The $50 billion boom
|Manufacturing is making a historic comeback across south Louisiana.|
Paul Stratford spent a dozen years of his career working for ExxonMobil in Singapore. North American manufacturing was stagnant, and Southeast Asia was the place to be.
But two and a half years ago, he was named manager of ExxonMobil's Baton Rouge Chemical Plant, just in time to announce a $215 million expansion.
The reason? Baton Rouge is now the place to be.
“I came back here because of the new boom and what they were calling 'the manufacturing renaissance' in this country,” Stratford says. “I came back to a world of growth in North America that was really not envisioned by our company or by any other companies across the globe.”
Indeed, a mere three years ago, manufacturing was widely considered a declining industry in Louisiana.
Plant after plant had closed its doors. Fifty-thousand jobs had been lost since 2000. And consultants aiding the state with a Blue Ocean strategy for economic development concluded that digital media, renewable energy and water management offered the best hope for growing Louisiana's economy.
But oh, what a difference three years can make. A $50 billion difference, to be exact.
That's the minimum that national and international firms are expected to spend in the next three to four years erecting dozens of new manufacturing facilities or expanding existing ones, largely along the Mississippi River, from Baton Rouge to New Orleans, and around Lake Charles.
Tens of thousands of permanent direct jobs and temporary construction jobs are coming our way, and businesses across south Louisiana—from engineering firms to restaurants—can expect to benefit from the boom.
At least seven projects boast a capital investment of more than $1 billion each. South African-based Sasol's proposed natural gas processing plant near Lake Charles, with its massive $21 billion price tag, is considered the largest investment by a foreign-based company in American history. Magnolia LNG has announced plans for a $2.2 billion gas liquefaction production and export facility, also in Lake Charles; and CF Industries is spending $2.1 billion to expand its Louisiana Nitrogen Complex in Donaldsonville. The list goes on.
Many of these projects are described as “world scale,” meaning that the products are destined for international markets, potentially securing Louisiana's position as the nation's top exporter for years to come.
“There has been nothing like this in Louisiana history,” says Dan Borné, president of the Louisiana Chemical Association and the Louisiana Chemical Industry Alliance. “Louisiana is on the cusp of a renaissance in chemical manufacturing—a new industrial revolution.”
FRACKING DOES IT
Louisiana has experienced waves of major capital investment over the decades, Borné notes, dating back to the initial discovery of oil and natural gas beneath the land. Other influxes came during and after World War II.
The most recent investment spurt came in the late 1960s and early 1970s, spurred by then-Gov. John McKeithen's globe-trotting recruitment trips and his package of “right to profit” laws. At the time, LSU economist James Richardson notes, employment in the mining industry doubled to 100,000.
But over the past 15 years, manufacturing jobs in Louisiana declined from 180,000 to 130,000. The state wasn't alone: In the past 12 years, the nation as a whole lost 5.5 million manufacturing jobs—nearly one-third of its manufacturing workforce—according to the U.S. Chamber Foundation.
Blame it in part on a combination of automation, outsourcing and the recession. But most damaging of all was the shortage and corresponding high price of natural gas, the power provider and feedstock for many of Louisiana's manufacturers—particularly those in the petrochemical and specialty chemical sectors. Industrial prices started creeping up at the end of 2004, reaching a high of $13.06 per thousand cubic feet in July 2008 and prompting many companies to shut down plants and ship jobs overseas where natural gas was more plentiful and affordable.
Those high prices made gas a potentially profitable commodity for drillers, who were adopting hydraulic fracturing technology to access previously untapped shale deposits. Their efforts were so successful that forecasters estimate the United States now has more than a century's supply of natural gas, three decades of which can be profitably produced at $4 per million BTU or less.
Last year, the industrial price of natural gas dropped to $3.01 per thousand cubic feet; it currently stands at $4.54.
What that did, says Cal Dooley, president and CEO of the American Chemistry Council, was instantly transform the U.S. chemical industry “from the world's high-cost producer five years ago to among the world's lowest-cost producers today.”
The country now enjoys a competitive cost advantage in producing basic chemical processing components like ethylene, ammonia and methanol. Consider that here it now costs less than $400 a ton to produce ethylene—a major industrial molecule—compared to $1,200 per ton in Europe and $1,700 per ton in Japan.
“Obviously, natural gas is the game that everybody is playing right now—the cheap natural gas that we have in this country,” Stratford says. “We've got $3 natural gas, Europe has $12. And in Singapore it's $19; it's six times more expensive. That brings a lot of opportunity for us here.”
COMPETING WITH TEXAS?
Indeed, for the past two years, manufacturers have been scrambling to expand their U.S. operations to take advantage of the game-changing circumstances, and Louisiana has emerged as a top destination.
Some point to BASF Corp.'s construction of a new methylamines plant in 2011 and its new surfactants plant starting up this year as the beginning of the wave. Last fall, the company also broke ground on a $138 million formic acid plant at the same complex in Geismar—now its largest integrated site in North America.
In the past year alone, some two dozen multibillion- and multimillion- dollar projects worth more than $33 billion have been announced in south Louisiana—more than half of them in the Capital Region. Seven are in Ascension Parish, including a $300 million new rare earth elements separation plant and refinery that Avalon Rare Metals is building in Geismar to produce elements used in flat-screen TVs, high-strength magnets for hybrid and electric vehicles, and other growing high-tech applications.
One firm—Methanex Corp.—is even dismantling two of its methanol plants in Chile and relocating them to Geismar and Gonzales at a cost of $1.1 billion.
“We have seen periods where there has been capital enhancement of existing facilities, but that has happened over many, many years, and you wouldn't necessarily see that many jobs associated with those projects,” says BRAC President & CEO Adam Knapp. “What you see today is virtually every single company along the river corridor in the middle of or contemplating an expansion, or having completed one; and now, with Methanex and SE Tylose and Avalon Rare Metals and the list goes on, you have brand-new construction of facilities along the river. That's what signifies to us that this isn't just a period of expansion and modernization, but new manufacturing as well. That's what's so exciting and different about this.”
Contrary to prevailing beliefs, natural gas prices alone didn't make it happen, LED Secretary Stephen Moret says.
“It's true to say that the presence of low natural gas prices is, in fact, catalyzing new growth industries in the United States, but it's not pushing those projects to Louisiana, because low stable natural gas prices are available across the country,” he says. “It just so happens that Louisiana is well-positioned to attract them.”
The Gulf Coast clearly has the edge overall, boasting more than 78% of the new capital investments, according to the American Chemistry Council. But beyond that, it's anybody's game.
Although Texas and Louisiana share many of the same infrastructure attractions—major ports, railways, interstates, waterways and pipelines—the former remains the nation's top producer of chemicals.
But in recent years, Louisiana has developed several strategies aimed at giving it an edge over its rival to the west.
The state has offered up millions of dollars in incentives over the past year to secure major projects: performance-based grants for infrastructure costs, reimbursements of relocation expenses, and other incentives such as the Modernization Tax Credit, the Enterprise Zone, the Competitive Projects Payroll Incentive, the Quality Jobs Program and the 10-year Industrial Tax Exemption.
“Even though we have a very complex, goofy tax structure, the net effect of it is that we have the lowest state and local tax burden for new manufacturing projects in the country,” Moret says. “We are substantially lower than Texas.”
In addition, the FastStart Program offers new companies free customized recruitment and training of workers. Moret says the state has also earned a reputation for having a substantially faster and better managed environmental permitting process than Texas.
Mike Eades, president of the Ascension Economic Development Corp., says existing interconnectivity also counts. South Louisiana offers a clustering of related manufacturing facilities and the industrial services they need, which gives rise to operational simplicity and cost-effectiveness. The parish, for example, boasts eight air separation plants supplying oxygen, hydrogen and nitrogen needed for processing.
“There's a lot of upstream/downstream going on here, where somebody's end product becomes the raw material for somebody else to make something else out of it,” he says. “There's just a critical mass of support and synergy in this area.”
Stratford says that advantage played a major role in Baton Rouge-based ExxonMobil's expansion, which will restore the company's position as the largest producer of synthetic esters and other components of motor and aviation oils it supplies to the military as well as to commercial airlines.
“We're capitalizing on the size and the close integration that we have,” Stratford says. “We can use every molecule that we bring into this complex in the most effective, cost-effective way. We're so big and integrated here that when we bring in a barrel of crude oil or a molecule of natural gas or whatever we bring in, we can look at what this position makes the most money for us in the most energy-efficient way.”
Iain Vasey, executive director of business development for BRAC, says an experienced industrial workforce also helps in recruitment.
“If you go to Iowa and want to build a $1 billion or $2 billion plant, they're not going to have local contractors who know how to build these plants,” he says. “They're not going to have the skilled workers—the pipefitters and people like that—nor will they have the skilled workers to operate the plants or the systems to train them.”
American firms like ExxonMobil and Dow Chemical aren't the only ones now investing in Louisiana manufacturing. Billions of dollars are rolling in from foreign-based firms like Sasol and BASF.
Of the nearly 100 chemical industry investment projects that have been publicly announced nationwide through the end of March, half are from firms headquartered outside the United States, meaning that Louisiana and the rest of the nation are poised to capture market share from the rest of the world.
And more is on the way, Moret says.
“We are the foreign direct investment powerhouse of the United States,” he says. “The numbers are just staggering in how big they are, and we're expecting more over the next 18 months: tens of billions of dollars. Within 18 months, the majority of announcements will be foreign direct investment.”
The effects of this multibillion-dollar boom are expected to be far-reaching.
Louisiana is already seeing additional new projects directly related to the manufacturing growth.
Katoen Natie, for example, headquartered in Antwerp, Belgium, is now investing $150 million to build a plastics storage, custom packaging and distribution facility for producers of petrochemical products in Baton Rouge. Gov. Bobby Jindal says the company's decision was “part of the renaissance that our chemical and energy industries are experiencing today.”
Shortly after BASF announced its decision to build a formic acid plant in Geismar, Air Products decided to expand its syngas separation unit to increase the supply of carbon monoxide to the firm.
Praxair has installed a new hydrogen plant at Valero's St. Charles refinery and extended its Louisiana pipeline by 50 miles, connecting the new hydrogen plant to its existing complex in Geismar.
Emerson Electric Co. has announced plans to build a new $10 million regional headquarters for its process management division on 19 acres in Gonzales. The firm helps a range of industrial customers automate production and processing.
And after Shell decided to install a small-scale liquefaction unit at its Shell Geismar Chemicals facility to supply LNG along the Mississippi River, Intra-Coastal Waterway and Gulf of Mexico, Edison Chouest Offshore signed an agreement with the company to provide the first LNG barging and bunkering operation in North America at Port Fourchon.
The renaissance is likewise affecting companies in the business incubator at the Louisiana Business & Technology Center's Innovation Park.
Executive Director Charlie D'Agostino says startup firms specializing in everything ranging from engineering and testing to marketing and branding increasingly are doing more work with expanding companies such as Dow, ExxonMobil and Albemarle.
“It's important for the larger companies to grow because the smaller startup companies and entrepreneurs can get a piece of the pie,” he says. “It's not just engineering or construction that benefit from this. It's the entire community: retail, Realtors, homebuilders, restaurants, grocery stores— everyone.”
Since much of the manufacturing is destined for the global market, Louisiana can also expect to see a continuing rise in exports.
The state already ranks as the nation's top exporter based on export activity as a share of gross product, growth in intensity and percentage of national exports, according to the U.S. Chamber Foundation. U.S. Census Bureau Foreign Trade Statistics show Louisiana's exports have grown 232.3% during the past decade, compared to 103.1% growth nationwide.
“European chemical firms are suddenly at a great price disadvantage,” says LSU economist Loren Scott. “Europe is a huge producer of chemicals, and we're eating into their slice of the world pie for chemicals. We're already seeing chemical exports increasing significantly here; it's really going to shoot up as these plants come on board and start to produce.”
Scott also notes that state and local budgets will also feel the effects of the renaissance, from sales taxes on construction to increased income tax revenues from new employees. And in 10 years, the facilities will begin paying property taxes.
Says Scott: “There are a lot of ways local and state governments gain from this.”
READY OR NOT
With such unprecedented rapid growth inevitably come challenges: adequate workforce to fill the new jobs, housing for tens of thousands of temporary construction workers, roadways to access the new and expanding facilities, and other concerns.
To enhance workforce training, state and local governments are making significant investments in technical colleges and centers.
That includes $20 million for a new training facility and associated equipment focused on industrial technology at SOWELA Technical Community College in Lake Charles, and $21 million to build a new Center for Advanced Manufacturing Training at the Port of Caddo-Bossier.
There are also efforts in Livingston Parish to establish a community and technical campus adjacent to the Livingston Parish Literacy and Technology Center to bring needed workforce development and technical training.
The expected influx of tens of thousands of construction workers also has community leaders scrambling to ensure adequate living quarters.
In Lake Charles, where a billions of dollars in capital investment boom is expected to add 5,200 new permanent jobs over the next two years and bring in 15,000 temporary construction workers over three to five years, the Port of Lake Charles plans an “employee village” that will house up to 4,000 industrial workers on port property. The $70 million village facility will include several dining options, a baseball field, basketball courts and other recreational facilities. Rent of about $130 a day will include three meals and transportation.
The community has also established the Go Group—short for Southwest Louisiana Task Force for Growth and Opportunity—to address anticipated “growing pains” in housing, utilities, traffic congestion, health care and school systems, among other sectors.
Believe it or not, industrial-ready land is also in increasingly short supply. The Ascension Economic Development Corp. has just issued a request for proposals for site evaluation to examine vacant pieces of land to determine their suitability for economic development.
“We are getting very tight on land—industrial land in particular,” Eades says. “There's a lot of vacant land out there, but just because it's vacant and on the river doesn't mean it's adaptable to industrial use—for a lot of reasons, whether it's wetlands or a lack of services or something like that. We're very cognizant of that and being proactive about it.”
Indeed, Moret insists the boom is only beginning, with additional massive projects to be announced over the next year and a half.
“One of the most exciting things, from my perspective, is that the biggest projects haven't even broken ground yet,” he says. “This is just the very early stages of what it's going to be: a very robust industrial boom in Louisiana.”?
Randy Peterson of Homesite Co., who tracks the Gulf Coast petrochemical industry, likens the current expansion climate to winning the biggest Powerball of all.
“This just doesn't compare at all to any other boom we've had—it's just mind-boggling,” he says. “We're seeing some big stuff. Everybody knows about that winning $590 million Powerball ticket sold in Florida, but people just don't realize or appreciate how big this is. How many more 'lottery' winners do we have at Geismar now?”
1. Sasol Ltd.
Integrated GTL and ethane cracker complex, Westlake
Investment: $16 billion to $21 billion
Direct jobs: 1,253; $88,000 average salary
Details: One of the largest foreign direct investment manufacturing projects in the history of the nation, producing high-quality transportation fuels like GTL diesel and other chemical products
2. Sempra Energy
Natural gas liquefaction export facility, Hackberry
Investment: $6 billion
Direct jobs: 130; $80,000 average salary
Details: The completed liquefaction facility's total LNG capacity will provide the natural gas-equivalent of 1.7 billion cubic feet per day of LNG for worldwide markets
3. Magnolia LNG
Natural gas liquefaction production and export facility, Lake Charles
Investment: $2.2 billion
Direct jobs: 175; $75,000 average salary
Details: Construction of a mid-scale facility capable of producing 4 million metric tons of liquefied natural gas annually, on 90 acres at the Port of Lake Charles Industrial Canal
4. CF Industries
Nitrogen Complex expansion, Donaldsonville
Investment: $2.1 billion
Direct jobs: 93; $56,500 average salary
Details: An expansion to boost the efficiency and output of nitrogen derivatives used by the agriculture fertilizer industry
5. G2X Energy
Gas-to-gasoline facility, Lake Charles
Investment: $1.3 billion
Direct jobs: 243; $66,500 average salary
Details: Construction of a facility on 200 leased acres in the Industrial Canal at the Port of Lake Charles that will use natural gas to produce methanol, which will then be converted to gasoline
6. South Louisiana Methanol
Methanol production facility, Convent
Investment: $1.3 billion
Direct jobs: 374; $66,500 average salary
Details: A new facility in the Port of South Louisiana District to provide intermediate feedstock for chemical manufacturers in the Gulf Coast region and foreign markets
7. Methanex Corp.
Relocation of two methanol plants from Chile; Geismar and Gonzales
Investment: $1.1 billion
Direct jobs: 165; $56,250 average salary
Details: Production facilities for methanol, used in windshield washer fluid, plywood floors, recyclable plastic bottles and other items
8. Dyno Nobel Americas/Cornerstone Chemical/Incitec Pivot Ltd.
Ammonia production facility, Waggaman [Jefferson Parish]
Investment: $1.025 billion
Direct jobs: 65; $55,700 average salary
Details: Develop an anhydrous ammonia plant on a site where an ammonia plant previously operated before closing more than a decade ago
9. Dow Chemical
Expansions, Plaquemine and St. Charles
Investment: $700 million
Direct jobs: Not available
Details: Restarting an ethylene plant at St. Charles and improving ethane feedstock flexibility for an ethylene cracker in Plaquemine
10. The Mosaic Company
Possible construction of an ammonia production plant, Faustina
Investment: $700 million
Direct jobs: 53; $83,000 average salary
Details: Engineering and design work has begun on a facility to nearly triple existing production of ammonia, with a final decision expected in mid-2013
11. Westlake Chemicals
Chlor-alkali plant, Geismar
Investment: $466 million
Direct jobs: 100
Details: Construction of new unit at the company's vinyls manufacturing complex
12. NuStar Energy
St. James Terminal expansion, St. James Parish
Investment: $365 million
Direct jobs: 32; $98,000 average salary
Details: Expanding tank storage capacity at the Mississippi River site from 8 million barrels to 11 million barrels
13. Avalon Rare Metals
Rare earth elements separation plant and refinery, Geismar
Investment: $300 million
Direct jobs: 175
Details: Construction of a plant to work with Avalon's mining and processing operations in Canada to refine 10 rare earth elements used for color in flat-screen TVs and high-strength magnets for hybrid and electric vehicles
14. Exxon Mobil Corporation
Baton Rouge Chemical Plant and Port Allen Lubricants Plant expansions
Investment: $215 million
Direct jobs: 45; $66,200 average salary
Details: Equipment modernizations, expansions and construction of a state-of-the-art blending center for synthetic aviation oil
15. Katoen Natie USA
Plastics storage/custom packaging/distribution facility, Baton Rouge
Investment: $150 million
Direct jobs: 210
Details: A 2 million-square-foot logistics complex to support petrochemical and specialty chemical producers in the Capital Region
16. Genesis Energy
Terminal modernization, Baton Rouge
Investment: $125 million
Direct jobs: 220; $80,000 average salary
Details: Modernization of the company's Port Hudson terminal and construction of an 18-mile crude oil pipeline to ExxonMobil's Baton Rouge Refinery and new crude oil unit train facility
17. SE Tylose
Hydroxyethyl cellulose plant, Plaquemine
Investment: $120 million
Direct jobs: 30; $58,000 average salary
Details: Capability of producing 9,000 tons of HEC annually, chiefly for latex paints
18. Huntsman Corporation
Existing chemical facility expansion, Geismar
Investment: $78 million
Direct jobs: 17; $92,000 average salary
Details: Part of the company's global investment to increase output of methylene diphenyl isocyanate, a key component of polyurethanes used in car seating, furniture and insulation
19. International Paper
Bogalusa Mill modernization
Investment: $44 million
Direct jobs: Retain 411 jobs; $69,000 average salary
Details: Render the mill more competitive by adding new equipment and technology
20. K&B Machine
Manufacturing and headquarters facility, Terrebonne Parish
Investment: $40 million
Direct jobs: 19; $48,000 average salary
Details: 200,000-square-foot facility
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