ECF ’16: Downstream craft labor boom in Texas could fade after 2017

By Ben DuBose
Digital Editor

GALVESTON, Texas -- The fortunes of the downstream construction industry along the Texas Gulf Coast could change dramatically when the new wave of petrochemicals-driven projects begins to wind down after 2017, according to Bill Gilmer, director for the Institute for Regional Forecasting at the University of Houston's Bauer School of Business.

Gilmer delivered his remarks on Wednesday at the second annual Energy Construction Forum in Galveston, where he explained how the Houston metro area is dealing with the combination of an upstream bust and a downstream boom.

"Construction is a powerful boost to the economy, at a time we need it badly," Gilmer said. "Normally, downstream construction is more important to Baytown or Brazoria County [eastern areas] than it is to the whole Houston metro area. But not right now. This construction boom is more than twice the size of any seen before in the US, even adjusting for inflation.

"But after the projects are over, they will leave a relatively small number of permanent workers in place," he added.

Large projects such as new ethylene projects from ExxonMobil, Chevron, Dow Chemical and BASF and the massive Freeport LNG export terminal are headlining over $50 billion in construction work for the East Houston area.

But of that $50-billion figure, over $31 billion in projects are expected to wrap up in 2016 or 2017. The latter year is the "peak" year for the current wave, with nearly $23 billion in projects expected to wrap up.

From 2018 onward, confirmed construction awards are at $5 billion/year and declining by year -- as shown in the graph below.

"Construction projects come, and construction projects go," Gilmer said. "They are large, but temporary events. Construction peaks in 2017, then begins to decline very rapidly."

The wave could continue, of course, if energy prices rebound to a level justifying a new wave of downstream investments. And regardless, these temporary jobs are important because they keep machine shops and the industrial base for machinery and fabricated metal busy, Gilmer explained.

But one construction job is unlikely to equal one lost in drilling, because temporary workers are unlikely to need things like high-end apartments, luxury retail, office space or other amenities. While compensation is good for the skilled, unionized craft labor jobs, there are important differences between that position and those lost in the upstream.

"Because they are temporary workers, they don't bring the kind of multipliers that other, permanent jobs bring," Gilmer said. "The newly-trained Millennium lawyer or engineer drawn to Houston by the fracking boom wanted the River Oaks apartment, or the mid-life geophysicist with three kids could afford the $350,000 house in Katy. This boom is a different demographic located in a different east-side geography."

In closing, Gilmer noted that he sees the current market situations as a serious downturn in oil markets, and one that has run faster and deeper than the prior downturn in 2008-09. As a result, the options for a quick and easy way out have disappeared, and slow job growth is likely to stretch throughout 2016 -- possibly impacting other aspects of the Houston economy usch as health care, leisure and retail spending.

"That said, it is just one more oil downturn in Houston," Gilmer said. "It is not 1982 or 1987 in oil markets, and certainly not the Houston economy."

The second annual Energy Construction Forum continues through Wednesday at Moody Gardens.

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