Shale Gas Fuels U.S. Chemical Plant Construction
McDermott project managers held their breath as a nearly 3,000-ton module journeyed on a carefully ballasted barge along the Gulf Coast to Lake Charles, La. Anticipation mounted as the module arrived safely to the site of the $1.9-billion ethane cracker McDermott was building for a joint venture of South Korean Lotte Chemical and Houston-based Westlake. Over the course of the next two days, self-propelled modular transporters shuttled the component to its intended spot, where it was placed carefully on preconstructed piers. As seamlessly as two Lego bricks snapping together, the module fit snuggly in place. Over the next two months, an additional two heater modules—each over 2,500 tons and 155 ft high—made the daylong journey from Gulf Island Fabrication in Houma, La., and were set in place without a problem.
It was the first time McDermott had modularized its proprietary SRT heaters. “Probably the best decision we made on this project was to modularize the heaters,” says Heath Moncrief, construction director for McDermott. “It tremendously reduced labor in the field in a constrained labor market.”
Modularization is just one step owners, designers and contractors are taking to keep costs and schedules under control as they begin designing and building a second wave of chemical plants. The chemical boomlet began around 2011, with more than $100 billion worth of chemical projects already completed or underway and another $100 billion in the pipeline. The United States has become a chemical superpower, with low-cost shale gas simultaneously providing feedstock to create the chemicals and fueling the processes to create them. In that time frame, chemical construction’s slice of the manufacturing sector has grown to 45% in 2017, from 18% in 2011, according to the U.S. Commerce Dept. The U.S. feedstock’s cost advantage—only Saudi Arabia is cheaper—is so great it overcomes the higher costs of American materials and labor, says Martha Moore, an economist with the American Chemistry Council. ACC is tracking 333 chemical projects in the United States. Of the $200 billion in announced projects, 68% is from foreign companies or joint ventures involving a foreign company, like the JV of Lotte and Westlake. Lotte is also building an adjoining $1.1-billion monoethylene glycol (MEG) plant.
“We are seeing today what we didn’t see 20 years ago. We are seeing much larger projects to get synergies and cost efficiencies,” says Keith Manning, vice president of strategic enterprises for Zachry, which is expecting 2018 to be its biggest year in terms of work hours. The San Antonio-based firm is working on three new chemical plants.
“It defies the imagination the first time you show up on site and it is the size of a city,” says Robert J. Roest, commercial manager of special projects for Mammoet, which is working not only on the LACC plant, but also on several other chemical projects.
The 250-acre LACC site on Bayou D’Inde in Lake Charles isn’t as big as some of the megaprojects in the region, but it is by no means small. The site includes a cracker that will produce 1 million tons per year (tpy) of ethylene, a building block for many plastics. About half of that ethylene will supply Lotte’s adjacent MEG plant undergoing commissioning, which will produce 700,000 tpy of fiber-grade MEG for export. The other half of the ethylene will go to Westlake’s nearby plant.
McDermott received an EPC contract in excess of $1.3 billion for the cracker, including, among other things, for procurement of 124 miles of pipe. Under a separate $365-million contract, McDermott provided construction services for the MEG plant. Samsung performed engineering and procurement for the plant, including prefabrication of some elements, such as a 354-ft wash tower, in South Korea.
Before construction began on the greenfield site, LACC cleared trees, dug down 6 ft and stabilized the soil with stone and gravel. The site was bathtubbed to prevent flooding.
“We made a significant pre-investment here, so there would be less impact when it rains,” says Kyeong Jo Han, a director at Lotte Chemical and project manager for LACC.
Construction on both plants began in 2016, and because of that front-end effort, workers were able to return to the site sooner than to other area sites after Hurricane Harvey swamped the region in 2017.
In another early move to make the worksite desirable and attract labor, LACC and McDermott chose on-site parking rather than on-site laydown.
“Not using busing, that was a very big thing for our guys,” says Moncrief. At peak this summer, there were 3,700 workers on site. To make the best use of available laydown space, McDermott uses an integrated work system, with shelf-like outdoor storage that allows materials to be stacked vertically rather than spread out over the ground.
Workers are offered a completion incentive if they stay with the job until it’s complete.
In another effort to attract workers, McDermott and Lotte set out to create a safe jobsite. Everyone on the site has stop-work authority, and McDermott holds weekly roundtables with workers to discuss safety and other issues. The job recently logged 10.89 million work hours without a lost-time incident.
Working with a Korean company whose culture is based on relationships and respect has made the job go smoothly, says Vijay Rangraj, a McDermott senior project manager. “We have a one-team mentality,” he says. “It’s not owner and contractor. There’s no contractual friction. We just shake hands and get it done.”
The rapid expansion of the chemical sector, primarily along the already labor-constrained Gulf Coast, led to some growing pains for the industry in a first wave of construction. The first round of plants built “were more costly and complex,” than anticipated, Joe Thompson, Bechtel’s manager of chemicals and downstream projects said in 2017 webinar.
Rising international costs could force companies to build elsewhere. International companies could choose to export U.S. ethane or ethylene elsewhere to produce downstream products. Construction in China, for example, costs 55% to 70% less than in the U.S., says Russell Heinen, an analyst with IHS-Markit.
Tariffs threaten to increase costs further, says Moore. There are 232 tariffs, including on steel, that could impact the cost of construction. A typical new cracker needs more than 18,500 tons of steel, she says.
One megaproject, Sasol’s 1.5-million-tpy ethane cracker and six chemical units nearing startup in Lake Charles, saw costs increase from $8 billion to $11 billion. A 2016 Sasol analysis attributed budget overruns in part to weather delays, an unexpected increase in contractor and labor costs, and lower productivity. In response, the company says it improved the engineering phasing, implemented synchronized workface planning and improved productivity and construction readiness through focused risk management processes.
Fluor, the EPC contractor for the Sasol job and three other under-construction chemical plants, is using innovation to improve quality, safety and productivity at its sites. Advances include active RFID tagging that sends a signal allowing workers to find material and labor, drones for surveying, and even artificial intelligence from IBM’s Watson to help predict outcomes. Some of these technologies were in place during the first wave but have really taken hold over the last three years through Fluor’s innovation group and through a partnership with the University of Houston, says Jack Penley, senior vice president of construction and fabrication for Fluor. Penley expects more innovation and technology will be used in the next round of chemical construction. At present he sees advances primarily in chemical and energy-related construction, but he expects they will become routine at other sites in the future. “All of these things cut down labor hours and make us more efficient, says Penley.
Additionally, to address worker shortages, Fluor started a free craft-training program on the Gulf Coast that has graduated 600 workers. Labor shortages will continue to exist, however, and technology and modularization help Fluor and other companies make the best of the craftworkers and laborers they do have. “It seems like when a wave comes, everybody is building at the same time and there’s a manpower struggle,” he says. “That’s exactly why we lean so much on technology.”
Advanced work packaging is the norm for most companies working in the sector, where massive projects depend upon good project execution. “It’s a construction-driven planning program to drive the work from the very start of the project,” says Manning. “It’s safe to say that we are taking it to a much higher level of planning—it’s a significant enhancement from what we were doing a few years ago.”
Burns and McDonnell uses advanced work packaging rendered in 3D so everyone knows where equipment will be “before we even put a shovel in the ground,” says Karen Bray, business development manager for chemicals. Such well-defined plans for project execution, among other things, ensure predictability from subcontractors, she says.
Burns and McDonnell is also using two-sided isometrics for pipes so craft laborers have a 3D model of where the next pipe in a unit should be, she says. Such advances help a workforce that grew up on video games visualize its next task.
“A lot of technology we are using—it does certainly attract the younger generation that wouldn’t necessarily think of construction,” as a career, says Penley.
Companies are also looking to control more variables to reduce risk. In addition to acquiring Ambitech to beef up its engineering and design capabilities, Zachry has also expanded its in-house pipe fabrication.
Mammoet has noticed a corresponding move toward consolidation in contracts to improve coordination. Historically, EPCs would shop out as many crane lifts as possible to different contractors, Roest says. Mammoet might get the heavy or technical lifts, and one or two other crane companies would be hired for other lifts. But “it turns out that’s not always the best way to go,” because the contractor has to interface with multiple subcontractors, says Roest. In response, Mammoet is being tapped to handle all lifts on more jobs. “For us it’s a massive change in the U.S.,” he says.
Mammoet didn’t have that arrangement with McDermott, but Mammoet’s experience still helped McDermott achieve a major innovation on the MEG plant. McDermott needed a ring crane to lift the MEG plant’s 345-ft wash tower that was fabricated in Korea and shipped to Lake Charles. After doing “quite a bit of engineering up front to make sure we could,” Roest says, Mammoet offered to extend the reach of its PTC 200 DS ring crane to 713 ft, allowing it to reach every corner of the MEG plant site and to complete 64 needed lifts. The innovation allowed McDermott to change its schedule for lifts without incurring additional costs.
“It became a unique opportunity. It allowed us to set all of the equipment a month quicker because we didn’t have to move around cranes,” says Jonathan Moore, project manager at McDermott.
Mammoet also played a role in another innovation by moving the modular heater units from Gulf Island Fabrication in Houma. Because the center of gravity on the units was so high, and the bayou relatively shallow, Mammoet conducted a trial run to ensure success.
Once each of the modules reached the LACC site, Mammoet used its self-propelled transporters to put the modules on previously constructed piers. Even absent the water transport, modularizing the units off site was a leap of faith for LACC and McDermott. “Heaters are very challenging to modularize because of intricacies of the pipe,” says Rangraj. “We were initially concerned.” Everything had to be perfect. “The engineering and construction has to be precise. If one concrete pier is out, it would be a disaster,” he says.
But the risk paid off, not only because it reduced the need for on-site labor. Access that was 360° around the module made the work more efficient than it would have been on site. Quality control was also improved because it was built partially indoors.
Labor will continue to be an issue for the chemical plants along the Gulf Coast as additional projects continue to be announced. Fluor and Zachry are both working on what’s billed as the world’s largest propylene oxide/tertiary butyl alcohol plant, being built by LyondellBasell in Channelview, Texas, and expected to come online by 2021. Total announced in September it will expand its Bayport Polymers Plant at a cost of more than $1 billion. In August, DowDupont announced it had begun construction to expand its 1.5-million-tpy ethane cracker in Freeport, Texas. Labor demands for those and other chemical plants, in addition to the mega LNG facilities being built along the Gulf Coast, are putting further strain on an already limited labor pool. In response, wages and per diems were expected to increase in the region this year, Moore says.
The chemical activity, though, is not limited to the Gulf Coast. There have been dozens of announced and under-construction fertilizer plants in the Midwest. And then there’s Pennsylvania, where Shell, with Bechtel as the main works contractor, is building a $6-billion ethane cracker to take advantage of Marcellus Shale natural gas. It will be the first new cracker outside of the Gulf of Mexico in more than 20 years.
“The top two reasons Shell decided on Pennsylvania were proximity and abundance of feedstock, and proximity to customer base. Seventy-five percent of all the polyethylene demand is within a 700-mile radius of our facility,” says Ray Fisher, Shell spokesman.
The shale region could support another five ethane crackers, says Moore of ACC, and demand may warrant construction of those crackers. Worldwide demand for plastics has already outpaced other bulk materials, including cement and steel, according to a recent report from the International Energy Agency. By 2030, petrochemicals will account for more than a third of the growth in world oil demand and account for nearly half of it by 2050, according to the IEA. “Our analysis shows [petrochemicals] will have a greater influence on the future of oil demand than cars, trucks and aviation,” said Fatih Birol, IEA’s executive director, in a statement.
And, IEA continues, “the production, use and disposal of petrochemical-derived products present a variety of climate, air quality and water pollution challenges that need to be addressed.”
The American Chemistry Council says new capacity is 30% more energy efficient than older plants. “A study by McKinsey & Co. found that on a global basis, for every unit of GHGs emitted directly and indirectly by the chemical industry, more than two units of emission savings are enabled through products and technologies provided to other industries and consumers,” according to the ACC.
ACC uses 2025 as the horizon for development of U.S. chemical plants. IHS-Markit says the U.S. will continue to dominate low-cost feedstock through 2030. “I certainly believe barring any black swan events, with our plentiful natural gas, favorable regulatory environment and the strong economy, I am confident we are going to see a significant activity level for at least the next five years,” says Manning. “All of us in the EPC industry are going to have to be prudent about what our resources and capabilities are. We have to be diligent and careful about what jobs we can do best.”