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As of this writing, oil prices have retreated as a result of the coronavirus, coupled with the glut of oil on the market, to $50.34 for WTI and $54.45 for Brent Crude. Production from non-OPEC countries, plus the sudden drop in demand from China due to the effects of the coronavirus epidemic on China’s economy, has resulted in a glut of crude oil in the market.
OPEC countries and its allies appointed a committee to study the effects of the coronavirus on the oil industry. The committee recommended additional output cuts Feb. 8, according to Algeria’s energy minister.
The joint technical committee “recommended extending until the end of 2020 the current production reduction agreement and proceeding with an additional reduction in production until the end of the second quarter of 2020,” says Mohamed Arkab, president of the conference of the Organization of the Petroleum Exporting Countries (OPEC).
With all the negativity in the marketplace, ExxonMobil is defying the dismal energy market. Despite “extremely challenging market conditions,” as described by Darren Woods, chief executive officer of Exxon, the company’s annual capital expenditures would increase from $4 billion to $5 billion — for a total of more than $30 billion. Exxon will focus on some of its most productive areas, which includes the Permian Basin.
Exxon is already at work on its 650-mile Wink-to-Webster Pipeline, which is projected to carry up to 1 million BBL/d of crude oil and condensate from Wink in the Permian to multiple locations along the Texas coast. This includes a pumping station in Columbus, Texas, estimated at $45 million. This project is expected to begin construction soon. The pipeline and pumping station are expected to finish installation in the summer of 2021.
“We continue to like what we are seeing in our Permian development,” Woods says in a quarterly earnings conference call, adding, “We are still in the early days of this development, particularly in the Delaware Basin. For perspective, we’ve developed roughly 20 percent of our resource in the Midland and only around 3 percent of our resource in the Delaware.”
In addition, ExxonMobil is investing an estimated $230 million in maintenance projects that are set to begin work through the end of June.
Additional Pipeline Projects
Plains All American and Phillips 66 expect to begin construction later this summer on the 750-mile Red Oak Pipeline project, which will connect the Permian and Cushing, Okla., with destinations along the Texas Gulf Coast.
In addition to the Permian project, Plains All American is seeking permits for an estimated $175 million rebuild of crude oil pipelines north of Los Angeles. The company plans to abandon or remove between 123 and 124 miles of pipeline, which would carry up to 40,000 BBL/d of crude from Goleta to Pentland, Calif.
ExxonMobil and Plains All American are not alone in investing in the Permian, despite the rough end of 2019 as oil demand declined worldwide and $10.4 billion in write-offs, mainly from shale gas production, that destroyed its bottom line.
With commodity prices unlikely to see any substantial increases, Chevron is eyeing the Permian basin and other high growth areas. Chevron’s 2020 capex budget allocated $4 billion to Permian development, $3 billion for downstream and chemical, with remaining funds going to exploration projects.
Phillips 66 also is pursuing pipeline projects in addition to its investment in the Red Oak Pipeline. These projects are outside the Permian region and Texas. The Liberty Pipeline project will provide transportation for the Rockies and Bakken production areas to Cushing. Phillips owns 50 percent interest and will construct and operate the pipeline. Construction is set to begin later in the year and have a TIV of more than $3.5 billion.
Wood Group plc (Aberdeen, Scotland) is involved in more than $24 billion in projects in North America. Corpus Christi, Texas, has become a leading outlet for U.S. crude oil exports, and the Wood Group is joining with Phillips 66 in getting in on the action.
Last year, Phillips 66 began seeking permission to construct and operate its Bluewater terminal on Corpus Christi Bay that would be able to load very large crude carriers (VLCC). The project will include the construction of an onshore terminal and two offshore buoys that would be connected to pipelines to load crude onto VLCCs. The estimated TIV is $2 billion. Construction could begin this summer and is expected to see completion in about a year.
January’s labor reported an additional 225,000 jobs were created during the month is proof that the U.S. economy remains strong. The demand for skilled labor remains a constraint for the manufacturing, auto, construction, power, refinery and pipeline sectors.
One sign that construction spending should perk up during 2020: Architects have been seeing increasing business in recent months. This is a leading indicator, particularly for nonresidential construction.
This year, office space, health-care, education and public safety construction seem to perform the best. Expect construction to vary widely by region, with the most spending in the South and West, while the activity lags in the Midwest and Northeast.
A significant development has occurred relevant to the shadow cast over the PVF sector on the importance of misrepresented noncompliant forged-steel flanges.
A permanent injunction was issued Feb. 7, 2020, by Judge Andrew S. Hansen in the United States District Court for the Southern District of Texas, Houston Division.
“The Court permanently enjoins Ulma Piping USA Corp. and Ulma Forja S. Coop from manufacturing, selling or otherwise distributing, either directly or through distribution, any flange in the United States that is marked, engraved, advertised, labeled or otherwise described in any manner, whether on the flange, on the accompanying paperwork or in any separate document or advertisement or on the internet, as complying with ASTM A105, ASTM A105N, or as being normalized, that has not undergone a form of normalization that complies with ASTM A961 or ASTM A941.
“The defendants are further ordered to inform their distributors in the United States of this injunction within 15 days, so that they do not accidentally or intentionally sell an Ulma-manufactured flange in the United States that does not comply with this injunction.
“Defendants are ordered to contact any and all distributors of their products in the United States and to recall any product which purports to be normalized or be ASTM A105 or A105N compliant, which has not been normalized according to ASTM A961 or ASTM A941.
“This injunction applies to all Ulma flanges above the 300 lb. pressure class, which are represented to be ASTM-compliant or normalized, and to all flanges at the 300 lb. pressure class or below that Ulma represents or has represented to have been normalized that have not undergone one of the procedures recognized by the ASTM.”
PVF Roundtable News
The second meeting of the PVF Roundtable’s 2020 season will be a networking meeting scheduled for May 12, beginning at 4:15 p.m. and ending at 8 p.m. The meeting will be held at The Bell Tower on 34th, 901 W 34th St., Houston, 713-868-2355.
All members of the PVF Roundtable board of directors urge you and your associates to attend the networking meetings as this is where the movers and decision-makers from all sectors of the PVF industry meet to network and exchange information and ideas.