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Labor Shortages Causing Constraints for Interior -- and U.S. Petrochem Industry

Not enough people are being trained to build, operate and maintain U.S. Gulf Coast petrochemical projects, which may impose constraints as expansions get underway in 2015, a top executive said this week. Meanwhile, the Department of Interior is losing employees to the private sector because it pays better, creating a vacuum within the Bureau of Land Management (BLM) that has led to less oversight and longer permitting times, particularly for the Bakken Shale.

Chevron Phillips Chemical Co. LP (CPChem) CEO Peter L. Cella discussed the lack of an adequate petrochemical workforce at the American Fuel & Petrochemical Manufacturers Conference in San Antonio. Not enough skilled workers, he said, is the most significant barrier facing future projects.

Close to $100 billion of announced new or expanded U.S. petrochemical projects are in the works as domestic manufacturing using unconventional natural gas increases. Based on industry projections, close to 90,000 craft workers would be needed as soon as 2015, when related projects begin construction along the Gulf Coast.

CPChem's U.S. Gulf Coast Petrochemicals Project is one in need of trained employees, said Cella. The project, which could create up to 400 long-term jobs and 10,000 construction and engineering jobs, is going to be built near Old Ocean, TX, in Brazoria County. Two polyethylene facilities are planned that would have an annual capacity of 500,000 metric tons, or 1.1 billion pounds (see Daily GPI, Oct. 4, 2013). The project is set to be completed in 2017. CPChem also is building an ethane cracker along the Texas coast.

"While we will continue to need college graduates with various engineering, accounting, marketing, IT [information technology] and scientific degrees, our most acute need is for welders, pipefitters, riggers, operators, instrument technicians and other craftspersons, all with two-year degrees or certifications," said Cella. "For many high school graduates, choosing a technical vocation can be an attractive career path because it provides a great salary and benefits without the significant financial burden of pursuing a four-year degree."

The industry needs to do a "better job educating our nation's young people about the viable and rewarding career pathways for those who opt for occupations that require less formal, and less expensive academic training."

Hourly operating and maintenance craft employees at U.S. CPChem facilities may earn total compensation of $90,000-100,000, including overtime, Cella said. The company expects to hire more than 2,800 employees over the next six years to support growth, in part because of a surge in petrochemical demand for skilled workers, and to replace retiring employees.

Other petrochemical proposals set for the Gulf Coast are being designed but they aren't finalized yet. Among them is one by Dow Chemical Co., which last August confirmed that it would expand two big petrochemical facilities along the Texas and Louisiana coasts that would be integrated by "advantaged shale gas" (see Shale Daily, Aug. 28, 2013). Those facilities are set to be completed by 2017. Phillips 66 has two proposed projects, a fractionator near Old Ocean, and a liquefied petroleum gas export project in Freeport, TX (see Shale Daily, Feb. 7).

A lack of skilled workers isn't only expected to hamper Gulf Coast expansions. North Dakota last month joined forces with Hess Corp. to lure 20,000 workers for jobs in the Bakken/Three Forks formation (see Shale Daily, March 19). ExxonMobil Corp. CEO Rex Tillerson also last month urged energy sector partnerships with the building trades and colleges to create a sustainable, skilled workforce (see Daily GPI, March 14).

Interior is facing an acute workforce shortage at BLM, Bureau of Ocean Energy Management (BOEM) and Bureau of Safety, Environmental and Enforcement (BSEE), the Government Accountability Office (GAO) has found.

GAO's Frank Rusco, who directs natural resources and environment, recently testified before the House Subcommittee on Energy and Mineral Resources regarding Interior's "human capital challenges." He authored a report issued by GAO in February (GAO-14-394T) following a review that was launched in February 2011. GAO personnel reviewed, among other agencies, 33 BLM field offices and one state office.

"The BLM, BOEM, and BSEE officials that we interviewed and surveyed reported that hiring and retention challenges have made it more difficult to carry out their oversight activities," said Rusco. "These officials stated that position vacancies have resulted in less time for oversight, and vacancies directly affect the number of oversight activities they can carry out -- including the number of inspections conducted and the time for reviewing applications to drill.

"Officials at some BLM field offices told us that they have not been able to meet their annual inspection and enforcement goals because of vacancies."

Interior "continues to experience problems hiring and retaining sufficient staff to provide oversight and management of oil and gas activities on federal lands and waters." The agencies surveyed "reported that they continue to find it difficult to fill vacancies for key oil and gas oversight positions, such as petroleum engineers, inspectors, geologists, natural resource specialists and geophysicists. These managers reported that it was difficult to retain staff to oversee oil and gas activities because staff leave for higher salaries in the private sector.

"They also reported that high rates of attrition are a concern because some Interior offices have just one or two employees per position, so a single retirement or resignation can significantly affect office operations and oversight.

"Nearly half of the petroleum engineers that left BLM in fiscal year 2012 resigned rather than retired, suggesting that they sought employment outside the bureau. According to Office of Personnel Management (OPM) data, the fiscal year 2012 attrition rate for petroleum engineers at BLM was over 20%, or more than double the average federal attrition rate of 9.1%."

Most acute were areas where industry activity is highest, such as the Bakken Shale in North Dakota "because the government is competing there with industry for the same group of geologists and petroleum engineers."

Interior's bureau managers surveyed reported they had lost potential applicants and staff because of higher private industry salaries. "For example," said Rusco, "from 2002 through 2012, mean federal salaries for petroleum engineers have remained fairly constant at about $90,000 to $100,000 per year, whereas private sector salaries have steadily increased from about $120,000 to over $160,000 during this same time period."

There's also a lengthy federal hiring process, with "multiple required steps," which leads many applicants to find other jobs. The average hiring time by BLM for petroleum engineers was 126 days. "However, all hiring times were much longer than 80 calendar days -- OPM's target."

According to Rusco, BLM officials met with OPM staff in 2012 "to discuss special salary rates for petroleum engineers and petroleum engineering technicians in western North Dakota and eastern Montana, where the disparity between federal and industry salaries is most acute." A special salary rate was approved by Congress for BSEE and BOEM to oversee Gulf of Mexico operations. BLM now is preparing a request for those special salary rates.

Officials at the Interior bureaus have undertaken some steps to address key vacancies, such as reassigning staff from lower-priority to higher-priority tasks, borrowing staff from other offices or increasing overtime.

"However, each of these steps comes at a cost to the agency and is not a sustainable solution. Interior officials told us that moving staff from lower to higher priority work means that the lower priority tasks -- many of which are still critical to the bureaus’ missions -- are deferred or not conducted, such as processing permits. Likewise, offices that borrow staff from other offices gain the ability to carry out activities, but this comes at a cost to the office that loaned the staff..."

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