Domestic Oil Boom Helps U.S. Shipyards Rebound
Posted at 10:33 a.m. on July 11, 2014
The oil boom that has sparked controversy over rail shipments of Bakken crude from North Dakota has also been a boon for U.S. shipyards.
This week we interviewed Matthew Paxton, the president of the Shipbuilders Council of America, on the health of the U.S. shipbuilding industry. His organization represents small shipyards that build fishing vessels as well as large companies such as Huntington Ingalls and General Dynamics which turn out aircraft carriers and submarines.
(Responses edited a bit for brevity.)
What’s the state of the U.S. shipbuilding industry?
Quite vibrant on the commercial side. We are seeing a surge in large vessel construction; some of that has to do with the boom we seeing taking place with the shale finds and that oil and gas moving around domestically; some of it has to do with the fact that we are re-capitalizing our fleets right now….
On top of that, we are very robust in the building and repairing of offshore supply vessels that service the offshore oil land gas patch in the Gulf of Mexico. And we build all sorts of barges, tugs and other vessels. … We deliver thousands of vessels every year: a little over 1,200 vessels delivered in 2012 alone.
Where it gets tricky is on the defense side, because there are budget constraints, there’s this nasty thing called sequestration.
And while our shipbuilders that are building Navy assets and Coast Guard assets are doing wonderfully, and are building the most advanced and state-of-the art Navy and Coast Guard in the world, those budget constraints do create some uncertainty on the defense shipbuilding side. But overall we’ve weathered it.
What is the split between military and commercial shipbuilding in the United States?
It’s about 60/40, if you’re talking dollar value. Annually we build about $20 billion in ship assets and about 60 percent of that would be aligned with our defense assets.
But that makes sense because nuclear aircraft carriers, nuclear submarines, complex surface combatants, are really complicated and really expensive, for good reason. … We want to be sure our men and women are on the best ships available.
But the core reason why the Navy and every modern president has supported the Jones Act – the law requiring that we maintain the building of commercial vessels here in the United States that operate between ports of the United States— is because that 40 percent provides more shipyard workers, a broader supplier base, and gives us some capabilities to build commercial and naval assets and provides some savings value for the Defense Department.
How many shipyards are there in the United States and how many people are employed in them?
The Maritime Administration would say we have a little north of 300 shipyards in the United States. I would put that number closer to 200 that are really doing big shipbuilding. My trade association represents a little over 120 shipyard facilities.
The employment across those larger shipyards, the Maritime Administration reports it’s about 110,000 direct employment, the guys who are actually turning wrenches. If you add the public shipyards, those shipyards that are repairing defense assets that are run by the government, you would add in another 30,000.
The Maritime Administration study shows that the 110,000 employment in those private shipyards translates to about 400,000 induced employment throughout the United States.
For tankers being built to transport domestic crude oil from one place to another here in the United States, how many are being built?And what’s the time from when they’re ordered to when they’re delivered?
For a tanker that’s being built, for example, up in Aker Philadelphia, from cutting of steel to delivery is probably about a 16- to 18-month turn. If you’re building a lot of those, four or five or six, you can get that turnaround down a little bit quicker.
Right now if all the orders were taken, you would have about 22 tankers on order. … That’s a fair amount of work, especially considering five or five years ago before this Bakken shale and Eagle Ford and all these other shale plays were coming on line, that’s 22 vessels that weren’t on order.
What about Rep. John Garamendi’s push to have future LNG exports from the United States carried on U.S.-built LNG carriers?
Garamendi is saying all LNG exported from the United States needs to go on U.S.-flag, U.S.-crewed vessels. … He has said at times that he’d like to see those eventually go on U.S.- built vessels.
But he also understands that because we haven’t been exporting LNG, there’s no market to build these vessels if we not doing that. … If you had a contract on the table right now, and you were to design it and deliver it, that would probably be a five-year proposition.
If we’re going to build these things, there should probably be a phase-in at some point, so we don’t hold up (LNG) production. We don’t want to do that. … There would be a time period where we’d have to design these things and go with it … but we stand by to do whatever the market demands.