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In the late 1990s, I sat in an energy conference in Houston sponsored by one of the big accounting and energy consulting firms. In that conference, an executive of a major energy trading firm told the audience, “If you are a brick and mortar company, you are a dinosaur. The only value now is in information and data.” There were eager nods in the crowd, but I could not help but think to myself, “Someone has to make things. We can’t all live in a cloud.”
As I look back now, it is ironic to realize that Arthur Andersen, the sponsor of that event, and Enron, the speaker’s company, are both gone. I am proud of the fact that despite the predictions of the demise of brick and mortar (and steel), ingenuity and innovation have created an environment for American manufacturing to have a tremendous resurgence.
The resurgence of American manufacturing has been enabled by the explosive growth of the American oil and gas industry. Recent technical breakthroughs, such as horizontal drilling, multi-stage hydraulic fracturing, 3D seismic and micro-seismic monitoring, have allowed exploration and production companies to harvest vast amounts of previously unrecoverable reserves.
U.S. gas production in 2010 was 22.6 Tcf, about 20% of the world’s total gas production. It is estimated that the natural gas industry provides approximately 2.8 million jobs in the United States, more than 600,000 of which are direct jobs (field operations, drilling, equipment manufacturing, etc.), 700,000 indirect jobs and an additional 1.5 million induced jobs. These are big numbers that continue to grow. So what do these jobs look like at ground level?
I am fortunate to be part of a company that has chosen to commit to the development of resources in the United States. We looked closely at the developing shale market and realized that we needed to add capacity and new technology in order to serve the radical shift in energy production.
In Feb. 2010, Vallourec announced that it would build a state-of-the-art 2⅜-in. through 7-in. seamless pipe mill in Youngstown, Ohio. This new mill is sited alongside our current V&M Star 5-in.-10 ¾-in. seamless facility. The new, 1 million sq-ft building will produce 350,000 metric tons of pipe per year and has a potential rolling capacity of 500,000 metric tons. The initial investment exceeds $650 million. Construction is nearing completion, and we expect to be rolling pipe in the second quarter of 2012. With the new mill running, we will have a total combined annual capacity of more than 900,000 metric tons of primarily OCTG high-strength, premium products.
The new mill will add 350 employees to our current 500 V&M Star employees. Our initial hiring program generated over 16,000 applicants for the 350 available jobs. The construction phase has employed over 1,600 workers at peak periods.
On Nov. 30, VAM USA announced additional plans to build a premium connection threading facility alongside the V&M Star complex. We will renovate a 200,000 sq-ft building, located within the Cooperative Agreement Zone formed by Youngstown and the City of Girard, Ohio, in Oct. 2009. This facility will employ an estimated 100 full-time workers at its peak with production scheduled to start mid-2012 and full production by the end of 2013.
Why did we choose Youngstown, Ohio, for a new mill and threading operation? Besides the fact that we are sitting amidst the rapidly developing Marcellus and Utica shale plays, the location is next to our existing facility with fixed-cost synergies and logistical efficiencies. We will have a quick ramp-up to start production with an experienced and skilled local workforce. The local, state, and federal authorities have demonstrated a desire to work cooperatively. Those are the tangible factors. The intangible value was our desire to continue to stimulate economic recovery in an industrial region that needs jobs – jobs that the oil and gas industry will bring to these areas.
To illustrate the need, note that the Youngstown-Warren region has lost more than 28,000 jobs in the past ten years, of which 66% were in manufacturing. Youngstown’s population is half of what it was 40 years ago. To counter that trend, Youngstown created a business incubator to facilitate small business development. V&M Star partnered with Youngstown State University to identify and match their graduates with career opportunities at V&M Star.
Since our announcement, the Youngtown/Warren Chamber of Commerce reports that over $1 billion of capital have been committed in the region and over 1,865 spin-off jobs will be created. As quoted in a recent Associated Press newswire article, Larry Maffitt, manager of a local Youngstown tavern, said that the talk has shifted towards a brighter job outlook.
The combined Youngstown V&M Star and VAM USA operations will create a pipe-making center of excellence. We will add operations and services as we move forward in our Lean Manufacturing programs. We will work with our customers and distributors to provide the best technology and provide services to meet the needs of the rapidly emerging shale markets in the U.S.
I am optimistic about the future of energy development in the U.S. and the resulting surge of manufacturing opportunities. Our Youngstown experience is an example of how government and business leaders can develop sound policies together. The benefits will be new enterprises, economic growth, and above all, ready job creation. We owe this to the American worker. 
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