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The Petrochemical Industry is Increasing Efficiency and Cutting Costs

Most people who have passed through Beaver County have seen the construction of Shell’s massive ethane cracker plant. The $6 billion facility that turns natural gas into various chemicals, such as plastics building block ethelyne, spans 340 acres and boasts two of the world’s largest cranes. The Beaver cracker is the first built outside of the south in two decades, but future cracker plants could use lessons learned in the south to make construction more efficient.

Cracker plants are extensively capital and labor-intensive projects. Depending on its size, a cracker plant can cost anywhere from $1 billion to more than $11 billion to build, with total costs often dwarfing estimated costs. For example, an ethane cracker “megaproject” in Lake Charles, Louisiana, had its cost increase from an estimated $8 billion to a total of $11 billion due to increased labor costs, low productivity, and bad weather. Given this volatile reality, project managers and investors are always looking for ways to cut costs in construction.

Louisiana is also starved for laborers. When the supply of laborers does not meet the demand, projects are delayed, productivity is stifled, and costs rise. One way in which project managers and developers are mitigating the labor shortage is to modularize cracker plants.

Modularization is when individual components of a plant are built elsewhere, where labor is plentiful, and each piece is shipped to the construction site. There it is easily fitted with other pieces of the plant. This cuts down not only on the manpower needed on the actual construction site, but also simplifies the process to ensure that productivity is maximized. Additionally, southern cracker plant project managers are modernizing training tactics for laborers. Three-dimensional models of the construction site are used to train new laborers to ensure that there is no confusion about the location of materials or the plans for the site.

A new factor that is causing costs to rise is international trade tariffs. Cracker plants use upward of 18,500 tons of steel in construction, much of which is imported from China. Chinese steel is subject to one of the 232 tariffs that are currently in effect, which immediately impacts construction costs.

There is a downside to increased efficiency in labor: cracker plants now require less of it. That translates to fewer jobs created in the construction of a cracker plant. However, in labor-starved markets such as Louisiana, this is not a major issue. Pennsylvania has a low unemployment rate of 3.9 percent, only .3 percent higher than the national average and .8 percent lower than Louisiana. Future development of the petrochemical industry in the Commonwealth could be met with labor shortages like seen in Louisiana.

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