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We’ve all driven past the chemical plants, so we’ve seen the pipes in the air and the security checkpoints on the ground. But most of us have no clue what happens inside. We’re dimly aware that people in jumpsuits with nametags make something we probably can’t spell or pronounce that is shipped somewhere else. From a distance, it all seems very mysterious.

So it helps to have a tour guide. Deneen Miles is one of the department heads at ExxonMobil’s chemical plant on Scenic Highway. She points out the tall, black cracking furnaces that heat propane or butane until the molecule explodes, the towers that sort the pieces by the boiling point and the control centers that turn those new molecules into salable products. Most chemical plants don’t make anything you purchase; instead, they make products that go into what you buy, including your car, your house and the shoes on your feet.

She also points out the 30,000-gallon tankers filled with isopropyl alcohol, which can be diluted and sold as rubbing alcohol; giant stainless-steel tanks that hold neo acid, some of which ends up in a herbicide used by Dom Perig-
non; and a new unit, a complex network of pipes some three stories tall and half of a city block wide, that will help Exxon’s neighboring refinery create low-sulfur diesel.

“This just started up this year,” Miles says. “This is what $80 million looks like.”

Take that $80 million and compound it thousands of times over, and you start to get an idea of how important the chemical business is to the Capital Region. Think about 9,400 jobs, not counting contractors, with average salaries well over $50,000, and you’re getting closer. Consider all the indirect jobs and investments the plants create, and you’re warmer still. Add that plant owners and workers are prolific charitable contributors, and you’ll realize chemical manufacturing arguably is our most vital business sector, and certainly is among the top two or three.

Multinational chemical companies were battered by the global recession, but our local plants have held up. As the economy wheezes toward some semblance of recovery, the industry’s outlook improves, but the horizon remains cloudy. Even without mass layoffs, employment has declined and likely will continue to do so. Industry leaders fear a critical workforce shortage as the baby boomers retire without enough quality younger workers to replace them. And possible federal legislation to curb greenhouse gases could spur companies to shift production, and still more jobs, overseas for good.

The multiplier effect

“We’re here because of the gifts of nature,” says Dan Borné, the president of the Louisiana Chemical Association. When you combine petroleum and natural-gas deposits—which fuel chemical production—the availability of the Mississippi River and lots of available land, you have all the ingredients for a robust chemical sector.

During World War II, rubber plants and bauxite refineries [bauxite is an ore used in aluminum] were built along the river, where they could be protected from German submarines. The Royal Air Force won the battle over Britain thanks in part to an octane booster produced in Baton Rouge, Borné says. Exxon began chemical production in 1940, and Dow Chemical arrived in the late 1950s, but the industry didn’t really get cranking until John McKeithen became governor in 1964. McKeithen pushed business incentives through the Legislature and personally recruited companies from all over the world.

LCA membership peaked in 1999 with 75 companies, 105 sites, and 34,324 employees. While not every company is a member, association numbers are a decent indicator of the industry’s scope in Louisiana. Those numbers don’t include contract workers, who are almost as numerous as employees at some plants.

“Within the manufacturing sector in our metropolitan area, it is the dominant employer,” economist Loren Scott says.

Scott says the industry’s multiplier effect is huge: For every job created in the chemical industry, there are five more jobs created elsewhere, he says. The plants spend vast sums on construction and maintenance, which helps explain why six of the top 10 firms on Business Report’s 2009 list of the top 100 local private companies work in industrial construction.

Chemical plants also are the biggest property taxpayers in virtually every parish where they appear; ExxonMobil is the biggest property taxpayer in East Baton Rouge by far, with Entergy a distant second.

“It’s extremely important that we, as a state, don’t take the industry for granted,” says Stephen Moret, secretary of Louisiana Economic Development. “It’s hard to adequately express how huge an economic driver these companies and their facilities are for our state.”

Having said that, chemical employment, as with manufacturing in general, has been slipping for years. Over the past decade, the industry lost about 180,000 jobs nationwide, according to the American Chemistry Council. Much of the decline can be chalked up to foreign competition and better technology enabling greater productivity with fewer workers.

Martha Moore, the council’s senior director for policy analysis and economics, says several factors came together in 2000 and 2001 to shrink domestic employment: an Asian economic crisis, leading to excess Asian inventory getting dumped here, production moving overseas in response to the high value of the dollar and skyrocketing natural-gas prices in the U.S. That last factor helped knock Louisiana ammonia production from 11 facilities and 3,000 workers down to six facilities and just over 1,100 employees, to pick one local example. ACC and LCA predict continued job losses. Even Moret, as enthusiastic a promoter of the state’s economy as you’ll find, says the chemical workforce will show only slight growth at best.

Louisiana production has long been dominated by basic commodity chemicals like ethylene or propylene that are shipped in bulk through pipelines. These days, a producer can make bulk chemicals in any number of countries, and spend less money doing it there than they would here.

“Almost all the new capacity for commodity chemicals is being built in the Middle East and Asia, where you have all that really cheap gas and feedstock,” says Dan Schuessler, site manager of Exxon’s Baton Rouge chemical plant.

But innovative companies that use the building-block chemicals to develop what are called specialty chemicals can still grow, he says. Exxon constantly reinvents its synthetic rubber for inner tire linings. Each order is made for a specific customer, and that product sells out even in the midst of a recession when almost no one is buying cars.

This year, LED launched Blue Ocean, an initiative to identify the next generation of Louisiana industries. Schuessler says the state should look for ways to build on our strengths. If V-Vehicle is building the electric car of the future in Monroe, why can’t the polymers for that car come from a chemical plant in south Louisiana?

“We still have a strong technology leadership position in the United States petrochemical industry,” he says. “The key is parlaying that technology into new products, and trying to provide some linkage between the high-tech sectors and your traditional industry segments.”

SNF Holding Company is planning a $350 million plant in Plaquemine that will produce a special powder used in enhanced oil recovery and wastewater treatment. The plant eventually will have 500 employees and 100 permanent contractors, the company says. While the product is indicative of the specialty-chemicals trend, Moret says the high job count is atypical. Projects announced in the future are likely to be capital-intensive, but not necessarily labor-intensive.

A return to normalcy?

There have been some high-profile layoff announcements over the past year, most notably at Dow and Albemarle, but nowhere near as many as some observers feared at the beginning of the year. But plants quietly have been shedding contractors while reducing their core workforce through attrition, moves that are seldom announced or reported. Some plants have been delaying turnarounds and other maintenance, and many are running well below capacity.

BASF’s massive Geismar facility employs about 700, plus another 400 to 500 contractors. Tom Yura, senior vice president and general manager at the site, says they’ve been able to avoid any employee layoffs, although some retirees have not been replaced and the number of contractors has decreased about 20%. He says his industry often feels the recessions and recoveries before others do.

At the low point in November and December 2008, Yura was shutting down units because demand had fallen off so dramatically. He saw an immediate pickup in the first quarter of 2009.

“What we have failed to see is anything close to a return to normalcy,” he says.

Experienced chemical-plant workers are highly skilled and difficult to replace, which helps explain why many plants are hanging on to their core workers so tightly. By some estimates, the average chemical-plant worker is well into his 50s, and many industry observers and plant managers are unsure where the next generation is coming from. A young worker with a two-year degree and a little on-the-job training can make a very good living, but the plants don’t seem to attract new blood like they used to, and some say the workers aren’t as loyal. Industry leaders hope workforce development and educational reforms being discussed at the state level will help. Bob Landry, who worked in the local chemical industry for 35 years, says the hours scare off some people.

“Some people just don’t like working shift work,” he says. “It does take a toll on your body over the years. I never noticed it until I retired, and I’m like, ‘Gee, I feel a lot better.’”

Ron Netterville is a pipefitter and 33-year employee of Exxon’s chemical plant. He says people started calling him “Hondo” when he played high-school basketball, because, like former Boston Celtics great John “Hondo” Havlicek, he was all over the court and never got tired. Netterville works the way he played hoops, and the nickname stuck. He’s a proud union man who says the plants could attract and retain better workers if they relied less on contractors and hired more real employees, who in turn would feel more ownership of the job.

“As far as trying to find so-called good workers, the only thing you have to do is have what you call an apprentice program,” he says. “I came through an apprentice program.” He suggests stepping up such training efforts now, while the experienced baby boomers are still around.

Cap and trade and debate

Debates in Washington, D.C., over health care and labor law are creating uncertainty across the business spectrum. Chemical manufacturers are closely following efforts to modernize the federal 1976 Toxic Chemicals Control Act. But at the moment, perhaps the three most controversial words in industry circles are “cap and trade.”

Cap-and-trade supporters start with the premise that emissions produced by burning carbon-based fuels are “greenhouse gases,” which wreak havoc on the earth’s climate. The Waxman-Markey Bill approved by the House of Representatives earlier this year would set an overall cap on carbon emissions, while allowing businesses to buy and sell pollution allowances among each other. In theory, the program would spur industry to reduce emissions while letting the free market work out from where the reductions should come.

Among chemical producers, opinions on cap and trade vary. Some are supportive. Some dismiss the underlying science entirely. And others agree greenhouse gases are a legitimate problem, but feel a direct carbon tax would be simpler and more predictable. Many argue that capping our emissions is pointless if we can’t convince China and India to do the same. Borné says some companies simply want to stay involved in the discussion, fearing that if they’re not at the table, they could end up on the menu.

“Personally, I think they need to do a timeout and take a look at the science with a better eye than they’ve had recently,” says Mike McDaniel, a former head of the Louisiana Department of Environmental Quality who is the professional in residence at LSU’s Center for Energy Studies. He says a straightforward tax would be preferable, but politicians don’t want their names attached to a big tax, especially when the economy is sluggish. Instead, they prefer the hidden tax that cap and trade would create.

“All of that cost will be transferred down into [the industry’s] products and, ultimately, to the consumer,” McDaniel says.

Dow has endorsed the cap-and-trade approach and set a goal of reducing its emissions by 2.5% per year per pound of product. If every industry player could hit that target, the nation would easily reach the 17% reduction by 2020 envisioned under Waxman-Markey, says Rich Wells, vice president of government affairs and public policy with Dow.

In November, Dow announced an agreement with Denbury Onshore to transfer carbon from its ethylene oxide plant in Plaquemine into Denbury’s so-called “green” pipeline. Denbury uses carbon for enhanced oil recovery. Such innovation will be necessary if the government decides to really crack down on carbon, and companies on the forefront will be positioned to thrive.

Again, many chemicals can already be made more cheaply overseas than here. If the U.S. screws up the cap-and-trade system, companies will react by shifting even more production overseas where environmental regulations are less strict. Then you’ve achieved the worst of both worlds: wounding the U.S. economy, while creating even more global emissions.

“If we get this wrong we can do a lot of damage to the economy,” Wells says. “If you do this right, it can be a job creator.”

When politicians head home for the winter break, they’ll discover, if they don’t already know, that many of their constituents believe the bill is a jobs-killer. Opponents received an early Christmas gift last month when a server used by a prominent climate-research unit at a British university was hacked and a number of e-mails and documents were stolen and leaked. Some say the documents have been quoted out of context to make it appear that researchers are trying to hide inconvenient holes in their global-warming theories. Others have been quick to dub the incident “ClimateGate,” because, apparently, it’s not an official scandal until the suffix “gate” has been attached.

Scott, the economist and an outspoken political conservative, says cap and trade could push chemical companies to go past shifting capacity overseas and right to shutting down whole plants, despite the huge investments those companies have already made here. Plants do a lot of business with each other, which is another reason so many are clustered here together.

Conversely, Moret says if you lose a significant plant, more closures could follow. At the very least, all this uncertainty is causing money that might otherwise be invested in new projects to sit on the sidelines, he says.

Why Louisiana?

One question about the chemical industry keeps coming up: Why would anyone make chemicals here? Why not just pull up stakes and move to the Middle East, where the labor comes cheap and the natural gas and oil are practically free?

A big part of the answer is obvious: They’re already here. As long as we have a stable government and the plants are reasonably profitable [and they are, at least in normal times], the major players aren’t leaving, although they’ll probably continue to shift as much production as practicable overseas. But don’t overlook that, even with all the industry bellyaching about workforce development, south Louisiana has some of the most skilled, experienced and hardworking plant workers.

Netterville is one man among a generation of Louisiana workers who’ve depended on a chemical plant to provide a stable, prosperous living for himself and his family. He’s keenly aware of how important his plant is to the community, and how many other jobs depend on him keeping his. But at 59, he’s hoping to retire in the next few years, so he takes it upon himself to show the younger workers how it’s done.

“I still take time out and encourage them to be to work on time, try not to miss, work safe, and come out there and do right,” he says.

And, as Moret says about the industry in general, don’t take your job for granted.

“Hondo believes in being right,” Netterville says. “My mind-set is, you want to keep Exxon here. It’s not for anybody to retire off of. It’s for all the businesses that feed off that place. If Exxon decided one day to pick that son of gun up and put it someplace else, at least I can look at myself in the mirror and say I did my part to keep it there.”

The president of the Louisiana Chemical Association says Tulane’s involvement in a Capital Region environmental lawsuit could ‘kneecap’ the state’s industry. Click here to read.