Bolstered by continued growth in the economy, overall U.S. pipe, valves and fittings (PVF) spending across 12 industries is expected to increase to $13.6 billion in 2020, up by nearly $400 million from 2019, notes Industrial Info Resource’s PVF Market Assessment.
The U.S. economy is expected to remain in a good place for 2020, according to most forecasters, with growth continuing at a slightly more moderate pace. The current U.S. economic expansion, which began roughly 10 years ago following the Great Recession, is the longest in history. Gross domestic product growth is forecast to continue this year, but the numbers could be affected by the status of international trade disputes and slowing global growth.
Industrial Info tracks capital and maintenance project activity across 12 industries. While some of those industries are forecasted to see downturns in project spending this year due to a variety of factors, the overall picture remains on the positive side.
The overall U.S. plant spending forecast for 2020 is $336.4 billion, a 1.6 percent increase from spending in 2019.
Industrial Info is tracking more than $500 billion worth of U.S. projects that are planned to start construction in 2020. Not all of the projects will move forward as planned due to a variety of factors. Projects that are assessed as having a medium (70 to 80 percent) or high (81 to 99 percent) probability of staying on track amount to $353 billion.
By market region, the Southwest (Texas, Louisiana, Oklahoma and Arkansas) leads in total investment value.
Below is an assessment of project investments in some of the top industries tracked by Industrial Info.
Respondents in a recent quarterly U.S. manufacturing industry survey indicated they expect slower growth in capital investments next year. According to the results of the National Association of Manufacturers’ fourth-quarter 2019 outlook survey, 0.8 percent growth in capital investments are expected over the next 12 months, down from 1.1 percent in the previous quarterly survey. This is the weakest reading since the third quarter of 2016.
The expectations for lower capital spending growth fall in line with those of the Institute of Supply Management (ISM), which forecasts that U.S. capital expenditures in 2020 will drop 2.1 percent, following 6.4 percent growth in 2019. The ISM follows 18 industries, ranging from food, beverage and tobacco products to chemical and paper products.
The ISM’s Purchasing Managers Index registered five consecutive months of contraction in 2019. Global trade remained the most significant issue, but there were signs that several industry sectors would improve as a result of the phase-one trade agreement between the United States and China.
Industrial Info is tracking more than $97 billion worth of U.S. industrial manufacturing projects that are planned to kick off this year. Projects that have a high or medium probability of moving forward as planned amount to about $80 billion.
For the past five years, the automotive sector has been riding high with record sales and production levels, which have led to some very high spending numbers in North America. Spending will begin trending downward in 2020 in the sector as those sales and production numbers decline. However, the automotive sector is poised to see capital and maintenance spending top the $10 billion mark.
With new-build coal and nuclear power projects out of favor, electric demand holding steady or even falling slightly, and utilities investing more heavily in energy-efficiency projects, green power and gas power are effectively the only options open to developers seeking to build the next generation of power plants across North America.
A few years ago, the battle for market share was a lot closer than it is now. Renewables developers have dramatically increased their share of the new-build North American power market at the expense of gas-fired power projects. With about $85 billion worth of project activity, wind and solar claim the lion’s share of potential investments for project starts in 2020; wind, with $45 billion in planned activity, edges out solar’s $40 billion in projects. Natural gas-fired projects amount to about $20 billion.
Lucrative federal tax credits have encouraged development of both wind and solar power. The federal Wind Production Tax Credit was set to expire at the end of 2019, but was extended for another year in December. The Solar Investment Tax Credit, while stepping down in coming years, is designed to remain in place in perpetuity, although at a lower rate.
The dissolving tax credits don’t seem to be putting a stop to renewables development. In its Annual Energy Outlook 2019, the U.S. Energy Information Administration (EIA) expects wind and solar to almost double their current market share by 2025, increasing from 8 percent at the start of this year to 14 percent by 2025.
Oil and Gas Production
U.S. crude oil production averaged about 12 million barrels per day (BBL/d) in 2019, more than double what it was a decade ago at the start of the “American energy revolution,” says the American Petroleum Institute. The United States became a net exporter of hydrocarbons last year, sending an average 89,000 BBL/d of oil to foreign nations.
U.S. crude oil production from shale formations could soar by nearly 50 percent to about 16 million BBL/d by 2030, fundamentally altering global oil markets and capturing market share from the OPEC+ Russia group, according to one scenario contained in the International Energy Agency’s World Energy Outlook.
Going forward, the growth rate for U.S. shale production is expected to slow from the rapid pace of earlier years, but the agency predicted U.S. shale production will remain “higher for longer.
Most of the gains in U.S. production will come from the Permian Basin in West Texas and Southeastern New Mexico. Since 2009, oil production in the region has increased from less than 1 million barrels per day to more than 4 million BBL/d in 2019, with some forecasting oil production to nearly double by 2023, notes the Texas Independent Producers & Royalty Owners Association.
The Permian Basin’s oil and gas industry directly employed an estimated 87,603 individuals in 2019, an increase of approximately 3,200 net new jobs over the previous year, the association adds.
While many analysts see 2020 as bringing a slowdown in U.S. shale oil production growth, Industrial Info has tracked more than $21 billion in U.S. projects in the production, terminals and pipelines sectors that were set to be completed in the first quarter of 2020.
U.S. refinery capacity reached a record high of 18.8 million barrels per calendar day at the start of 2019, but weaker global demand pushed U.S. refiners to reduce their crude oil processing by nearly 100 million barrels as of December, the EIA says. This marked the first decline for U.S. crude processing since the recession of 2008-2009.
For this year, Industrial Info is tracking more than $5.8 billion worth of refinery-related project construction kickoffs. At $1.9 billion, maintenance work — including turnarounds, outages and shutdowns — makes up the biggest chunk of the planned investments.
International Maritime Organization regulations limiting sulfur in fuels for ocean-going vessels went into effect in January this year, posing varying degrees of challenge to refiners to meet the new standards, which reduce the maximum amount of sulfur content (by percent weight) allowed in marine fuels from 3.5 percent to 0.5 percent.
The chemical industry has enjoyed many years of persistent growth and positive spending trends, thanks in large part to a robust global cost advantage off the back of natural gas liquids (NGLs) and natural gas prices. While those advantages persist with no immediate expectations that they will subside, there are some concerns about the speed in which project approvals will be decided upon this year due to global trade disputes and geopolitical concerns.
A significant portion of the petrochemical capacity planned in the United States is aimed at export opportunities in foreign markets, largely China, South Asia and Latin America.
Petrochemical investments have been at historical highs for several years running. These investments have been stimulated by cheap feedstock prices, affordable energy costs, attractive demand fundamentals and low interest rates. Many of these drivers continue to have a favorable outlook that promotes new capacity additions in the U.S., although there are some constraints that could potentially slow the decision-making process for many of the biggest projects in this sector.
Ethylene is the fundamental building block for much of the chemical industry. Industrial Info is tracking U.S. planned ethylene project completions this year that would add 9.4 billion pounds in new capacity, compared with 7.56 billion pounds of new capacity added in 2019.