Colonial CEO describes workforce recruitment, retention challenges

Nick Snow
Washington Editor

WASHINGTON, DC, Nov. 8 -- The nation's largest oil products pipeline system faces the impending retirement of a quarter of its workforce and competition from other industries for new employees as it prepares a large expansion of operations, its chief executive told a US Senate committee on Nov. 6.

Oil and gas industry consolidation sharply reduced employment by more than 500,000 jobs from 1982 through 2000, Colonial Pipeline Co. President and CEO Norm Szydlowski told the Senate Energy and Natural Resources Committee during a hearing on energy industry employment.

"While Colonial's employment remained relatively stable during those years, we have had to deal with the same shrinking pool of candidates applying for careers within the overall industry. We are competing hard for candidates who may have fewer skills than candidates 10 years ago," he said in his written testimony.

The products pipeline has responded by offering entry-level workers with high school diplomas starting base salaries around $42,000/year with shift differentials, overtime, bonuses and benefits, and geographic differentials in critical markets, Szydlowski said. Nonskilled employees potentially can increase their annual base pay to an average $70,000/year, while those who become lead operators receive $84,000, he indicated. "The competition for engineers and more highly skilled employees is more intense and the pay packages accordingly climb dramatically," he added.

Keeping qualified workers is difficult when the trend is for them to work 2-3 years to master skills before looking for another job elsewhere, Szydlowski said. "But an even larger contributor is the graying of our workforce," he told the committee.

Close to retirement
"Industry-wide, the petroleum sector estimates 27% of its workforce is within 5 years of retirement. That figure is the same for Colonial's workforce. The problem is worse among the people who operate the pipeline, where nearly one in five employees is eligible to retire within 2 years," Szydlowski said.

Among Colonial's 4 most critical positions, he continued, 35% of its senior operators-lead operators and 29% of its inspectors are within 2 years of retiring, while controllers, who monitor pipeline operations, and maintenance technicians each have 15% of their complement eligible to retire within 2 years.

Szydlowski noted that the US Bureau of Labor Statistics puts the average US worker's age at 39 years. Colonial's average employee age is slightly less than 44, and more than half of its workforce is over 40, he said.

"Unfortunately, these workforce issues are striking just as the business demands on and opportunities for pipelines are accelerating. This is especially true for Colonial Pipeline," he said.

Expansions are under way for several Gulf Coast refineries that the system serves, Szydlowski said. As a large-volume pipeline capable of transporting oil products to major population centers in the South and on the East Coast, Colonial is in an excellent position to help the industry grow and increase available fuel supplies, he said.

He said that the company currently is developing a project that would add a third 36-in. pipeline along its existing corridor between Baton Rouge and Atlanta, which could add 800,000 bbl of additional daily capacity. The project still faces significant regulatory and engineering hurdles and awaits final approval of Colonial's owners.

Causes of increase
"When we initially proposed the project, we estimated the cost would be $1 billion for 465 miles of new pipeline. However, we now estimate the project will top $2 billion. Part of that may be our conservative estimates in the beginning, and part of it is the rising cost of steel. But a significant part of our higher estimate is due to the competition for qualified workers to build our project," Szydlowski said.

The refinery expansions which make Colonial's proposed project possible also are draining the labor pool for it, he explained. "Although construction on our proposed project would not begin before 2011, our forecast is that the labor market will be as tight, if not tighter, by that time," he said.

Szydlowski said Colonial also has been conducting research on possibly transporting ethanol and other biofuels. "As you may be aware, we are working with others to determine whether ethanol can be transported in a steel pipeline without inducing stress-cracking. While initial results are encouraging and there is much work to be done and questions to be answered, we hope to make test shipments in 2008," he said.

While such efforts aren't likely to add significantly to Colonial's long-term workforce needs, system modifications to handle these fuels could create additional demand for scarce design and construction expertise, he added.

He recommended that Congress and the administration encourage policies which improve technical schools and skilled trade training, and consider providing federal tax relief to companies offering phased retirement initiatives so employees won't retire solely for access to lump sum post-career benefits.

Also, said Szydlowski, "As Congress works on solutions to the immigration question, please keep in mind that foreign workers represent a potential pool of skilled workers that would address our workforce shortages."

Contact Nick Snow at nicks@pennwell.com

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