Rising Labour Costs Threaten US Projects

Presentation1.jpgBy John Richardson

RISING labour costs will impact the viability of US petrochemicals projects as a result of the surge in overall hydrocarbons construction activity, an industry source told the blog.

“Unless companies lock-in their labour costs fairly quickly, before the big surge in activity ahead of numerous cracker and derivatives start-ups planned for 216-2017, they are going to have major problems,” he warned.

“Pipe layers are already commanding six-figure salaries and plant operators in remote locations are earning $200,000 a year. Companies are being forced to build retention payments into contracts.”

But despite the expectation that ethane prices will increase as a result of gas-supply companies rationalising production to recover profitability, the source believes that the ratio of gas to oil prices will still remain very healthy over the long term.

“The gas companies are already making adjustments to production following the decline in pricing earlier this year to a record-low of below $2.00 mBTU,” he added.

“However, crude isn’t going to fall much below $90 a barrel – the minimum price that Gulf-region countries such as Saudi Arabia need to cover social costs, such as job-creation schemes. As a result, I don’t believe there will be any big recovery in the viability of liquids cracking.”

Nevertheless, given rising labour costs, and all the uncertainties over demand, the source believes that only around two of the numerous ethylene expansions being planned in the US are certain to go ahead.

Any bets on which of the above projects will eventually see the light of day?

, , , , ,

Leave a Reply