to worker and contractor availability is the existence of an owner-contractor model that has been placing much of the risk on the side of contractors.

Future worker demand could surge if U.S. President Joe Biden succeeds in his plans to upgrade bridges and roads across the country, in addition to upgrading and expand public transit.

The American Jobs Plan contemplates an investment of about 1% of GDP per year over eight years to upgrade infrastructure, invest in research and science, shore up supply chains, support e-vehicles, and improve care infrastructure. The program includes installation of transmission lines and capping oil and gas wells and abandoned mines.

President Biden sought in mid-April to build bipartisan support to get approval for the $2.3-trillion plan that will be financed through tax changes.

The Wall Street Journal reported on April 18 that a senior Republican senator said he and some colleagues could support only about $800 billion, with an emphasis on roads and broadband.

By Renzo Pipoli