A Dubai-based startup company plans to build a $102 million factory in Buffalo that will make steel pipes for the oil and natural gas industry, and employ an estimated 172 workers.
The company, Alita USA Holdings, plans to build a sprawling factory on Rittling Boulevard, off Tifft Street, that would make as much as 150,000 tons annually of high-grade alloy pipes that are used for well casings in oil and natural gas wells, primarily in the United States.
Buffalo landed the project over a site in Houston the company also was considering.
While Alita officials said that locating the plant in Buffalo would add about $9 million a year to its shipping costs, compared with the Houston site, state and local development agencies countered by offering more than $10 million in direct incentives for the project, in addition to property tax breaks and low-cost electricity that will save the company millions of dollars more in the years to come.
“Our investment costs are less because of the help the state and local governments are providing,” said Ali Hosseini, Alita USA’s president and CEO.
Hosseini said the region’s location, close to the company’s suppliers of raw materials, will help hold its costs down, while the region’s workforce, with its historic ties to the steel industry, also played a big role in persuading the company to build the plant in Buffalo.
“From what I’ve seen, in Buffalo, there’s no shortage of skilled labor,” he said.
And with shale gas drilling booming in states from Pennsylvania to Ohio and West Virginia, Hosseini said Alita’s customers in the energy industry also are moving closer to its planned Buffalo factory.
Alita is the second major manufacturer that gets the majority of its sales from the oil and natural gas drilling industry to pick the Buffalo Niagara region as a factory site. Welded Tube, which makes steel tubing that goes inside the well casings, is beginning production at a new $50 million factory on the former Bethlehem Steel site in Lackawanna that ultimately could employ as many as 120.
“Demand has gone up, and there has not been sufficient growth in the U.S. market,” Hosseini said, noting that about half of all steel tubing used for well casings currently is imported.
Unlike traditional vertical wells, which tap into oil and natural gas deposits by drilling straight down, new drilling technology is allowing energy producers to tap into vast new deposits of oil and gas by drilling techniques that allow wells to gradually turn horizontally and extend for a mile or more through narrow bands of shale. Those horizontal wells can require two or three times the amount of steel casing that a typical vertical well might use, Hosseini said.
Alita hopes to begin manufacturing at the Buffalo plant during the summer of 2015, state officials said.
The jobs at the plant are expected to pay an average of about $58,000 a year, said Christina P. Orsi, Empire State Development’s regional director in Buffalo.
“It’s good to see that our reputation as a hub for world-class and state-of-the-art manufacturing is growing,” said Erie County Executive Mark C. Poloncarz.
Plans call for Alita to build a 340,000-square-foot pipe mill on a brownfield. The site also will include a separate 16,000-square-foot building for a laboratory, office space and for storage.
Alita began looking at Buffalo as a potential site for the plant about a year ago, when it contacted the Buffalo Niagara Enterprise business development and marketing group for assistance.
The BNE worked with Alita officials to select a potential site for the plant, as well as helping the company determine the type of financial incentives it might receive.
Alita on Tuesday was awarded $2 million in funding from the Western New York Power Proceeds Allocation Board, an entity created last year to fund economic-development projects in Buffalo Niagara with money raised from the sale of unallocated hydropower from the Niagara Power Project.
In addition, the state has offered Alita an incentive package that includes up to $6.4 million in tax credits through the Excelsior Jobs Program.
The Erie County Industrial Development Agency is expected to approve property and sales tax breaks for the project, as well as offering Alita a $2 million “forgivable loan” that will help pay for site development costs.
The Power Authority also is expected to consider allocating 4 megawatts of low-cost hydropower for Alita – enough cheap electricity to cover about 80 percent of the company’s estimated power consumption once the mill is fully operational.