BUSINESS: Heavy industry powers NWI through recession

Region businesses poised for recovery
2010-02-12T00:00:00Z BUSINESS: Heavy industry powers NWI through recessionBy Keith Benman - keith.benman@nwi.com, (219) 933-3326 nwitimes.com

The single-largest private investment ever in the state of Indiana continued to power forward during 2009 and will be ramping up in 2010 despite a deep national recession.

The $3.8 billion expansion of the BP Whiting Refinery is still on track for completion in 2012, according to BP officials.

"It's such a tough economy, and it's a huge sign and commitment to stay here for the long term," BP spokesman Brad Etlin said recently.

The refinery expansion is emblematic of Northwest Indiana's economy in the Great Recession. Although the region has suffered through high unemployment and a blight of home foreclosures just like the rest of the United States, its bedrock industries have remained intact and poised for growth once recovery comes.

In addition to the 1,700 workers the refinery employs daily, up to 2,200 union construction workers have been working on the expansion to process oil sands from Canada. The number of construction workers is expected to swell to 5,000 when construction reaches its peak.

"The silver lining is that despite the downturn in the economy, you have major industrial establishments here that are the backbone of our economy," said Vince Galbiati, former CEO of the Northwest Indiana Forum.

Steelmakers ArcelorMittal and United States Steel Corp. have continued production throughout the recession. There have been layoffs and production has been suspended at some individual plants, but the downturn has caused nothing like the devastation that occurred in the last deep recession in the 1980s.

In fact, production from several U.S. Steel operations around the United States were temporarily consolidated at U.S. Steel's Gary Works as a cost-cutting measure during the downturn. In all, five of U.S. Steel's six other U.S. facilities ceased all production at some point last year.

United Steelworkers Local 1014 President Jerry Littles said at mid-year things were looking up at Gary Works. He said all four blast furnaces were producing iron, and many employees were working overtime.

"We've been doing quite well despite the recession," Littles said. "There's other plants in the corporation and other steelworkers still out of work. They, unfortunately, haven't had the opportunity to reap the benefits that we have at Gary."

The fact that ArcelorMittal and U.S. Steel were able to keep producing through the recession had some community leaders saying legislation that cut local property taxes for steel mills in the earlier part of the decade will continue to prove its worth for years to come.

"I'm in that camp that says that tax policy shifts that effected oil and steel were critical," former Forum head Galbiati said.

Particularly important was the lowering of the floor for depreciation, Galbiati said. It was that change in 2004 that led directly to much of the recent investment by both BP and steelmakers in their plants in Northwest Indiana, Galbiati said.

Tax reform like that will make Indiana a preferred site for plant relocations, particularly once the recovery begins, Galbiati said.

For some industries like construction, it was difficult to find a silver lining in the recession, with commercial and industrial construction off as much as 35 percent to 40 percent.

But the builders of roads and bridges have found at least a glimmer of hope in the Obama administration's stimulus program and now in the promise of a second stimulus program to come this year.

The American Recovery and Reinvestment Act has poured so much money into road construction that the Indiana Department of Transportation has been bidding out jobs twice a month, rather than once a month as usual.

And now construction companies are hopeful a second round of stimulus money will be coming Indiana's way, as some Republicans in Congress seem set to join Democrats in passing a new jobs creation program.

Even the election of a 41st Republican Senator in Massachusetts is unlikely to hold up another $600 million in stimulus funds flowing to Indiana, said Bob Zier, Indiana Department of Transportation chief of staff to Commissioner Michael Reed.

"Some people say that money may be held hostage because we don't have the same 60 Democratic senators," Zier told a recent meeting of the Northwestern Indiana Regional Planning Commission. "But my feeling is people will want to get that money out."

Health care and school construction also have been helping the local construction industry weather the recession, according to William Hasse III, president of Hasse Construction.

Home sales in Northwest Indiana opened 2009 on a dismal note, with sales at historic lows.

But thanks to the new federal first-time homebuyer credit, sales picked up throughout the year with home sales registering a 48 percent increase in November 2009 compared to November 2008, according to figures from the Greater Northwest Indiana Association of Realtors.

"Both October and November were the big months for 2009, and that was attributable to the tax credit, which sparked buyers to get off the fence," said Pete Novak, CEO of the Greater Northwest Indiana Association of Realtors.

The National Association of Realtors is predicting a 13.6 percent gain for this year's home sales, with the homebuyer tax credit now extended to existing homeowners and all purchase contracts signed by the end of April.

Why modernize refinery?

The Energy Resources Conservation Board of Alberta, Canada, an independent government agency, estimated its oil sands are the second-largest source of the world's proven crude oil reserves -- 170 billion barrels -- next to Saudi Arabia.

The oil is beneath an area one-and-a-half times the size of Indiana in the province's northeastern region.

The oil originally was in liquid form, but over time, it congealed into a thick, tarlike material that surrounded grains of quartz sand. The sand is surrounded by layers of water and clay, according to the American Petroleum Institute, a trade group. To extract the oil from the deposits called bitumen the material has to have other heavy minerals and high-sulfur organic compounds removed from it.

The Alberta government agency said extraction projects involve surface mining and in-situ recovery. In-situ refers to the process of pumping steam underground through a horizontal well to liquefy the bitumen, which then is pumped to the surface.

It is estimated there are at least 20 billion barrels of reserves commercially available from oil-sands development, but up to 170 billion barrels may be had from the area.

"When you look at the amount of oil, we could double what we are currently importing from Canada by 2035," said Cindy Schild, API refining-issues manager.

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