Industry/Business
Plant building surge strains manpower, materials
' O u r ears are open to qualified engineers and designers around the clock. We'll get back to you fast—within 24 hours." "Process plant engineers. Responsibility, challenge. All you can handle. Right now." "Several openings in our refinery and chemical division." Large display advertisements such as these from C. F. Braun, Chemico, and Bechtel signal a new phase in the huge chemical process plant boom. Having completely turned around the fortunes of engineering firms in the past year, the plant order influx is about to test these companies' capacity in engineering and designing manpower and equipment procurement. Engineering companies say they are hiring hundreds of professionals each this year—750, for example, at M. W. Kellogg division of Pullman. For 1974, predictions are for a rush of new graduates at engineering schools and for inhouse training at companies for draftsmen and designers. Even for companies that kicked off hiring early enough to avoid the skilled
manpower crunch, the coming year will not be easy. The reason is that equipment delays measured in months have already set in with increased passedalong costs of metals and alloys. If this weren't enough, the oil import squeeze from the Middle East may well force reconsideration of basic plant design, engineering executives say. Behind these problems of prosperity lies the fourth surge in chemical plant construction boom since World War II. (There were similar surges in 1951-52, 1956-57, and 1963-66.) A C&EN survey of six major publicly owned engineering firms—Combustion Engineering, Fluor, Foster Wheeler, Arthur G. McKee, Ralph M. Parsons, and Pullman—shows the dimensions of the new surge. Backlogs of new plant orders have suddenly taken off in 1973. They scarcely budged, on balance, in 1972, when the broad economic recovery in the U.S. was fully two years old. For the six firms surveyed, the combined backlog jumped 13% in the first quarter of this year from the previous quarter, 19% in the second quarter, and 23% in the third quarter. An index for these backlogs now stands 76% higher than in the summer of 1972. This order binge has begun to show up in revenues and profits of engineering firms. For the six companies, yearto-year sales stayed flat last winter. But in the second and third quarters of 1973, sales registered successive gains of 7% and 15%. Profits, as usual, have received magnified effects from the gain in business volume. After-tax net
Axelrod: equipment delays, cost hikes
Orr: foreign markets boom, too
Engineering companies are in midst of hiring spree as growing order backlogs assure them of prosperous, though hectic, 1974
income of these six companies increased 15% in the first quarter of this year from first-quarter 1972, 42% in the second quarter, and 46% in the third quarter. The earnings gains have been especially strong at firms with heavy involvement in refinery construction. Earnings increased 50 to 100% at Fluor, Foster Wheeler, Arthur G. McKee, and Pullman in the third quarter of 1973 over a year ago. The outlook for 1974 at these companies is for another fat year. Customers' plant spending undoubtedly will exceed the 12% gain in capital spending for all manufacturing predicted by Monsanto financial vice president James J. Kerley. Pulled by this prospect and pushed by backlogs, engineering firms are in a crash capital program of their own to house swollen staff. Last month, Lummus Co., a subsidiary of Combustion Engineering, disclosed that it was adding a fourth building to its headquarters site at Bloomfield, N.J., to handle about 400 employees. Lummus chief, and now group vice president of Combustion Engineering, William P. Orr points out that foreign operations are another key factor in its growing engineering staff. The U.S. is not the only booming market these days. "To accommodate our clients," he says, "we've started our expansion program to enlarge our operating capabilities on four continents." For example, Lummus is expanding operating centers in Canada and Brazil. Earlier this year, the company's office in Wiesbaden, West Germany, moved to larger quarters. Nov. 12, 1973 C&EN
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In July, Kellogg officially re-entered the New York City area with a new of fice in Hackensack, N.J. The firm had moved from Manhattan to Houston in 1970. The company reports a "fantastic success" at rehiring some of its former employees for the new office. In June, Fluor's board of directors approved plans for building a 12-story $14 mil lion office building for its Houston op erations. Current staff members of engineering companies are working hard. For in stance, at Scientific Design (part of Halcon International), professionals are working overtime and cutting corners to get jobs done, says senior vice presi dent Carl L. Williams. Although the overtime takes a certain toll on energy, Mr. Williams points out it is necessary for two reasons. First, SD is short of people. Second, in a sort of reverse Parkinson's law, expanding the time allowed for work helps keep people to doit. Scientific Design has been hiring across the board this year. Mr. Wil liams notes there is no surplus at all of capable, trained people available. The shortage is particularly acute, he says, in draftsmen and designers. He points out that about half the 100,000 manhours in a large project in his company would be taken up at the design level. He predicts company-run training pro grams for draftsmen and designers in the New York City area next year. Mr. Williams says that engineering manpower, by contrast, is not yet in a crunch but could get worse next year. Seconding this observation is Leonard C. Axelrod, engineering vice president at M. W. Kellogg in Houston. Mr. Ax elrod says that Kellogg, after a massive hiring campaign this year, has enough personnel to meet its needs and is not limited in contracts by in-house capac ity. But successful college recruiting will be important in keeping this sta tus next year, he notes. Problems more critical than man power could develop in 1974, Mr. Axelrod believes. These are equipment de lays and cost hikes. Kellogg already has noted delays, he says, and fabrica tors are passing along increases in costs of metal, alloys, and scrap. Part of the problem is that many small fabricators closed up shop in the recent plant-or dering depression. At Scientific Design, Mr. Williams says there are delivery delays even in items such as reinforcing rods for which delays never existed before. For reactors and other key units, slow to be delivered even in slack times, delays will probably run from three to six months for deliveries a year from now, he predicts. One result is that lump sum con tracts probably will cease to exist in 1974. Some companies already have been bidding flat amounts for con tracts. A further result, both Mr. Williams and Mr. Axelrod say, is that customers
Rising backlogs foretell gains for engineering firms Index, first-quarter 1972 = 100 200^—^——
Backlog·
1972
1973
Source: C&EN survey of Combustion Engineering, Fluor, Foster Wheeler, Arthur Q. McKee & Co., Ralph M. Parsons Co., and Pullman
may begin rethinking plant orders. Mr. Williams compares the situation to waiting in a long line for a movie. The mounting delays, increasing costs (especially with any removal of price controls), and the additional problem of feedstock availability may make some customers say to hell with it. Mr. Axelrod emphasizes the feed stock factor in potential rethinking of contracts. He speculates that a further Arab squeeze on oil may speed up de velopment of alternative energy sources, such as oil shale, tar sands, and coal. As things stand, engineering com panies say they haven't yet had to re fuse work because of materials or man power pinches. Scientific Design, which concentrates its efforts on chem ical intermediate plants unlike most other large engineering firms, finds petrochemical plant orders slightly lag ging refinery contracts. Mr. Williams guesses that the enormous plant or dering by the oil industry actually may give petrochemical plant designers a dividend through subcontracting to spread the load. At Kellogg, where oil contracts are very important, Mr. Axelrod says refin ery ordering has not been a surprise. The company has been able to absorb orders to date in this area. However, Kellogg was surprised by heavy plant ordering this year in the fertilizer field. Kellogg can look at every offer at this point even though cost factors lead to declines on some, according to Mr. Ax elrod. Reflecting on the current boom, Mr. Williams points to a fact of life in engi neering that does not seem to have changed. "The U.S. custom is that ev eryone builds at once, and then every one stops at once." Right now, customers are indeed building in unison. A cyclical stop is not in sight, although some of the rea sons for a change of heart will intensify next year.
Coal is key to U.S. energy future The key role that coal seems destined to play in meeting the future energy needs of the U.S. is coming into sharp er focus. With oil supplies becoming more uncertain every day, the extraor dinarily huge resources of coal within this country are taking on greatly in creased significance. Latest insight into this significance comes from a report by the National Petroleum Council on coal availability. The 287-page survey, which is part of an overall review of the U.S. energy outlook by the council, concludes that domestic coal reserves can make a major contribution to the nation's fu ture energy demands. Through the report, the council (an officially established industry advisory board to the Secretary of the Interior) predicts that demand for U.S.-pro duced coal could about double by 1985, perhaps increase even more. The exact extent of the gain will depend on the speed with which new technologies for using coal, and for reducing pollution from its use, are developed and ap plied. If this scenario turns out to be rea sonably accurate, it means that domes tic coal production will continue with the long recovery from the doldrums of 10 to 15 years ago. U.S. coal produc tion peaked at about 650 million tons in 1947. It then drifted down to just over 400 million tons in 1961. Since then coal output has been on the in crease at an average annual rate of about 3.3% to reach about 590 million tons last year. According to the council report, de mand for coal for what it calls "con ventional" domestic markets most likely will grow from 519 million tons in 1970 to 863 million tons by 1985—a 3.5% average annual growth rate. How ever, a 5% growth rate—that would put 1985 demand at 1.09 billion tons—is not ruled out. By far the largest of these conventional markets are electric power generation and steelmaking. Exports apparently will grow at a 4.5% average annual rate between now and 1985. This will boost such overseas shipments from about 71 million tons in 1970 to 138 million tons in 1985. The big unknown in coal demand over the next decade or so remains the amount that will be needed for produc tion of gaseous and synthetic fuels. The council report puts such demand at anything between 47 million and 339 million tons per year by 1985. Hence when these numbers are com bined, the council report is saying that the demand for domestic coal will be somewhere between 1 billion tons and 1.6 billion tons per year by 1985. In 1970 it was 590 million tons. There is more than enough coal in the ground in the U.S. to meet these demands. The report points out that about 150 billion tons of recoverable
coal has been located in formations of comparable thickness and depth to those being mined under current tech nological conditions. And even at the maximum growth rate in demand con sidered possible—something over 6% per year—only about 10% of this type of reserve would be used by 1985. Also, the report points out that fur ther mapping and exploration of coal reserves in this country will increase substantially the estimate of reserves that can be mined with today's tech nology. Total U.S. coal reserves are put at 3.2 trillion tons by the U.S. Geological Survey. Just what this amount of coal really means was explained recently by Dr. George R. Hill of the Electric Power Research Institute, Palo Alto, Calif. He claims that about 2 trillion tons of it are potentially recoverable. He also points out that coal can be converted to oil at a yield of 2 barrels or more per ton. So the recoverable coal in this country is equivalent to more than 4 trillion barrels of oil. This is 10 times total known worldwide oil reserves. However, in spite of all the things that coal seems to have going for it, much remains to be done both by the coal industry and by the Government if
coal is to reach closer to its potential and so ease U.S. dependence on foreign sources of energy. For instance, the council report suggests that: • Mining technology must be im proved to offset the severe impact of the Coal Mine Health and Safety Act of 1969 on production capacity. • A program for rapid development of manpower—both mine workers and mining engineers—must be set up. • Technology must be developed to permit use of high-sulfur coal in power generation without polluting the air. • Railroad hopper cars must be used more efficiently if reliable transporta tion of coal is to be guaranteed. Also, some improvements will be needed in some of the locks on U.S. river sys tems, and better ways will have to be found to handle large coal-carrying ships at U.S. ports. • Massive government expenditures will be needed to provide the necessary water for mine mouth synthetic fuel plants in the relatively water deficient western states. (Apparently these plants are as dependent on water avail ability as they are on coal availability.) The council report, which was pre pared by a task group chaired by Ε. Η. Reichl, vice president, research, Con solidation Coal Co., is available from the National Petroleum Council, 1625 Κ St., N.W., Washington D.C. 20006. Price is $18.
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