40 GNO REGIONAL TARGET INDUSTRY ANALYSIS INDUSTRY DEFINITION The energy industry, petrochemicals, and plastics industry is a large, vertically integrated industry focused on producing oil and natural gas, transporting these energy sources to refineries and petrochemicals plants, refining them into various chemicals, fuels, and plastics, and selling those final products to consumers and manufacturers. The energy, petrochemicals, and plastics industry is split into four closely related but distinct industries: oil and natural gas production, petrochemicals and plastics production, pipeline transportation, and energy, petrochemicals, and plastics machinery manufacturing. The energy industry focuses on exploration of potential oil and natural gas-bearing areas across the globe, and utilizes innovative and extremely high-tech methods to discover, produce, and transport oil, natural gas, and coal deposits to power the transportation and electricity needs of the world, and to provide basic feedstocks for petrochemicals and plastics. The petrochemicals and plastics industry is composed of petroleum refineries and petrochemical plants which produce gasoline, chemical feedstocks for finished products, and a variety of chemicals, products, and services for virtually every manufacturing industry in the world. In addition, the industry includes plastic resin manufacturers, which are closely tied to petrochemicals manufacturers, and plastics product manufacturers who utilize plastics to create common consumer products. Companies in the energy, petrochemical & plastics industry are involved in the production, blending, and distribution of the chemical building blocks of everyday products. Much of the petrochemical & plastics business lies in producing commodity plastics and chemical products, which are shipped in pellet or liquid forms. The petrochemicals and plastics industry is highly tied to and integrated with the energy industry. Louisiana is among the nation’s leading producers of oil and natural gas, refined products, chemicals, and plastics. NATIONAL GROWTH TRENDS The energy, petrochemicals, and plastics industry is undergoing a series of transformations as both geopolitical and industrial trends affect the way in which energy companies operate and what core competencies they will choose to pursue in the future. Although recent discoveries of reserves in the Gulf will have a positive impact on the industry, companies still face many uncertainties and challenges. Emerging problems of energy security and competition with nationalized energy companies, reductions in regional oil and gas stocks, global climate change and the potential for carbon controls, and the rapid growth of China and India present fundamental changes to the direction and focus of the energy industry. These issues also increase the international scope of the industry and its need for technical prowess and a talented workforce. These challenges are also driving the trends toward industry consolidation, as larger companies have greater capital availability for more challenging and long-term growth opportunities, and are better able to diversify their assets to protect against long term instability and uncertainty. TARGET: ENERGY , PETROCHEMICALS , & PLASTICS 1.94 1.89 1.95 1.87 1.91 2.05 $63K 1.75 1.80 1.85 1.90 1.95 2.00 2.05 2.10 2001 2002 2003 2004 2005 2006 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 Source: Bureau of Labor Statistics QCEW NATIONAL EMPLOYMENT & AVERAGE WAGE, 2001-2006 Avg. Annual Wage Employment (millions) 1.94 1.89 1.95 1.87 1.91 2.05 $51K $63K 1.75 1.80 1.85 1.90 1.95 2.00 2.05 2.10 2001 2002 2003 2004 2005 2006 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 Source: Bureau of Labor Statistics QCEW NATIONAL EMPLOYMENT & AVERAGE WAGE, 2001-2006 Avg. Annual Wage Employment (millions) Source: Bureau of Labor Statistics QCEW ENERGY, PETROCHEMICALS, & PLASTICS NATIONAL EMPLOYMENT & AVERAGE WAGE, 2001-2006 Avg. Annual Wage Employment (millions)
Transcript
40 GNO REGIONAL TARGET INDUSTRY ANALYSIS
INDUSTRY DEFINITION The energy industry, petrochemicals, and plastics industry is a large, vertically integrated industry focused on producing oil and natural gas, transporting these energy sources to refineries and petrochemicals plants, refining them into various chemicals, fuels, and plastics, and selling those final products to consumers and manufacturers. The energy, petrochemicals, and plastics industry is split into four closely related but distinct industries: oil and natural gas production, petrochemicals and plastics production, pipeline transportation, and energy, petrochemicals, and plastics machinery manufacturing. The energy industry focuses on exploration of potential oil and natural gas-bearing areas across the globe, and utilizes innovative and extremely high-tech methods to discover, produce, and transport oil, natural gas, and coal deposits to power the transportation and electricity needs of the world, and to provide basic feedstocks for petrochemicals and plastics. The petrochemicals and plastics industry is composed of petroleum refineries and petrochemical plants which produce gasoline, chemical feedstocks for finished products, and a variety of chemicals, products, and services for virtually every manufacturing industry in the world. In addition, the industry includes plastic resin manufacturers, which are closely tied to petrochemicals manufacturers, and plastics product manufacturers who utilize plastics to create common consumer products. Companies in the energy, petrochemical & plastics industry are involved in the production, blending, and distribution of the chemical building blocks of everyday products. Much of the petrochemical & plastics business lies in producing commodity plastics and chemical products, which are shipped in pellet or liquid forms. The petrochemicals and plastics industry is highly tied to and integrated with the energy industry. Louisiana is among the nation’s leading producers of oil and natural gas, refined products, chemicals, and plastics. NATIONAL GROWTH TRENDS The energy, petrochemicals, and plastics industry is undergoing a series of transformations as both geopolitical and industrial trends affect the way in which energy companies operate and what core competencies they will choose to pursue in the future. Although recent discoveries of reserves in the Gulf will have a positive impact on the industry, companies still face many uncertainties and challenges. Emerging problems of energy security and competition with nationalized energy companies, reductions in regional oil and gas stocks, global climate change and the potential for carbon controls, and the rapid growth of China and India present fundamental changes to the direction and focus of the energy industry. These issues also increase the international scope of the industry and its need for technical prowess and a talented workforce. These challenges are also driving the trends toward industry consolidation, as larger companies have greater capital availability for more challenging and long-term growth opportunities, and are better able to diversify their assets to protect against long term instability and uncertainty.
T A R G E T : E N E R G Y , P E T R O C H E M I C A L S , & P L A S T I C S
1.94
1.89
1.95
1.87 1.91
2.05
$51K
$63K
1.751.80
1.851.90
1.952.00
2.052.10
2001 2002 2003 2004 2005 2006
$0$10,000
$20,000$30,000
$40,000$50,000
$60,000$70,000
Source: Bureau of Labor Statistics QCEW
ENERGY, PETROCHEMICALS, & PLASTICSNATIONAL EMPLOYMENT & AVERAGE WAGE, 2001-2006
Avg. Annual WageEmployment(millions)
1.94
1.89
1.95
1.87 1.91
2.05
$51K
$63K
1.751.80
1.851.90
1.952.00
2.052.10
2001 2002 2003 2004 2005 2006
$0$10,000
$20,000$30,000
$40,000$50,000
$60,000$70,000
Source: Bureau of Labor Statistics QCEW
ENERGY, PETROCHEMICALS, & PLASTICSNATIONAL EMPLOYMENT & AVERAGE WAGE, 2001-2006
Avg. Annual WageEmployment(millions)
Source: Bureau of Labor Statistics QCEW
ENERGY, PETROCHEMICALS, & PLASTICSNATIONAL EMPLOYMENT & AVERAGE WAGE, 2001-2006
Avg. Annual WageEmployment(millions)
41 GNO REGIONAL TARGET INDUSTRY ANALYSIS
Reserve Replacement and Exploitation The problem of replacing reserves and exploiting known pockets of oil and gas continues to be the primary challenge of the energy industry, from the large vertically-integrated firms to mid-sized and small operators, including both oilfield services companies and engineering firms. As consumption of oil and natural gas continues to demand larger and more robust energy production, energy companies must continually seek new sources of oil as they deplete reserves of known oil in the ground. Many companies face difficulties replacing reserves, and not just in the United States. The Energy Information Agency, part of the U.S. Department of Energy, notes that in 2004, just 12% of oil reserves were replaced, meaning that for every 100 barrels of oil pumped out of the ground, only 12 new barrels were discovered to replace them. For U.S. operations, the news was even worse – only 64-65% of oil reserves were replaced in 2003 and 2004. Natural gas operators face better news, though U.S. offshore operators replaced only 19% of reserves in 2003 and 28% in 2004. To counteract these problems, more technically challenging and expensive methods of recovering oil must be employed, including enhanced oil recovery (EOR) through water or CO2 flooding of oil fields to force oil out of the ground. In addition, due to challenges from countries seeking energy security and nationalization of natural resources, Western energy companies find increased competition and barriers to entry in promising new areas for exploration across the globe. Energy Security, Supplies, and Nationalization One of the most important trends facing energy companies is the need for developed and growing developing countries to protect their economies from oil shocks due to overwhelming dependence on foreign sources of oil and increasingly natural gas. Several interlocking trends are at play here. In the United States, oil and natural gas production peaked in 1973 and has declined by a third since then, forcing increased reliance on energy imports to sustain transportation and electricity production and to provide feedstocks to the petrochemical and plastics industries. Today, the United States imports two-thirds of its crude oil and petroleum products from overseas. In addition, the supply of natural gas in North America can no longer feed the growing demand for electricity production, heating, and petrochemical refining, but unlike oil, natural gas is difficult to transport across seas, giving the United States the highest natural gas prices in the world. Natural gas imports require liquefied natural gas (LNG) terminals, which are expensive to construct and present serious terrorist targets, particularly on the liquefaction end, typically in unstable political areas. In addition, several of these LNG re-gasification terminals are proposed along the Louisiana Gulf Coast. Compounding the problem for major energy industry players is the increasing trend of nationalizing mineral assets, such as Venezuela’s recent insistence on rewriting contracts with major oil companies to make the state oil company, Petroleos de Venezuela S.A., (PDVSA) the majority stakeholder in all joint operations with Western oil companies. In addition, national oil companies such as China’s National Offshore Operating Company (CNOOC) and India’s Oil & Natural Gas Company (ONGC) are expanding their reach overseas and extracting resources in countries that have a history of human rights violations or political instabilities where Western companies are not welcome. While vertically integrated companies face restrictions on their ability to enter such markets, oilfield services and engineering companies have strong growth prospects in helping national oil companies increase efficiencies and adopt advanced technologies.
60708090
100110120130140150
'75 '85 '95 '05 '15 '25
Consumption
Production
U.S. ENERGY FORECASTU.S. ENERGY CONSUMPTION AND PRODUCTION
Source: Department of Energy
(Quadrillion btu)
Imports will equal 36% of U.S. Energy Consumption
42 GNO REGIONAL TARGET INDUSTRY ANALYSIS
This global search for oil and natural gas presents energy companies like ExxonMobil, Shell, Chevron, and ConocoPhillips with several challenges in searching for assets. Those challenges include working in countries facing political instability, searching for oil in deep water offshore, or dealing with a combination of these challenges. The challenges drive costs higher, creating greater dependence on politically unstable or unsavory countries, and requiring greater technical expertise and diplomacy to produce oil and natural gas. Natural gas prices are one of the primary drivers of the petrochemical & plastics industry, not only due to natural gas’ primary role as a feedstock for the petrochemical industry, but also because of the large quantities of natural gas used to power the refineries and chemical and plastics plants necessary for production. Because natural gas has typically been difficult to transport overseas, petrochemical and plastics production complexes have historically been located relatively close to large quantities of natural gas. The Texas and Louisiana Gulf Coast, as a national petrochemical and plastics leader, has long had a competitive advantage in being close to a large supply of this “stranded” natural gas. From the 1980s to 2000, the ability of Gulf Coast petrochemical and plastics producers to access cheap natural gas provided sufficient margins in production to maintain market share and build capacity for petrochemicals. In recent years, however, natural gas prices have climbed due to increased use in power plants, continued consumption for residential uses, and the peaking of the North American natural gas fields, leaving the United States with the highest natural gas prices in the world. To gain competitive advantages in this difficult marketplace, the U.S. petrochemicals and plastics industry has moved away from the commoditization of petrochemicals and plastics. Instead, the industry has increasingly turned to innovative new processes to wring waste from their systems, and to new, proprietary chemicals and plastics with specific, high-end products in mind. One growth area is in bioplastics, which uses cornstarch or soy products to produce new, biodegradable plastics from natural feedstocks, both reducing the reliance on expensive natural gas and increasing the environmental properties of the materials. In addition to these structural issues, long term growth potential for the U.S. market has dropped from 4-5% growth annually to 1-2% growth annually due to the rapid loss of manufacturing to cheaper overseas locations. Petrochemical capacity should grow about 0.5% per year over the next three years, and increased demand is expected to be met by imports of basic chemical feedstocks. Global Climate Change While energy companies face uncertainty in replacing their reserves due to depletion of their primary fields and difficulty in gaining or maintaining access to new sources of oil in Venezuela, Western Africa, Russia, and the Middle East, they face another potential challenge in regulatory changes seeking to control the release of global warming gases, including carbon dioxide and methane. Under plausible scenarios anticipated by Shell and other major oil companies, in the near future energy companies will face one of two challenges. They might face a carbon tax, which would place a cost on releasing CO2 into the atmosphere, or a cap and trade system,
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$10
$20
$30
$40
$50
$60
$70
$80
Jan-86 Jan-90 Jan-94 Jan-98 Jan-02 Jan-06
$0
$2
$4
$6
$8
$10
$12
U.S. Oil Prices U.S. Natural Gas Prices Source: EIA
MONTHLY U.S. ENERGY PRICESCRUDE OIL & NATURAL GAS PRICES, 1986-2006
Natural Gas Wellhead Price
Crude Oil Spot Price
Gulf War I
Hurricanes Katrina & Rita
43 GNO REGIONAL TARGET INDUSTRY ANALYSIS
in which an upper limit on the amount of global warming gases would be established, and companies would trade permits to reduce the economy-wide production of global warming gases to an amount at or below a cap. The uncertainty surrounding these regulations prevents energy companies from making long-term investments that would aid them in meeting a cap on carbon emissions or at least would not handicap them against the competing companies within the energy industry. In the face of such uncertainty, some energy companies are pushing for regulation to clarify their basis for investment, while others are diversifying their investments across technological improvements in accessing oil and natural gas in technically difficult areas, renewable energy technologies, and traditional oil and natural gas plays. Rapid Growth of China and India Though oil and natural gas prices have come down from their historic highs in the aftermath of Hurricane Katrina, the oil and natural gas supply remains tight across the globe. While demand growth in America has flattened, and even turned negative in 2006, and Europe’s energy consumption is growing at small rates, the emerging economies of the world are increasingly demanding and consuming large amounts of oil. From 2000 to 2004, Middle East energy consumption grew 18%, Asian energy consumption grew 12%, and Africa’s energy consumption grew 11%, compared to 5% growth in North America and 3% growth in Europe and South America. Growth in Asian energy consumption accounted for roughly half of the increased oil consumption across the world from 2000 to 2004. China’s energy consumption has grown an astounding 33% in 4 years, India’s consumption has grown 15%, and Asia as a whole has grown by 12%. Driving concerns in the industry will center on meeting rapidly growing demand in developing countries, especially China and India. Health, safety, and environmental concerns will impact both workforce development and technology development. Importantly, low-cost natural gas will continue to favor petrochemical and increasingly plastics producers in the Middle East and Asia. Over the medium term, creation of several liquefied natural gas (LNG) terminals along the Gulf Coast combined with cheaper natural gas imports from overseas may provide some relief to petrochemical and plastics production companies. Meeting the rapidly growing energy, chemicals, and plastics demands of the emerging economies, with less developed infrastructure, murkier legal regulations, and more challenging competition from national oil companies and uncertain economic conditions will present a major test for the major western energy companies. LOCATION DECISION CRITERIA Energy, petrochemicals, and plastics companies have specific site selection criteria, though in practice, most plants are not sited in new areas, but are rather expansions on current production sites. The most important criteria for expansion and retention of energy, petrochemicals, and plastics companies are:
Educated Workforce: Engineers, technicians, plant operators, skilled workers, etc… Proximity to Oil & Gas: Must be located close to significant oil & gas resources, including refineries Proximity to Multi-Modal Transportation: Port access, rail access, pipelines for feedstock and
product delivery Research Institutions: Research into enhanced oil recovery, computing power, etc… Access to Significant Capital: Energy projects are extremely capital intensive; having support of
financial and legal services versed in energy. Cheap utilities: Plants require access to ample electricity, natural gas, water, feedstocks Low natural disaster risk: Must be protected from flooding, provide buffer from non-compatible
activities
44 GNO REGIONAL TARGET INDUSTRY ANALYSIS
Structural Assets Required structural assets for the energy, petrochemicals, and plastics industry include large blocks of contiguous office space to support engineering firms, oilfield services firms, and data analysis and operations of large oil companies, expansive oil and gas-bearing land, access to transcontinental and transnational pipeline and port infrastructure, access to needed chemical and energy feedstocks, excellent highway access for employees, and excellent technical infrastructure. Air transportation to international oil centers, including cities across Africa, the Middle East, and Asia, will aid attraction of the energy, petrochemicals, and plastics industry. Cost of Doing Business Energy companies operate on an enormous scale, and produce commodity products of oil and natural gas. Energy companies, in addition to utilizing enormous amounts of capital, are increasingly driven by their technical expertise, proficiency in international legal agreements, and their ability to employ local populations in energy production. Petrochemicals and plastics companies are large users of electricity, natural gas, and water, and pay large amounts of property taxes. Any location decision will be heavily influenced access to transportation, including pipeline transportation and port access. Due to the number and diversity of employees, these operations are incredibly complex; although because of their polluting nature, they are typically located in areas with existing energy infrastructure. Research & Development R&D activity in the energy industry abounds, and the Department of Energy focuses major efforts on expanding enhanced oil recovery (EOR) opportunities for declining U.S. fields, advanced drilling methods and equipment, new and more efficient methods of burning natural gas for electricity, and in clean coal technologies to capture and geologically store CO2. Research funded by the U.S. government makes up a small percentage of overall R&D in the oil and gas industries, with private companies continually searching for more effective, efficient ways to produce oil and natural gas in increasingly fragile natural environments and continuously researching new plastics and composite materials for marketing. Many energy companies, with large amounts of capital seeking high returns, have started venture capital arms to invest in new energy technologies. Overall, however, energy companies invest much less of their profits into R&D, using only 1% of revenues for R&D, compared to 4.5% of revenues for industrial equipment companies. Economic Conditions The energy, petrochemicals, and plastics industry is very reliant on the overall economic climate of the nation, and increasingly on the macroeconomic trends worldwide. Local economic conditions play little role in expanding or relocating energy industries, except where competition for industrial materials and workers prevents energy companies from being cost competitive. Workforce Energy companies are increasingly driven by their ability to attract the best technical expertise and develop and retain the most technologically advanced, international workforce available. Even relatively low-tech jobs increasingly incorporate computer technology, data collection, and highly technical drilling processes. Petrochemicals and plastics plants require employees with extensive technical and trade-oriented training, and a continuous focus on safety. Aging workforces are a growing problem for energy companies, as highly experienced engineers, oilfield workers, plant operators, mechanics, and other key personnel reach retirement age without a ready supply of replacement workers. International competition for workforce is a growing aspect of workforce recruitment for energy companies, with quality of life in base cities playing a large role in recruitment and retention.
45 GNO REGIONAL TARGET INDUSTRY ANALYSIS
GNO REGIONAL ASSESSMENT GNO GROWTH TRENDS Louisiana is home to a huge integrated energy, petrochemicals, and plastics industry. Louisiana is fourth in crude oil production in the nation, second in petrochemicals production, and second in refined oil products. The petrochemical and energy complex spreading from Mobile, Alabama through the Greater New Orleans Region, through Baton Rouge, Lake Charles, Beaumont/Port Arthur to Houston is the largest energy and petrochemicals complex in the world, and produces large amounts of the nation’s gasoline, as well as its chemicals and plastics. The Greater New Orleans region is home to 6 refineries, and the state of Louisiana can refine more than 2.9 million barrels of gasoline per day. Expansions to refineries and petrochemical plants have been announced recently, as the Greater New Orleans region is one of the few air quality areas in attainment with EPA laws; Marathon is expanding its St. John the Baptist Parish plant through a $2.2 Billion expansion, and is expected to produce an additional 275 full time jobs. This expansion will help to provide additional gasoline supplies to the U.S. at a time when gasoline refining continues to come dangerously close to shortages with any refinery outage. This continues a trend of plant expansions being co-located with existing plants or supply plants driven by transportation aversion and quicker environmental permitting. The New Orleans region is also home to extensive service industries focused on supplying and servicing the offshore oil industries in the Gulf of Mexico. As the map to the right shows, nearly 70 % of all Gulf of Mexico oil
0
5,000
10,000
15,000
20,000
25,000
30,000
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12
$60,000
$65,000
$70,000
$75,000
$80,000
Source: Economy.com, Bureau of Labor Statistics QCEW
ENERGY, PETROCHEMICALS, & PLASTICSGNO REGIONAL EMPLOYMENT & AVERAGE WAGE. 2003-2012
Avg. Annual WageEmployment
Projected
0
5,000
10,000
15,000
20,000
25,000
30,000
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12
$60,000
$65,000
$70,000
$75,000
$80,000
Source: Economy.com, Bureau of Labor Statistics QCEW
ENERGY, PETROCHEMICALS, & PLASTICSGNO REGIONAL EMPLOYMENT & AVERAGE WAGE. 2003-2012
OFFSHORE OIL RIG LOCATIONS70% of Gulf of Mexico oil rigs are within 200 miles of New Orleans.
46 GNO REGIONAL TARGET INDUSTRY ANALYSIS
rigs are within 200 miles of New Orleans, and will continue to require servicing from shore. This presents a long-term area for growth within the energy industry. Employment in the energy, petrochemicals, and plastics industry is expanding across three of four subsectors; by 2012, the oil and natural gas production is expected to add 900 jobs, petrochemicals and plastics production is expected to add 2,800 jobs, and machinery manufacturing is expected to add 375 jobs. Pipeline transportation employment is expected to be flat. While wages showed explosive growth from 2004 through 2006, small drops are expected through 2012 as older employees retire and are replaced with less expensive, younger employees. COMPETITIVE COSTS AND CONDITIONS ANALYSIS The Greater New Orleans region continues to provide excellent value for the energy, petrochemicals, and plastics industry. Several plant expansions are underway within the region, due not only to the in-place infrastructure surrounding the plants, but also to generous incentives like GO Zone bonds given to energy companies. The Greater New Orleans region has lower electricity, wage, and property tax rates than competitor regions in Texas and elsewhere in Louisiana, and the region can quickly permit expansions of plants without air quality restrictions that exist in Houston and Beaumont. In addition, New Orleans’ energy industry benefits from the international trade, logistics, and distribution industry, as well as from the advanced aerospace and defense manufacturing industries. All three are symbiotic, with the energy industry relying on the logistics and distribution sector to export and ship its final
COMPETITIVE COSTS ANALYSIS- ENERGY, PETROCHEMICALS, AND PLASTICSCriteriaElectricity (Provider)(1)
Commercial (per kWh)Industrial (per kWh)
Average Annual Wage (5 year growth)(2)
20072006200520042003
Real estate prices(3) Low High Low High Low High Low HighOffice park (per acre) $28,700 $45,750 $131,000 $436,000 $25,000 $40,000 $174,000 $871,000Industrial park (per acre) $35,000 $87,000 $109,000 $218,000 $10,100 $35,300 $131,000 $610,000Land (non-park) (per acre) $69,000 $130,000 $175,000 $2,178,000 $25,000 $50,000 $44,000 $348,000
Taxes(4,5,6)
State income tax rate(4)
Sales tax rateAverage real and personal property tax rate(5)
(1) Source: Energy Information Agency, 2007 (5) Source: AngelouEconomics, 2006(2) Source: Economy.com, 2007 (6) Source: AngelouEconomics, 2006(3) Source: NAI/CIP, 2007 (7) Source: U.S. EPA, 2007(4) Source: Federation of Tax Administrators, 2006 (8) Source: AngelouEconomics, 2007
47 GNO REGIONAL TARGET INDUSTRY ANALYSIS
chemical and plastics products, and on the shipbuilding portion of the advanced aerospace and defense manufacturing industry for offshore oil supply ships and oil rig repairs. These three complementary industries provide a large industrial base for common suppliers, and provide opportunities for workforce training across industries. This integrated industrial base provides a significant competitive advantage for the industry in the Greater New Orleans region. New Orleans primary competitor for most energy, petrochemicals, and plastics companies will be, for the foreseeable future, Houston. Houston’s expert workforce, quality of life amenities, in-place infrastructure, and role as the location of operations or headquarters for virtually every major private oil company in the world presents continued challenges to New Orleans regaining lost management jobs unless they are particular to the infrastructure in place in the Greater New Orleans region. For this reason, GNO, Inc. should focus its efforts on retention of current energy services and regional headquarters, and expansion of current petrochemical plants and refineries where possible. While workforce wages continue to be competitive with other surrounding regions, workforce availability continues to present problems for long-term expansion to facilities. As with other related industries, workforce development obstacles, along with previously discussed structural changes within the industry, may prevent many additional plants from locating in the Greater New Orleans region as opposed to expanding in the Middle East or Asia. An aging workforce, with an average age of nearly 50 years old, and approaching 55 in some subsectors, energy, petrochemicals, and plastics workforce development will continue to present problems for long-term expansion of the industry. Without an adequate present and future workforce, though, many existing plants may be forced to close because of the shortage of skilled labor for the energy, petrochemicals, and plastics industry. WORKFORCE ASSESSMENT As previously discussed in the advanced aerospace and defense manufacturing industry, the Greater New Orleans region continues to experience skilled labor shortages, even after large pay increases for already well-paying jobs. Key positions with regional shortages identified in the occupational analysis include oil & gas rotary drill operators, geological and petroleum engineers, mixing and blending machine operators and repairers, and operational health and safety technicians. Interviews with regional business leaders also revealed significant difficulty in attracting sufficient numbers of plant operators, mechanics, welders, and pipe fitters. Additional problems occur because of the similar requirements of the advanced aerospace and defense manufacturing industry and the energy, petrochemicals, and plastics industry. Workers frequently move from company to company to reap increased salaries and benefits in the tight labor market, and then move back for additional raises. While some of these occupations require bachelor’s degrees or higher, the vast majority of the most sought-after occupations within the industry do not require a four-year degree. On the contrary, many require vocational training or an associate’s degree and some level of work experience. While technical and trade-oriented workforce shortages are not unique to the Greater New Orleans region, they have reached chronic levels regionally. Between retaining employees after the destruction of their homes and the lack of systematic training programs for energy, petrochemical, and plastics employees, Greater New Orleans faces larger obstacles to overcome workforce shortages. Many energy, petrochemicals, and plastics companies have expensive internal training programs to ensure that their employees are able to function competently on their first day on the job. Without the long term commitment
48 GNO REGIONAL TARGET INDUSTRY ANALYSIS
to rebuilding the region’s workforce development system, the onus of worker training will continue to fall on private companies, raising their operating costs significantly. Overall, the Greater New Orleans region has
significant workforce shortages in trade and technical occupations that require investment and training from the nascent technical and community college systems. SUPPLY CHAIN ANALYSIS To further refine the focus of economic development efforts, AngelouEconomics undertook a supply chain analysis of the energy, petrochemicals, and plastics industry using IMPLAN. This data reveals the source and amount of purchases among many different industries. By identifying the areas where energy, petrochemicals, and plastics companies purchased goods and services from outside the regional economy, we can help to identify niche sectors to target for recruitment, retention, and expansion efforts. The chart below shows the
Occupation
Title
New Orleans
MSA*
10-year U.S. Growth
Projection US
New Orleans
MSA*Wage
Differential
% with Bachelor's
Degree+ EducationRotary drill operators, oil and gas 460 0.1% $42,350 $50,850 16.7% 0% Moderate-term on-the-job trainingRoustabouts, oil and gas 510 1.0% $26,890 $26,730 -0.6% 3% Moderate-term on-the-job trainingGeological and petroleum technicians 360 6.5% $51,490 $66,390 22.4% 40% Associate degreeMixing/blending machine setters, operators, and tenders 200 2.0% $30,790 $41,560 25.9% 4% Moderate-term on-the-job trainingChemical engineers 290 10.6% $81,600 $79,420 -2.7% 92% Bachelor's degreeChemical technicians 450 4.4% $40,970 $42,020 2.5% 27% Associate degreeGeoscientists, except hydrologists and geographers 590 8.3% $79,890 $75,870 -5.3% 93% Master's degreeChemists 360 7.3% $66,040 $67,360 2.0% 94% Bachelor's degreeCutters and trimmers, hand ** 2.4% $24,370 $23,340 -4.4% 1% Short-term on-the-job trainingHealth and safety engineers 170 13.4% $68,400 $73,340 6.7% 70% Bachelor's degreePackaging and filling machine operators and tenders 620 2.3% $25,000 $21,700 -15.2% 5% Short-term on-the-job trainingIndustrial production managers 430 0.8% $83,970 $75,980 -10.5% 45% Work experience in a related occupationMultiple machine tool setters, operators, and tenders 80 0.3% $32,140 $32,320 0.6% 6% Moderate-term on-the-job trainingExcavating and loading machine and dragline operators 190 8.0% $35,740 $26,430 -35.2% 4% Moderate-term on-the-job trainingMaintenance workers, machinery 400 2.8% $36,390 $33,420 -8.9% 8% Short-term on-the-job trainingFirst-line supervisors of production and operating workers 2,120 2.7% $50,480 $45,940 -9.9% 13% Work experience in a related occupationPlant and system operators, all other 140 7.1% $46,450 $42,960 -8.1% 8% Long-term on-the-job trainingElectronics repairers, commercial and industrial equipment 440 9.7% $45,670 $56,380 19.0% 6% Postsecondary vocational awardControl and valve installers and repairers 140 4.9% $45,290 $42,420 -6.8% 13% Moderate-term on-the-job trainingIndustrial engineers 450 16.0% $70,630 $66,430 -6.3% 70% Bachelor's degreeOccupational health and safety technicians 90 17.1% $44,340 $44,530 0.4% 78% Postsecondary vocational awardRiggers 320 13.9% $39,670 $28,740 -38.0% 1% Short-term on-the-job trainingOccupational health and safety specialists 150 12.4% $59,270 $54,020 -9.7% 78% Bachelor's degreeShip engineers 550 12.7% $59,340 $58,080 -2.2% 15% Postsecondary vocational awardPackers and packagers, hand 760 10.1% $19,340 $17,230 -12.2% 4% Short-term on-the-job trainingHelpers--production workers 1,740 7.9% $22,120 $22,210 0.4% 5% Short-term on-the-job trainingTeam assemblers 860 7.3% $26,180 $26,260 0.3% 6% Moderate-term on-the-job trainingIndustrial truck and tractor operators 1,690 7.9% $29,090 $25,910 -12.3% 3% Short-term on-the-job trainingProduction, planning, and expediting clerks 840 7.7% $40,000 $40,370 0.9% 29% Short-term on-the-job trainingConveyor operators and tenders 170 7.7% $27,970 $22,560 -24.0% 0% Short-term on-the-job trainingEngineering managers 510 13.0% $110,030 $99,940 -10.1% 84% Bachelor's or higher degree, plus experienceOperating engineers and construction equip. operators 1,960 11.6% $40,560 $34,990 -15.9% 2% Moderate-term on-the-job trainingIndustrial engineering technicians 100 10.5% $50,920 $56,300 9.6% 18% Associate degreeCrane and tower operators 570 8.2% $41,450 $35,340 -17.3% 1% Long-term on-the-job trainingMobile heavy equipment mechanics, except engines 990 8.8% $41,390 $38,280 -8.1% 6% Postsecondary vocational award
Source: BLS Occupational & Employment Statistics; *New Orleans-Metairie-Kenner MSA only
Key Occupations in the Energy, Petrochemicals, and Plastics IndustryOccupational InformationAverage Wage
49 GNO REGIONAL TARGET INDUSTRY ANALYSIS
flows of trade by industry both within the region and from outside of the Greater New Orleans region. Niche sectors to target for expansion appear as imports from outside the region, but still within the industry. In this case, pipeline transportation services, plastics, basic organic chemicals, and pipe fittings were identified as gaps in the industrial supply chain for the industry, with purchases totaling over $3 billion in 2006. Key purchases from within the region include:
motor vehicle parts and bodies from the advanced aerospace and defense industry ($0.7million)
$3,000M
$1,500M
$ 0M
LEGEND: Arrow Size Proportional to Purchase Flows
ImportsRegional
GNO Regional Economy
motor vehicle parts, motor
vehicle bodies ($0.7M)
advertising, software, other creative svcs ($18.8M)wa
ter an
d tru
ck tr
ansp
ortat
ion, w
areh
ousin
g ($3
36.8M
)
Imports(Outside of GNO
Regional Economy)
mgmt. s
vcs., b
ankin
g, en
viron
mental
svcs.
, lega
l,
cons
ulting
, telec
om., e
lectric
ity, ($
3,533
.1M)
All OtherIndustries
AdvancedAerospace &Defense Mfg.
International Trade, Logistics, & Distribution
CreativeMedia &Design
International Trade, Logistics, & Distribution
CreativeMedia &Design
AdvancedAerospace &Defense Mfg.
Energy,Petrochemicals,
& Plastics
Energy, Petrochemicals,
& Plastics
All OtherIndustries
pipeline trans., plastics, basic organic chem., pipe fittings, etc. ($3,297.1M)
In addition, other related products and services were purchased from outside of the region, including:
air, rail, and truck freight transportation from the international trade, logistics, and distribution industry ($132.4 million)
research & development services, steel, computer systems, construction machinery, data processing, ethanol (for fuel blending), machining, and pumping services from all other industries ($2,932.9 million)
advertising and specialized design services from the creative media and design industry ($10.9 million)
motor vehicle parts and bodies from the advanced aerospace and defense industry ($19.5million) Though high end services, such as management consulting, telecommunications and legal services are all purchased locally, these services are broadly required to support industry across the region, and not specific to energy, petrochemicals, and plastics industry. This analysis indicates the large value added to the oil and natural gas through traditional refining processes and petrochemical and plastics production. These value-added manufacturing processes, and the knowledge contained regionally in providing these essential services, should be the focus of retention and expansion efforts within the Greater New Orleans area. NICHE SECTORS The Greater New Orleans region has several natural advantages in the energy, petrochemicals, and plastics industry – a longstanding base of energy, petrochemicals, and plastics experience, an irreplaceable infrastructure of pipelines and import terminals for oil and natural gas products, and proximity to both energy resources and the infrastructure required to transform the oil and gas into usable chemicals and plastics. The following niche sectors help to exploit the strengths of the Greater New Orleans economy. Oil and Natural Gas Production Oil and natural gas production continues to be the primary driver of the energy industry. The exploration of oil- and gas-producing areas of the world, from Arctic terrain to the depths of the oceans, will continue to be the focus of the energy industry as long as demand for energy continues to grow or until viable energy alternatives are discovered and developed. With Greater New Orleans’ continued proximity to much of the offshore oil in the Gulf of Mexico, and the second largest natural gas reserves in the country, oil and natural gas production companies will continue to locate in Greater New Orleans if their workforce needs are met. Mid-major energy companies will increasingly look overseas to replace their dwindling domestic supplies of oil and natural gas, and will continue to exploit technological advancements developed in-house. Smaller companies will focus on EOR and re-exploring areas for missed pockets of oil and gas. These companies will continue to grow as energy production becomes more strategically important to countries, and Greater New Orleans regional companies can differentiate themselves through high-technology approaches, integrated markets for their products, and through increasing the local impact of their operations overseas.
51 GNO REGIONAL TARGET INDUSTRY ANALYSIS
Refining and Petrochemicals Production Refining and petrochemicals production presents the best opportunity for short-term gains in jobs and capital investment in the region. With refineries across the nation stretched to their limits, and petrochemicals companies adjusting to higher natural gas prices, several large plant expansions have been announced in the Greater New Orleans region. While it is difficult to imagine recruitment of these companies to greenfield locations simply because the infrastructure in-place at existing locations is so critical to operations, expansion efforts can be aided and expedited where possible. Energy Services Energy services, including oilfield services and engineering services, will continue to support exploration and production of oil in increasingly challenging areas. Oilfield services companies monitor information during the well drilling process for energy producing companies, provide the correct drilling muds to ease the drilling process, and many handle the project management and information solutions for drilling companies. Engineering services companies provide planning and technical expertise in helping energy companies exploit sources of oil, including non-traditional sources such as oil and tar sands in Alberta, and extremely heavy oil found in Venezuela, both growing sources of U.S. imports. Energy services companies will continue to grow, and their focus on high technology solutions to problems will continue to pay dividends as the difficulty of producing gas and oil grows. Additionally, energy services includes the servicing and supplying of the thousands of offshore oil rigs in the waters off the mouth of the Mississippi. While many of these companies have recently relocated headquarters from Greater New Orleans to nearby Terrebonne and LaFourche Parishes, many continue to maintain operations to provide transportation, food, supplies, and workers to the offshore oil rigs, ensuring optimum oil production in the region. As the Eastern Gulf of Mexico opens to oil and gas exploration, Venice and New Orleans will once again be positioned to service the offshore oil industry’s transportation and logistical needs. Plastics As the Greater New Orleans regional petrochemical and plastics industry continues to cope with high energy prices and reduced operating margins for producing commodity plastics, the region should focus on moving into different plastics markets to insulate the industry from price changes it cannot control. Proprietary plastics and innovative processes provide this protection from price surges in energy costs, and also provide a route for Greater New Orleans’ plastics plants to remain competitive globally with surging commodity plastics production from lower cost competitors, including China and Saudi Arabia. Unfortunately, proprietary plastics have difficult in establishing a marketplace without a phased approach to building market. As Modern Plastics Worldwide has noted, new plastics go through a process of three phases to build a market – enabler, platform, and widespread adoption. Enabler applications are typically very simple uses of a plastic that take advantage of new properties in the plastic. Platform applications for plastics find one product requiring the use of a new plastic, and dominating the plastics market for that product within a short amount of time. Finally, as the plastic gains market for a single platform, widespread use for a variety of uses follows. Plastics, however, continue to show opportunities for long-term growth, and the introduction of bio-plastics demonstrates that opportunities exist to transition the industry toward a more sustainable path of production.
52 GNO REGIONAL TARGET INDUSTRY ANALYSIS
REGIONAL LOCATIONS Energy, petrochemicals, and plastics companies are located around the Greater New Orleans region. As the regional economy continues to reshuffle the locations of its operations within the region, GNO, Inc. can work with regional partners to find the best locations for companies. Generally, energy services companies will locate near their highly-educated workforces; in this case, the North Shore parishes will be likely targets for energy service company expansions. Refining and petrochemical production companies will expand adjacent to or on their current sites, which are primarily along the Mississippi River from St. James Parish through St. Bernard Parish in the River and South Shore parishes. Oil production firms and some offshore oil services companies will choose to locate in Plaquemines Parish to be closer to their customers and resource bases.
ENERGY, PETROCHEMICALS, & PLASTICS OVERVIEW: Greater New Orleans continues to excel in the production of oil and natural gas, and the
conversion of these crude products into usable petrochemicals, fuels, and plastics. While large employers face continuing workforce problems, plant expansions continue to be announced regionally, and oil production in the Gulf of Mexico will only become more
important over time. Strategic focus on retention, expansion, and workforce efforts will solidify the core base of this industry and set the stage for recruitment of companies in the future.
