The work at Marathon Ashland Petroleum’s $3.3 billion expansion of its Garyville refinery is beginning to slow down. Some of the work has been finished and those crews are gone. Other contractors are beginning to scale back their presence at the site. As the project inches closer to its December completion date, Baton Rouge-based industrial contracting companies are expecting to feel the pinch.
The Marathon expansion is one of the largest projects to come out of the post-Katrina construction boom. The expansion, which has required up to 8,000 workers on-site, has been a major factor in the industrial construction industry for over two years.
But all good things must come to an end. The question is, how will Marathon’s completion impact the contractors that have counted on it as a steady source of income in an industry that doesn’t look to be doing much expansion in the foreseeable future?
Excel Chief Executive Officer David Roberts says his company has between 650 and 700 employees currently on site and as the job wraps up, the vast majority will move on to other projects. Any layoffs would be among the five to 10% of unskilled workers unable to commute to other job sites.
“I can’t say that there won’t be layoffs,” Roberts says. “The skilled craftspeople will be transferred to other projects, but unskilled workers that might live in Garyville or other local areas that might not be able to transfer, I can’t say.”
Turner Industries, which is contracted to do mechanical engineering on the site, peaked with 2,800 employees at Marathon this summer and has scaled down to around 2,000, says Chief Executive Officer Roland Toups. The tentative schedule is to phase out one-third of those workers in October and another third in November, leaving the remaining workers on site to finish up and prepare for a turnaround in January.
Toups says around 40% of the travelers—craftsmen who make a living moving from job site to job site—will be laid off after the project is completed.
“This job has lasted two and a half years. Working a job like this is very appealing because it is good money,” he says. “Once the work is complete, around 40% [of workers] will be going home or moving on to other job sites, where they may work for Turner or they may not.”
Turner has a base in contract maintenance with a presence at 180 sites on the Gulf Coast. Of its 15,000 employees, around 8,000 maintain those sites, while the rest work in construction. The completion of the Marathon job is just a part of the construction cycle, Toups says, which has a lull between jobs.
“The construction part of our business has peaks and valleys,” he says. ”It’s not like Albertson’s, where they’ll announce a store closing and on Oct.1, and 250 people no longer have jobs. It’s not that cut and dried.”
James Construction Group had 750 employees on the site at the height of the civil concrete construction work on the Marathon site last year, but scaled back to around 30 employees since April, says Chief Executive Officer Michael Killgore. The company laid off 200 workers.
“The reduced private industry work reduced our workforce,” Killgore says. “As we’ve picked up work, we’ve added workers. The Marathon job has not impacted us severely. We moved most of our workers to different projects.”
Several companies see Shintech’s $1.9 billion dollar chemical plant expansion in Plaquemine as a potential revenue stream, even though the project is 60% the size of Marathon. Excel has already been awarded two contracts with Shintech, and Toups is hoping Turner Industries will gain some work from that project as well.
“The Shintech project muddies the water,” says economist Loren Scott. “The Marathon project is going to cause a huge drop off, but that might be counterbalanced by this project coming online. It’s hard to say at this point.”
Without Shintech as a cushion, the New Orleans MLS would lose around 8,000 jobs when the expansion is finished, Scott says. Construction job losses are measured according to the MLS the site is located in and might not indicate where those workers live. The impact of Marathon’s completion on the companies they work for, Scott says, will probably start showing this quarter and finish out the year.
James Construction has taken a different approach to the issue. With the drop off in private industry work, the company has been ramping up on public sector projects to fill in the gap, including several highway projects and a $280 million contract with the Army Corps of Engineers in New Orleans.
“There are quite a few projects with some coming out of a two to three year backlog,” Killgore says. “Down the road, the stimulus money will be gone and the state will have to figure out a new funding mechanism for highway construction. That’s a concern.”
The well has not yet run dry on Gulf Coast industrial projects, although the economy has insured less expansion for the next couple of years. The high interest rate on GO-Zone bonds, which have stalled projects like the Woman’s Hospital location off of Airline Highway, and the likelihood of a cash-strapped state legislature and DOTD next year means less work to go around.
Roberts says Excel’s revenue is projected to grow by 10 to 15% for 2009, and he believes that the next couple of years will bring in enough work to keep those numbers climbing.
For Turner Industries, the outlook is cautiously optimistic. The company will relocate workers to other job sites as needed, especially if they land a contract with Shintech.
“There is a lot of work coming down the pipe. At this point, we just don’t know how much we will land,” Toups says. “Where we go from here depends on how much work we get.”
Killgore is anticipating 2009 revenues to come in seven or eight percent lower than the $410 million the company posted for 2008. The numbers for 2010 look better, but where the long-term financial support for the infrastructure projects that will make it possible comes from is a little less certain.
“We think it’s going to be a good year for 2009 and into 2010 because of the public sector projects and stimulus money,” he says. “After 2010, it’s still to be determined. We’ll see what transpires later on down the road.”
