Oil Spill’s Impact on Construction IndustryBy Giles Lambertson
Article Date: 09-01-2010
Copyright(C) 2010 Associated Equipment Distributors. All Rights Reserved.
Most say the overall effect was minimal in terms of equipment usage or job-boosting.
Reprinted with permission from Construction Equipment Guide
The blowout of the Deepwater Horizon oil well in April has been a slow-motion disaster for Gulf states, with the agony measured in economic uncertainty as well as in real-and-present environmental injury.
Construction contractors are among the residents of states bordering the Gulf of Mexico who are still assimilating what it all means. There is not yet general agreement whether the spill, now capped, will end up hurting the industry a little, a lot, or not at all.
In truth, the immediate impact on builders is mostly positive. That’s because manmade and natural disasters always spur clean-up activity, which nearly always means building industry job creation in the short term. After Hurricane Katrina smashed Louisiana and Mississippi in 2005, debris removal and then reconstruction of vast stretches of those states were a tremendous boon to contractors.
One of the differences between that catastrophe and this one is that most of the oil spillage is affecting Gulf waters and coastal areas. While some sand berm-building and coastal dredging work suddenly has been needed, the bulk of the manpower enrolled to contain the oil has been way offshore.
The biggest economic blow so far has been to industries inextricably linked to the Gulf of Mexico waters: fishing, tourism and offshore drilling. Most operators of fishing boats and charters in Louisiana are now working for British Petroleum, containing oil or skimming oil from the water instead of throwing lines into it. State governors tried for awhile to stave off tourist cancellations by putting out brave calls for tourists to come on down.
As for oil drillers, President Obama’s moratorium on offshore drilling remains a threat to close the doors on any number of drilling support companies in Louisiana and Mississippi. A judge initially halted the ban, ruling it regulatory overkill, but the administration promptly issued a second moratorium and hopes its language passes judicial muster.
In response to the second ban, one company, Diamond Offshore, announced it was moving its drilling rig from the Gulf to waters off Egypt.
If undersea boring in the Gulf is stopped by the administration for six months, hundreds of construction and machinery contractors for the industry, many of whom never leave dry land, will face hard times. An oil industry-sponsored report by the American Energy Alliance issued July 20 says the six-month moratorium could cost the region more than 8,000 jobs – including construction contractors – and $2 billion in economic activity.
“The moratorium could be more costly than the oil spill itself,” said the author of the report, Louisiana State University professor Joseph R. Mason.
A Moody’s Analytics report issued the same week pegs the cost of the oil spill itself at 17,000 regional jobs lost and more than a billion dollars in economic growth sacrificed.
Immediate Work Impact Is Positive
For now, though, things are not so bad.
“Work actually is getting busier,” said Anirban Basu, who is CEO of Baltimore-based Sage Policy Group and economist of Associated Builders and Contractors. “In the short term, any disaster is somewhat positive as a job producer.” Though Basu affirmed the linkage between disasters and work opportunities for construction companies, he, too, saw long-term instability in the industry as a consequence of the spill. State governments already are hard hit by the economy. They also are about to have the stimulus-funding spigot turned off. As oil spill-reduced tourism further depletes Gulf states’ revenues, state budgetary traumas will only worsen.
What Basu finds most startling is the negative reaction of Gulf coast residents to the moratorium and the general response of government to the spill. The residents’ greatest concern clearly is that jobs are at stake.
“It is fascinating, frankly, to see the level of outrage directed toward government about jobs,” Basu said.
In June, Louisiana’s unemployment rate was 7 percent, up from 6.8 percent in May, but still much lower than the U.S. rate of 9.5. Construction employment in the state increased during the month but the jobless rate remains high.
Brian Turmail, an Associated General Contractors spokesman in Washington, reported that members are anxious about the potential impact of the floating oil on Gulf contractors. Turmail said feedback from members in the region has been inconclusive, but worrisome.
“Everyone is kind of nervous because of a public view that all the beaches are covered with oil,” Turmail said, which they are not. “If that fear shakes out to a multiyear concern and tourism is hurt, that will have real impact.” Any reduction in tourism will shrink government budgets and result in less money for school and infrastructure construction, he observed. “We haven’t seen the beginning of the impact, or are just seeing the beginning of it.” But not everyone shares his view. In Baton Rouge, Ken Naquin is not at all worried about job losses. The CEO of the Louisiana chapter of Associated General Contractors is confident that few if any jobs of AGC member companies are jeopardized by the Deepwater Horizon incident.
“It’s pretty much business as usual,” Naquin said at the end of June. “The spill and the clean-up really won’t affect our highway, building and utility contractors.” This is partly because Louisiana contractors are still living off stimulus money. The state received $433 million in American Recovery & Reinvestment Act funds.
About three-dozen stimulus-funded projects are under way or completed in the state, according to the American Road and Transportation Builders Association, and twice that many are scheduled to start soon.
Louisiana’s highway projects are specifically funded by a state fuel tax dedicated to such work, Naquin said, who doesn’t see spill-related layoffs impairing those contracts.
“We don’t anticipate any impact at all,” he said.
Impact on Some Louisiana Contractors
Part of Naquin’s confidence stems from the fact that Louisiana’s AGC chapter has no members working in the oilfield industry. Those contractors are represented by the Louisiana Oilfield Contractors Association (LOCA), which was formed 43 years ago when some road builders, oilfield service contractors and drilling companies organized to repel attacks upon the industry by union activists.
This story is told colorfully in the organization’s published history, wherein it notes that association organizers are “a tough and independent group of self-made individuals who will not be intimidated. LOCA was created by determined men to resolve tough problems.” This proud tradition of facing the toughest challenges in the industry head on and overcoming them continues at the Louisiana Oilfield Contractors Association. The BP oil spill may give the association a chance to add to its toughness tradition.
If an offshore moratorium sticks, the impact of it on the Gulf oilfield industry is incalculable, industry observers believe. Dock work and levy construction, pipeline laying and right-of-way clearing, equipment supply and metal fabrication activities as well as on-land and offshore crew assignments would be cut back sharply.
A Louisiana Oilfield Contractors Association executive was contacted for this article but did not respond.
One Louisiana company already benefiting from the spill is The Shaw Group.
The Baton Rouge-headquartered corporation made a name for itself as a disaster-response firm after Hurricanes Katrina and Rita when its construction division was awarded several contracts.
It succeeded rather famously in pumping some 50 billion gallons of water out of New Orleans in 17 days, almost two months quicker than expected.
Construction crews also temporarily repaired an estimated 1,200 roofs in 24 hours and built 30 temporary housing facilities for refugees of the storm.
It subsequently was awarded the contract to erect a two-mile-long Inner Harbor Navigation Canal Surge Barrier to protect New Orleans from future Katrinas, and that work continues.
In this disaster, the international firm was awarded a contract to construct more than 120 miles (193.1 km) of temporary sand berms along coastal barrier islands to – it is hoped – stop the migration of oil into ecologically sensitive marsh areas. The work is being done from a fleet of scows and specialized dredging barges.
“Our roots are firmly planted in this state,” Shaw CEO J.M. Bernhard Jr. said in a formal news release about the contract. “As with our Hurricane Katrina recovery work, Shaw has a deep personal interest in our state’s protection and recovery.” Shaw public affairs representatives declined comment for this article.
Equipment Dealers Hold Their Breath
Construction equipment dealers in the region are uncertain about how much misery the spill eventually will wash ashore. One of the seven offices of Vermeer Midsouth Inc. is in Gulfport, Miss., and Midsouth president Dennis Vander Molen is keeping an eye on the drifting crisis.
“We are still trying to figure out what opportunities for Midsouth there are in this mess. Most of the oil is still in the water and off Louisiana where we don’t have any [sales] jurisdiction,” Vander Molen said in late June.
That day, the first oil reached mainland Mississippi, coming ashore in the area of Biloxi.
The Vermeer Midsouth executive said he was aware of some funding available for cleanup work, which could include equipment rental or purchase. His dealerships carry such specialty equipment as mobile vacuum excavation systems and compact loaders, both of which might be useable in beach restoration work.
“There are some marine grants or something being handed out to the county governments, but those funds are pretty limited,” Vander Molen said. “It is not going to have much of an impact in terms of what those people can buy.” Employment equipment to suck up the crude oil is more likely to occur in Mississippi than in Louisiana, if it happens at all, he added. “Using such equipment in Louisiana is problematic because so much of that coast is bayou and marsh land.” Vander Molen said the business community is not panicking as the oil begins to stain the coastline. “But there definitely is some fear.”
Louisiana Machinery is a statewide Caterpillar dealer, with 21 locations. Three of its engine sales and service locations hug the coast. Among the dealership’s offerings are Caterpillar and MaK marine engines. The dealership notes on its website that its engine outlets offer “experience to service the needs of the offshore petroleum industry. Our highly trained field service technicians with offshore experience and passports enable our customers to receive specialized marine engine services whenever necessary and wherever they work, worldwide.” The impact of the spill on Louisiana Machinery was still being evaluated as July began. On the one hand, the spill obviously threatens oil-drilling work off Louisiana’s shore.
On the other hand, it has augmented the fleet of motorized craft in the Gulf trying to corral the oil. The result is kind of a wash for some equipment suppliers.
“We aren’t feeling anything yet,” said Sarah Paola, marketing manager.
The mostly unstated hope of construction companies and suppliers across the region is that the feeling continues.
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