More U.S. Oil and Gas Capital Spending in 2023

Midway through 2023’s second quarter, the Federal Reserve’s Jerome Powell is set to raise the prime interest rate another 25 to 50 basis points in his relentless pursuit of throttling the rate of inflation. This comes after raising the rate by 25 basis points in April.

Fiscal policy has been the tool of choice to manage the economy but has been abandoned by the current administration by its tax-and-spend policies. The effects of these initiatives are evidenced by out-of-control inflation, supply chain constraints and subdued capital expenditures negatively impacting the PVF industry.

除了失控的开支,我们dustry is additionally impacted by the draconian regulations imposed on our oil and gas industries, along with the restrictions on available federal land leases required for exploration to increase production.

Capital spending by oil and gas companies will, however, continue growing in 2023, driven by a sustained favorable commodity price environment, strong cash flows and cost inflation. Capital discipline remains key, reinforcing its commitment to reducing debt, increasing shareholder returns and increasing share buybacks.

Combined spending by major oil companies — including ExxonMobil Corp. (United States), Chevron Corp. (United States), Shell (UK), BP (UK), Eni (Italy), Equinor (Norway) and TotalEnergies (France) — will rise approximately 7 percent year-on-year to $119.7 billion. However, this remains below pre-pandemic spending at $132 billion in 2019.

Energy Prices to Rise

OPEC’s surprise move to cut oil output will push fuel prices higher. The Saudi-led cartel and its allies will take an additional 500,000 barrels/day of production off the market. OPEC+ announced the round of total output curbs of almost 1.7 million barrels a day.

Expect to see WTI trade at between $75 and $85 a barrel during the second quarter. Additional spikes in prices could result from unforeseen supply disruptions. As of this writing, WTI is trading at $81.10/barrel, and Brent is at $85.19/barrel.

由于昂贵的天然气价格将上升这个季度crude oil and an unusual increase in seasonal demand. Pricing is expected to average at least $3.75/gallon and threaten to reach $4/gallon. Diesel fuel pricing will also rise in conjunction with gasoline.

Natural gas, on the other hand, remains deeply depressed, with the benchmark gas price at slightly more than $2/million BTU. Expect natural gas prices to remain there until the summer weather hits. As of this writing, natural gas is trading at $2.214 MMBTU.

Energy Projects

Bechtel Energy has received a notice to proceed with engineering, procurement and construction of Sampras Infrastructure’s estimated $13 billion liquid natural gas (LNG) export terminal in Port Arthur, Texas. The two-train project could create 5,000 construction jobs.

This action follows a final investment decision one week earlier by developer Venture Global LNG to build the second phase of its Plaquemines LNG site in Plaquemines Parish, La., after securing the necessary financing.

Industrial Info Resources is tracking more than $7.3 billion in the total investment value of active, U.S.-based natural gas pipeline projects set to begin in the second quarter, of which $6 billion have a medium-to-high likelihood of starting as scheduled.

Eastern Shore Natural Gas, an interstate subsidiary of Chesapeake Utilities Corp., leads all other project developers in its investment in second-quarter startups with the expansion of its East Coast pipeline system.

The Market Hub Services and Pipeline Expansion Project will transport 1 billion cubic feet/day of gas across four states to the Delmarva Peninsula, including Delaware and the easternmost areas of Maryland and Virginia.

Contractor Outlook

The Mechanical Contractors Association of America’s annual convention was held during the last week in March at the J.W. Marriott Desert Ridge in Scottsdale, Ariz., with at, or near, record attendance.

The majority of the mechanical contractors we met with indicated they have strong backlogs of project work through 2023 and into 2024. Several reported seeing signs that the brakes are beginning to be put on new projects and some that are underway.

Rising interest rates, and inflationary pressures on materials and energy, coupled with the availability of an experienced and qualified labor force, are factors influencing final investment decisions on proposed projects, especially mega projects. There is a point of diminishing return on investment to cause a pause on starting new construction.

“Despite a small dip in headcount, construction firms continued to post a high level of job openings and raised pay more than other industries — two signs they still want to hire more employees,” explains Ken Simpson, chief economist of the Associated General Contractors of America. “However, the pool of unemployed, experienced jobseekers keeps shrinking for the construction sector.”

Supply Chain Concerns

Pricing for domestic carbon steel butt-welding fittings and forged-steel flanges remain stable at the midpoint of the second quarter; no change is anticipated during the quarter.

However, with all the instability in the global and domestic markets, it is wise to communicate regularly with your manufacturers/suppliers to avoid any surprises regarding pricing or availability of material.

As of this writing, the aggressive posture of China regarding Taiwan, and possible confrontation with the United States, is giving the industry considerable concern over supply chain disruptions and the availability of offshore PVF materials.

The Trans-Pacific region is extremely vulnerable to major disruptions that include shipments of PVF products from Australia, Brunei, Chile, Japan, Malaysia, Singapore, Thailand, Vietnam and China.

PVF Roundtable News

The Weldbend Corp. and Ferguson Industrial, key sponsors for the annual PVF Roundtable Golf Tournament, are pleased to report a total sellout of all courses, along with a record-setting turnout, for the May 8 PVF Roundtable Charitable Foundation’s premier fundraising event.

The tournament was held at the Clubs of Kingwood and Deerwood in Kingwood, Texas. All five courses were in play: Island, Marsh, Lake, Forest and Deerwood.

The next networking meeting of the PVF Roundtable (www.pvfroundtable.org) will be held August 8, from 4 to 7:30 p.m., at Houston’s The Bell Tower on 34th (713-868-2355).

This year, The PVF Roundtable will exceed $2 million in total scholarships that have been distributed by the PVF Roundtable Charitable Foundation since its inception to universities and trade schools for the development of a skilled labor force to meet the increasing demands of the PVF industry.

Distributions for the first half of 2023 will be announced at the August meeting.

The PVF Roundtable golf tournament, the TroutBlast and the Weldbend-sponsored October 2022 dinner were the major fundraising events held by the foundation during 2022, with the funds raised dedicated to the PVF Roundtable Scholarship Programs.

The PVF Roundtable Golf Tournament and TroutBlast are the major fundraising events scheduled for 2023. The Weldbend Corp., Ferguson Industrial and MRC Global are key sponsors of these events.

As a member of the board, and I speak for all members, we thank you for your participation in these events.

With the uncertainties in the current turbulent PVF market, the networking meetings are a unique venue for you and your associates to network with your PVF peers. These events provide the platform to share information, discuss pertinent issues, meet new contacts, develop long-lasting friendships and pursue new opportunities in the industry.