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With the second-quarter earnings reports in August registering a gusher of red ink across the industry as expected, the following are some of the more prominent companies reporting losses:
Major corrective measures have been instituted industry-wide to reduce costs and increase efficiencies to deal with the lower commodity price environment due to the impact of the COVID-19 pandemic and surplus oil production.
With this in mind, we anticipate the worst is now behind us as we move through the third quarter.
The U.S. Energy Information Administration raised its Brent and West Texas Intermediate oil price forecasts again, the organization’s August Short Term Energy Outlook report reveals.
The STEO report, released Aug. 11, notes Brent spot prices averaging $41.42 per barrel and WTI spot prices averaging $38.50 per barrel in 2020. In its previous STEO, the EIA forecasted that Brent spot prices would average $40.50 per barrel and WTI spot prices would average $37.55 per barrel this year.
Looking further ahead, the EIA now predicts that Brent spot prices will average $49.53 per barrel in 2021, which is a slight reduction on its previous 2021 projection of $49.70 per barrel. WTI spot prices are expected to average $45.53 per barrel next year, which also marks a slight decrease in the EIA’s previous prediction of $45.70 per barrel.
In the Aug. 11 report, the EIA says it expects high inventory levels and surplus crude oil production capacity will limit upward price pressures in the coming months. The organization adds, however, that as inventories decline into 2021, upward price pressures will increase.
Pricing as of this writing have WTI at $42.31/b and Brent at $45.18/b. The rise in pricing is underpinned by expectations of the U.S. economic stimulus to support the largest oil consumer, along with the rebound in Asian demands as economies recover.
“We anticipate nationwide horizontal oil drilling will remain relatively flat for the next few weeks as some operators continue to implement modest downward adjustments, while others have started drill operations in the current $40 WTI price environment,” says Rystad Energy’s head of shale research Artem Abramov.
Energy Transfer received a favorable ruling Aug. 5 from the U.S. Court of Appeals for the District of Columbia Circuit to keep oil flowing through the Dakota Access pipeline, reversing Judge James Boasberg’s shut-down order. The pipeline will still be subject to an environmental review.
Natural Gas Outlook
U.S. natural gas futures Aug. 7 jumped to their highest since December after rising by the most in a week since 2009, as liquefied natural gas exports increased and forecasts called for hot weather through late August. Front-month gas futures rose 7.3 cents, or 3.4 percent, to settle at $2.238/MMBTUs, their highest close since Dec. 26.
For the week, the contract was up 24 percent, its biggest weekly gain since Sept. 2009, according to Reuters. Natural gas pricing, as of this writing, is at $2.185/ MMBTUs.
However, the EIA expects U.S. dry natural gas production to average 89.2 billion cubic feet per day (Bcf/d) in 2020, down from 92.2 Bcf/d in 2019. This 3 percent decrease is the result of falling natural gas prices that caused a decline in drilling activity and production curtailments.
For 2021, annual average dry natural gas production in the United States is predicted to decline by 6 percent to 84.2 Bcf/d. However, the EIA expects production to increase during the second half of 2021 as natural gas prices in the forecast rise.
Overall, the EIA expects U.S. natural gas consumption will decline by 3 percent in 2020. The main driver of the decline is lower consumption in the industrial sector because of COVID-19 mitigation efforts and related reductions in economic activity.
Forecast U.S. natural gas consumption declines by 5 percent in 2021 as a result of expected rising natural gas prices. The rising prices will reduce the use of natural gas in the electric power sector, which will more than offset increases in natural gas consumption in the industrial, commercial and residential sectors.
In the commercial construction sector, Brasfield & Gorrie, a large privately owned construction company domiciled in Birmingham, Ala., has more than a billion dollars’ worth of projects in backlog, primarily in the industrial manufacturing and food/beverage sectors of the industry.
The largest involving the company is Switch SUPERNAP’s Phase II data center in Austell, Ga. The project is in the second of three phases at the site and entails constructing an approximately 204,250-square-foot data hall with 55 kilowatts of power with completion scheduled for the summer of 2021, Industrial Info Resources notes.
Another data center involving Brasfield & Gorrie includes the Phase II expansion at DC Blox’s facility in Huntsville, Ala. The project will double the size of the existing facility.
In the automotive sector, the commercial construction firm plans to begin construction on a stamping plant expansion for Topre Corp. in Smyrna, Tenn. Brasfield & Gorrie will construct a 47,245-square-foot press shop and the installation of cold stamping equipment to increase production supporting Nissan, Honda and Toyota.
Brasfield & Gorrie also is at work on a grassroots bottling distribution center for the Coca-Cola Bottling Co. United (Birmingham, Ala.) in Tifton, Ga. The project entails the construction of a 350,000-square-foot facility.
Offshore Materials Concerns
As the economic recovery gains momentum, it is essential to review the costs related to the use of low front-end pricing of offshore pipe fittings and forged-steel flanges — along with the risks of reliance on overseas supply chains.
Low costs of offshore material due to low quality and fraudulent reporting practices increase the back-end costs of installation and liability exposure. This emphasizes the importance of the need to re-shore your supply chain with high quality and completely traceable domestically manufactured products.
PVF Roundtable News
The board of directors of the PVF Roundtable officially canceled the August and October networking meetings in Houston and the popular October TroutBlast due to the restrictions imposed by Texas Gov. Abbott caused by the COVID-19 flair-up in the state.
Due to the impact of the COVID-19 protocols, the board highly recommends referring to the PVFRT’s website (www.pvf.org) for updates on networking meeting schedules and registration for the events. We look forward to resuming our networking meetings as soon as we have permission to hold meetings with the number of attendees who regularly participate.
We urge you and your associates to attend the next networking meeting — when we can schedule it — to exchange ideas regarding the emergence from the COVID-19 pandemic and the restructuring of our industry.