The effects of oil's seven-month slide are showing themselves in the natural gas-rich Appalachian Basin, as the region's suppliers have announced work-stoppages and job cuts from Ohio to Pennsylvania in response to declining orders from their customers across the country.
Despite cost-cutting measures it announced in January, Vallourec Star LP said Wednesday that beginning this month it would shut down operations for three weeks at a core facility in Youngstown, OH, where it makes steel pipe for oil and gas wells. Company spokeswoman Jeanie Gaetano said the plant employs about 800 people, but it isn’t clear how many people may be affected.
"In response to the declining oil and gas market, Vallourec Star continues to adapt our operating plans to business demand,” the company stated. “We have already taken some measures to adjust production schedules, negotiate with suppliers and minimize the use of contractors. The economic realities we are facing require additional action. In developing and implementing these steps, we have taken all measures to minimize the effect on our Vallourec Star employees. However, we are at a point where some employees will be affected. This is unfortunate but cannot be avoided."
The company is also offering six-month voluntary layoffs and said it would continue to monitor oil prices to "adapt quickly to this unstable business environment."
Vallourec Star, a subsidiary of the France’s Vallourec, acquired the facility in 2002 and recently spent $1 billion to expand in response to the growing demand for small-diameter pipe used in oil and gas wells.
"It's pretty safe to say that there's obviously concern with all of these announcements, lots of people are working in that industry supporting oil and gas production," said Youngstown-Warren Regional Chamber spokesman Guy Coviello. "It's a very sensitive situation that might impact people. At the same time, it's pretty realistic to say you can't overstate the situation too much. In this industry, it's always up and down -- it's temporary -- or at least that's what we've gleaned from other parts of the country."
The oil and gas industry has become a core business unit of Vallourec’s global manufacturing facilities in more than 20 countries. It also supplies the electric power generation, automotive, petrochemical and construction industries. North America accounted for 31% of global sales through the first nine months of last year, driven in large part by the U.S. oil boom. It has similar tubular steel facilities in Texas and Oklahoma, but it was not clear what the plans were for those plants.
Vallourec is one of several companies that have expanded operations in Appalachia in response to growing oil and gas production. TMK IPSCO, Valerus, Industrial Piping Specialists and Exterran Holdings Inc., among others, have built or expanded facilities to manufacture or supply parts for the industry.
Also this week, TMK IPSCO said it would lay off 75 workers at its two plants in western Pennsylvania that make tubular steel for the industry. The cuts represent about 10% of the workforce at those facilities, and the company said it was monitoring contracts at the 10 other North American plants.
In January, U.S. Steel Corp. began laying off more than 1,000 workers at plants in the Northeast and Texas, including 614 in Lorain, OH, at a time when land brokers across the country were reportedly losing their jobs (see Shale Daily, Jan. 6). Chevron Corp., like most of the operators large and small, is cutting jobs across the onshore, including Chevron Appalachia LLC, which last month said it would cut 162 jobs in Pennsylvania (see Shale Daily, Jan. 23).
"We've built in kind of a downside risk in the sense that our take on the oil price trend is that it's a net positive for most people, but it affects industries differently," said PNC Bank economist Mekael Teshome in Pittsburgh. "There's downside for this region when the outlook includes reduced orders for manufacturers and layoffs here and there."
Teshome said PNC is forecasting that the national economy would grow by 3.5% this year, compared with 2.4% in 2014. If layoffs in the region's oil and gas industry continue, he said it still won't slow the region's overall economic growth.
"Within that context, our region here in eastern Ohio and western Pennsylvania is picking up, albeit at a slower rate than the U.S.," Teshome said. "I mean, Youngstown had seen an economic decline for almost a decade and for the last few years it's been flat. That indicates a healing economy, which is where much the rest of the region stands.
"These oil and gas layoffs make the ride a bit bumpier, but in the long run, we still see that industry as a positive for the region."