HOUSTON (ICIS)–A surge in new US industrial
projects and a chronic shortage of construction
labourers are contributing to cost overruns of
about 50% for some renewable fuel and chemical
projects.
Decades of labour shortages in skilled
craftsmen have worsened in recent years with no
easy fixes. In a recent survey of contractors,
61% said projects have been delayed because of
labour shortages
Some material shortages persist. In the
same survey, 65% said supply-chain problems
have caused project delays
Half of the respondents in the survey said
companies have cancelled, postponed or scaled
back projects because of higher costs
LIST COST OVERRUNS
The capital budget for
the second commercial-scale plant of Origin
Materials rose to $1.60bn from $1.07bn.
Origin also is splitting the project into two
phases, delaying the startup and reducing the
scale of the plant. The project will produce
renewable oils that can be processed into
biofuels and feedstock that can be converted
into a component used to make polyethylene
terephthalate (PET) or polyethylene furanoate
(PEF)
Phillips 66 expects to spend $1.25bn to
convert its San Francisco refinery in Rodeo,
California, to produce renewable fuels, up
47% from an earlier estimate of $850m made in
May 2022
The costs for
an ultrapure sulphuric acid plant being
built in Casa Grande, Arizona, have increased
to $300m-380m, up 50%. The project, currently
on hold, is being developed by Chemtrade
Logistics and joint-venture partner Kanto
Group
UPCOMING US
PROJECTSChemical companies plan
to add capacity through the rest of the decade
in the US. The following table shows the
chemicals that will have capacity increase by
at least 1m tonnes in 2030 from 2023.
Ethylene
High density polyethylene (HDPE)
Methanol
Acetic Acid
Vinyl chloride monomer (VCM)
Ethylene Dichloride (EDC)
Caustic Soda
Chlorine
Polyvinyl Chloride (PVC)
Polyester polymer
Purified terephthalic acid (PTA)
Polyethylene Terephthalate (PET)
Propylene
Source: ICIS Supply and Demand
Database
CHRONIC LABOUR
SHORTAGESConstruction costs are
rising in part because of labour shortages,
which are contributing to higher salaries.
Construction pay is rising at its fastest rate
in two decades, said Ken Simonson, chief
economist for the Associated General
Contractors (AGC), a trade group that
represents companies that build infrastructure,
industrial plants and other nonresidential
construction projects.
Average hourly earnings for construction
workers in non-supervisory roles reached $34.40
in August, a premium of 18.6% over the average,
according to the US Bureau of Labor Statistics
(BLS). Among private workers in non-supervisory
roles, only utility and information employees
earned more.
The AGC and Autodesk recently completed an
annual survey of the construction workforce
that illustrated how hard it is to find
qualified workers.
85% of the respondents have job openings
they are trying to fill
68% of applicants lack the skills needed to
work in construction
A third fail to pass drug tests
Simonson summarised some of the reasons behind
the labour challenges.
For decades, students were encouraged to
pursue higher education at the expense of craft
trades
Tightened immigration rules have made it
more difficult to fill empty roles through
employment-based immigration
Because of its nature, construction cannot
offer employees hybrid or remote jobs
Employees tend to retire earlier in the
construction industry because it is physically
demanding
SOME MATERIAL SHORTAGES
PERSISTWhile costs for many
construction materials have stabilised or
fallen, some shortages persist, such as for
transformers, switch gears and other electrical
equipment, Simonson said.
Diesel prices have recently risen by their
largest amount since 1990, contributing to
construction costs.
Recent tariffs that the US imposed on steel and
other materials have set a floor on prices,
Simonson said. As inflation cools, those
tariffs will keep prices for those materials at
an elevated level.
SURGE IN MANUFACTURING
CONSTRUCTIONAn incredible surge
in US manufacturing projects has increased
demand for construction labour and materials,
which could add more pressure on costs.
The following chart shows the increase in
construction spending for manufacturing
projects. Figures are in millions of dollars.
Source: US Census Bureau
In July 2023, the most recent month for which
data are available, spending in manufacturing
spending rose by 71% year on year.
Simonson listed some of the reasons behind the
surge in spending.
Semiconductor fabrication plants (fabs),
other electronics projects
Petrochemical plants and liquefied natural
gas (LNG) plants
Electric vehicles (EVs) and associated
battery plants
Projects intended to shorten and simplify
supply chains by bringing manufacturing closer
to customers
Renewable energy and carbon-capture
projects
To qualify for many government incentives,
projects need to contain a certain amount of
materials made in the US. Consequently,
companies are building more plants to produce
those materials in the US
Insight article by Al
Greenwood
Thumbnail shows hard hat worn by
construction workers. Image by
Shutterstock.
https://www.icis.com/explore/resources/news/2023/09/21/10927175/insight-large-construction-cost-overruns-hit-us-chemical-plants
