Liquefied-natural-gas terminals are gaining ground as the demand for the fuel increases in many parts of the world.
For contractors that build the facilities and infrastructure that feed the world’s voracious appetite for oil and gas, markets never have been so good, yet also so bad. It’s a market of extremes with a severe backlog of demand, yet an equally severe dearth of people to meet it. The monstrous demand for refineries, liquified-natural-gas (LNG) plants, pipelines and underwater facilities is prompting dozens of multibillion-dollar projects to proliferate around the world, but also causing many contractors to feel the monster’s bite as shrinking pools of labor and materials present project pitfalls.
Globally, demand for oil has continued to ratchet up steadily around the world as India and many Asian nations continue to develop western-style thirsts for energy. In North America, contractors that rely on upstream Gulf of Mexico-based work have seen that market remain flat in the past year as investments are being steered downstream, while oil producers increasingly look to heavy crude from Canada’s oil sands to meet careening demand in the U.S.
“In the past you could say, ‘However goes the Gulf of Mexico, so goes the whole market,’ but not anymore,” says Bruce Wilkinson, CEO at Houston-based McDermott International Inc. “The last couple of years have been a dry period in the Gulf.”
Demand for petroleum in the U.S. shows no signs of drying out, nudging oil producers to move investments into heavy-crude refining as growing global demand and ongoing war in the Middle East squeezes supply. The influx of investment into heavy-crude refining has ignited a spate of growth and expansion across the domestic refinery construction market.
“There are a lot of refinery expansions happening now,” says Steven Toups, vice president of business development at Baton Rouge-based Turner Industries Group Inc. “From 2002 to 2005 there was about $30 billion spent nationally on refinery expansions,” says Toups. “But that will double to $60 billion in the next five years.” Industry analysts say that in the past two years, U.S. refiners have added about one million barrels per day of capacity to the nation’s approximately 18 million bpd refining capacity.
Turner Industries is performing steel and mechanical work on a $3.3-billion project to expand Marathon Petroleum Oil Co.’s refinery at Garyville, La., which will boost the facility’s refining capacity by 180,000 bpd when complete in 2009. Managed by Irving, Texas-based Fluor Corp., the massive project employs up to 4,000 construction workers at peak times, according to Marathon. It is one of several major refinery expansions currently under way across the country, including a $6-billion expansion project at Motiva Enterprises’ Port Arthur, Texas, refinery, and a $3-billion upgrade and expansion to British Petroleum’s Whiting, Ind., refinery, among dozens of smaller expansion projects. Smaller refinery expansions such as two $75-million projects that Lake Forest, Calif.-based ARB Inc. is performing for British Petroleum plc and Chevron Corp. in California represent a booming market for many contractors this year. ARB is constructing a hydrogen plant for Chevron’s refinery in Richmond, and an expansion and renovation at British Petroleum’s refinery in Carson. “The reality is many of these expansions are nearly the size of the entire existing facility,” says Randy Kessler, ARB director of sales.
The investments that oil producers are putting into exploring the Gulf of Mexico now will yield a new round of upstream construction projects down the road, some contractors say. It takes several years “from the point of discovery, to drilling a well, to engineering and construction,” says Wilkinson. “That work will start to come by 2010 or so.”
Perhaps most indicative of the level of demand coming from the U.S. market is a greenfield oil refinery being planned for construction in Yuma, Ariz., the first new U.S. refinery in 30 years. Owner Arizona Clean Fuels Yuma LLC waded through four years of regulatory procedure to get state and federal approval of a plan to start the first U.S. refinery since 1976. Sited on 1,400 acres in a remote area about 100 miles southwest of Phoenix in Yuma County, the plant will produce cleaner-burning fuels when completed in 2011. The plant will be able to supply approximately one-half of the gasoline, diesel and jet fuel demand for the state of Arizona, according to the owner.
Refinery upgrades and expansions have spurred a flurry of work for Foster Wheeler Corp. over the past year as the Clinton, N.J.-based contractor designed and constructed 35 delayed cokers for refineries in the U.S. and abroad, says Troy Roder, CEO of Foster Wheeler LTD. A means to upgrade refinery processes, “coking is widely accepted and has really caught on in the last two years,” Roder says.
LNG terminals make up a big portion of many firms’ portfolios this year as worldwide consumption gains momentum. However, regulatory issues are tossing up hurdles in some states. “LNG is becoming more of a world-wide commodity like oil,” says Wilkinson. “There is a global demand now growing in India and Asia with new players and new consumers.”
Mcdermott International Inc.
Offshore work has slackened but could pick up by 2010.
The Woodlands, Texas-based contactor CB&I Co. is performing engineering, procurement, fabrication and construction of the $1.5-billion Golden Pass LNG facility in Sabine Pass, Texas, to be complete for Exxon Mobil in 2009. It is one of several LNG facilities around the world that the firm is building, says John Redmon, executive vice president of operation at CB&I. “Half of our projects are some form of LNG work,” says Redmon.
But for contractors across the industry, whether a large upstream construction-management firm or a smaller downstream contractor or subcontractor, the lack of available project managers, engineers and skilled trades workers is perhaps the single biggest challenge faced in getting jobs completed on time and under budget.
“We see the demand for labor,” says Bob Salazar, vice president of business development at Norway-based Aker Kvaerner’s Houston office. The firm has about 15,000 employees in 30 different countries, 4,500 working in the petroleum market around the Gulf of Mexico. “From the management side, there is an incredible demand in the U.S. market.” The firm’s international reach allows recruiting and training of people around the world, says Salazar.
For smaller firms such as ARB Inc., which performs about 20 projects per year in the $2-million range, the labor factor is a wild card on many projects. In order to chase work in the high-octane market, “We have doubled our staff in the last 18 months,” says Kessler. “We are having trouble finding everyone from designers to engineers.” Kessler says he has seen projects delayed across the industry due to unavailability of managers or trades workers.
“There are two major issues: the availability of people, and the costs of materials,” says Redmon. Jobs are being delayed “while they wait for materials prices to come down and because they can’t find the people they need. I’ve never seen the people shortage this bad before.”