Labor Shortage Threatens to Bust the Shale Boom

Photographer: George Frey/Bloomberg
Welders at a manufacturing facility in Provo, Utah.

How high is demand for welders to work in the shale boom on the U.S. Gulf Coast?

So high that “you can take every citizen in the region of Lake Charles between the ages of 5 and 85 and teach them all how to weld and you’re not going to have enough welders,” said Peter Huntsman, chief executive officer of chemical maker Huntsman Corp.

So high that San Jacinto College in Pasadena, Texas, offers a four-hour welding class in the middle of the night.

So high that local employers say they’re worried there won’t be adequate supply of workers of all kinds. Just for construction, Gulf Coast oil, gas and chemical companies will have to find 36,000 new qualified workers by 2016, according to Industrial Info Resources Inc. in Sugar Land, Texas. Regional estimates call for even more new hires once those projects are built.

The processing and refining industries need so many workers to build new facilities in Texas and Louisiana because of the unprecedented rise over the last three years in U.S. oil and gas production, much of it due to shale. Labor shortages, causing delays in construction, threaten to slow the boom and push back the date when the country can meet its own energy needs, estimated by BP Plc to be in 2035.

Photographer: Ty Wright/Bloomberg

A mig welder in Berwick, Pennsylvania. Close

A mig welder in Berwick, Pennsylvania.

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Photographer: Ty Wright/Bloomberg

A mig welder in Berwick, Pennsylvania.

Worker scarcities are already evident in the unemployment rates of Texas (5.7 percent) and Louisiana (4.5 percent), both below the national average of 6.7 percent, according to the Bureau of Labor Statistics. The lowest jobless rate of any area in the U.S. in February was 2.8 percent in Houma-Bayou Cane-Thibodaux, Louisiana, because of offshore-oil exploration in the Gulf of Mexico.

Building Projects

Companies will spend $35 billion, more than ever, on expansion projects along the Houston Ship Channel by next year, creating a total of 265,800 jobs, a 2012 Greater Houston Port Bureau survey shows. Louisiana, where $60 billion in building projects are planned through 2016, will need 86,300 workers over that time, according to the state’s Workforce Commission.

“This is an exponentially larger investment period than Louisiana has ever seen,” said Tom Guarisco, a spokesman for the Workforce Commission in Baton Rouge.

The biggest shortages will be for welders, electricians, instrumentation technicians, fabricators and pipe fitters, according to Roger Blackburn, executive account manager at Infinity Construction Services LP, which employs about 2,500 workers on the Gulf Coast. The scale of the projects means costs and delays will probably escalate, he said.

Photographer: Aaron M. Sprecher/Bloomberg

Student Austin Khalili demonstrates welding during a class at San Jacinto College in Pasadena, Texas. Close

Student Austin Khalili demonstrates welding during a class at San Jacinto College in Pasadena, Texas.

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Photographer: Aaron M. Sprecher/Bloomberg

Student Austin Khalili demonstrates welding during a class at San Jacinto College in Pasadena, Texas.

Wages Rose

Labor scarcity can erode profit. Cost run-ups and labor shortages have hindered recent energy-boom projects in Canada and Australia. Wages for oil and gas workers in Canada rose to as much as 60 percent higher than U.S. counterparts, labor data show. In Australia, cooks at offshore projects are earning more than A$350,000 ($328,000) a year while laundry hands get more than A$325,000 and barge welders almost A$400,000, imperiling investments in liquefied natural gas, according to the Australian Petroleum Production & Exploration Association.

Enterprise Products Partners LP said March 18 that permitting for a facility east of Houston, in Mont Belvieu, Texas, that turns propane into propylene is running three months behind. In December, Royal Dutch Shell Plc canceled a $20 billion gas-to-liquids plant slated for Louisiana, citing potential cost overruns. Construction for three new U.S. natural-gas-processing plants could go as much as 40 percent over budget and finish nine months late, Sergey Vasnetsov, senior vice president of strategic planning at LyondellBasell Industries NV in Houston, said at a March 12 conference in New York.

‘Tight Availability’

“There was some tight availability of qualified labor, and so we expect it to be a significant issue for the industry, in particular in 2016, 2017, where the bulk of the heavy construction will take place in the U.S.,” Vasnetsov said at the conference.

Chevron Phillips Chemical Co., a venture between Chevron Corp. and Phillips 66 based in The Woodlands, Texas, broke ground near Houston this month on ethylene and polyethylene plastics plants whose budget will go $1 billion over the original $5 billion estimate, primarily because of labor costs, Chief Executive Officer Peter Cella said in an interview.

“Where are the workers going to come from?” Cella asked.

The answer: from Canada and other countries, and employers are sweetening benefit packages to attract and retain them. These include higher contributions to retirement savings and tuition reimbursement, said Dani Grant, a human resources manager at chemical maker Noltex LLC in La Porte, Texas.

Flush Toilets

Other companies are tempting workers with gourmet dining, retention bonuses and smoking areas, which are usually not allowed at chemical facilities, said Russell Heinen, a senior director at IHS Inc., an energy company advisory firm in Englewood, Colorado.

Bechtel Corp., the biggest U.S. construction contractor, offers the amenity of running-water toilets, according to Jim Ivany, executive vice president at the San Francisco-based company’s oil, gas and chemicals unit.

When projects in engineering and permitting stages start construction late this year, wages will rise 15 to 20 percent “almost overnight,” similar to what happened in 2006 and 2007 before the global recession, according to Peter Huntsman of Salt Lake City-based Huntsman Corp.

Pay started to rise in the fourth quarter of 2013, said Mike Bergen, an executive vice president at IIR. The most skilled combo-pipe welders on the Gulf Coast earned $34.75 an hour, 2 percent more than in the previous quarter, IIR data show. Wages will grow by about 12 percent a year, IIR estimates.

Welding Class

Austin Khalili, 22, works in a warehouse but wants to become a welder. That’s why he’s enrolled at San Jacinto College’s twice-weekly 10 p.m.-to-2 a.m. welding class, where he can learn the trade, grab a quick nap and still be at his day job by 4 a.m.

“It’s hard sometimes, but it’s going to be worth it,” Khalili said. “I know it’s going to pay off.”

San Jacinto College built the new welding classroom, with 118 booths, at its central campus two years ago. Enrollment has jumped to 435 students. Each booth has its own welding rig and ventilation fan in the warehouse-sized building.

Wearing heavy protective clothing and visors on a humid spring evening, students practiced behind curtains in the booths. Ghostly blue light and sparks scattering on the floor were the only visible evidence of their work welding seams on metal sheets.

Khalili will be able to start earning as much as $28 an hour after completing the class and getting his certificate, according to Tiburcio Parras, head of the welding program. Wages escalate after that, and Parras said that several of his students have gone on to purchase their own trucks and welding rigs, which allows them to earn as much as $7,000 a week working in places such as the Eagle Ford drilling fields in South Texas.

Said Bechtel’s Ivany: “If somebody came to me on the Gulf Coast, some high-school kid, and said, ‘I don’t know what to do with my life,’ I’d tell him, ‘Learn to weld.’”

To contact the reporters on this story: Isaac Arnsdorf in New York at iarnsdorf@bloomberg.net; Dan Murtaugh in Houston at dmurtaugh@bloomberg.net; Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editors responsible for this story: Bob Ivry at bivry@bloomberg.net Philip Revzin

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