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With the holiday season behind us and Congress back session, we are entering the second month of the first quarter of 2022 with continued uncertainty.
Supply chain disruptions, skilled labor shortages, raw material shortages, steel mill shutdowns for large-diameter seamless pipe, escalating energy costs, and the availability and rising cost of transportation continue to plague the PVF sector.
A major manufacturer of carbon-steel butt welding fittings announced a price increase in January; others are expected to follow.
Energy prices used in the S&P Goldman Sachs Commodity Index (GSCI), ended Dec. 31, 2021, rose 59 percent higher than the first trading day of the year, per an analysis from the U.S. Energy Information Administration. By comparison, most of the other commodity indexes included in the GSCI rose about 20 percent.
With this in mind, I hardily recommend that you keep close contact with manufacturers/suppliers to protect against shortages of critical materials, unexpected delays in receiving/delivering products and anticipated price escalation.
Anirban Basu, chief economist for Associated Builders and Contractors, anticipates a “very busy” 2022 for the industry. The impact of the Infrastructure Investment and Jobs Act will not see projects from the package released until the third/fourth quarters of 2022.
“Think very long and hard before entering into contractual obligations,” Basu says. “Make sure you build enough margin and contingency.”
According to the U.S. Bureau of Labor Statistics (BLS), the 12-month producer index for steel mill products was up 141.6 percent. If rising interest rates lower inflation, supply chain recovery prices of construction materials may cause lower costs. However, they will remain higher than pre-pandemic pricing.
Pricing volatility will significantly impact projects. After months of the Biden administration trying to write off inflation as transitory, defining new geopolitical relationships as passing and supply chain challenges as temporary, the construction industry is now adapting to the new world of unstable prices and short-term vendor quotes.
Gone are the days of quoting material during the bid phase of a project and expecting this price to be accurate six months later when it comes time to purchase.
What is not changing is:
• Project schedules will not become longer.
• Skilled labor will not become more plentiful.
• Code and design requirements will not become more relaxed.
Hiring will continue to be challenging through 2022. Construction employment was down by 115,000 jobs predicated November 2021, compared to February 2020, per the BLS. About 1.5 million baby boomers retired earlier than expected during the pandemic, removing many skilled trade workers from the industry.
Interior Department Report
The U.S. Interior Department released a report, ordered by President Biden, recommending raising royalty rates, minimum bonus bids, rental rates and potentially other costs levied on oil and gas companies bidding for leases on federal lands.
The report says the federal leasing fails to provide a fair return to taxpayers, inadequately accounts for environmental harms, fosters speculation to the detriment of consumers, and allows oil and gas development in areas that might be better reserved for conservation or recreation.
Many of the report’s recommendations could raise costs without directly impacting greenhouse emissions (GHE). Critics warned that the Biden administration might drive more production to offshore nations, including nations with weaker GHE restrictions.
“The Biden administration continues to rely on tired arguments that do not tell the true story of mineral development on America’s federal lands,” notes Dan Naatz, executive vice president of the Independent Petroleum Association of America.
At a time when Americans continue to struggle with high prices and inflation for everything from food to fuel, this report makes no sense, Naatz says.
Fed Energy Report
Where are WTI oil prices expected to be at the end of 2022? This question was posed to executives from 132 oil and gas firms by the Dallas Fed Energy Survey. The most popular answer was WTI spot prices at an average of $71.43 per barrel. The second most popular response to the poll was between $75 and $79.99 per barrel.
The survey average was $82.10 per barrel, with the low forecast at $50 per barrel and the high forecast at $125 per barrel. At this writing, WTI is at $82.09 per barrel.
The special questions segment of the survey asked the firms what the expectations were for their companies’ capital spending in 2022 versus 2021. Most executives stated they expect to see their firm’s capital spending rise this year.
Forty-four percent of the executives said they expect capital spending to rise slightly, while an additional 31 percent anticipate a significant increase.
An additional question was asked about their firm’s primary goal in 2022; 49 percent of executives selected production growth as their primary goal.
Maintenance Projects Move Forward
The U.S. heavy manufacturing sector is seeing maintenance projects moving at a brisk pace as plant owners are trying to keep their existing operations efficient and productive in the face of the Omicron variant of the COVID-19 and supply chain constraints, reports Industrial Info Resources.
U.S. Steel Corp. announced Jan. 11, 2022, that it would build its latest steel mill in Osceola, Ark., close to its existing Big River Steel Mill. The total insurable value (TIV) is $3 billion and will add two electric furnaces that will almost double its annual capacity.
The Boeing Co. is preparing to begin a full-year maintenance program at its aircraft manufacturing plant in Everett, Wash. The Parker-Hannifin Corp. also is preparing for a full-year program at its aircraft parts plants in Devens, Mass., and Avon, Ohio.
In addition, Parker-Hannifin is preparing full-year maintenance programs beginning through the end of March, including a gas turbine fuel system manufacturing plant in Monks Corner, S.C., an industrial air filters manufacturing plant in Slater, Mo., and an industrial fittings manufacturing plant in Lakeview, Mich.
The Whirlpool Corp. will kick off full-year maintenance programs at its refrigerator manufacturing plant in Amana, Iowa, and its washing machine plant in Clyde, Ohio, through the end of March.
And the leaders of ExxonMobil announced they plan to stick to their annual capex plans of $20 billion to $25 billion through 2027. The company expects to produce roughly 700,000 b/d in the Permian by 2025.
PVF Roundtable News
The first networking meeting of the year, originally scheduled for Feb. 8, has been postponed to March 8 due to the onset of Omicron.
The PVF Young Professionals Group will host the 2022 PVFYP Sporting Clays Classic on March 3 at the Greater Houston Sports Club. Proceeds from this event will help fund the PVF Roundtable’s mission of giving scholarships monies to students focused on careers in the PVF industry.
The golf tournament and the TroutBlast are the two major fund-raising events held by the PVF Roundtable Charitable Foundation; the funds raised are dedicated to the PVF Roundtable scholarship programs.
As a member of the board of directors, and I speak for all members, we thank you for participating in these events.
The networking meetings are a unique venue for you and your associates to network with your peers in the PVF industry. These events provide the platform to share information, discuss pertinent issues, meet new contacts, develop new and long-lasting friendships, and pursue new opportunities in the industry.