The month of August is the midpoint in the third quarter of 2022, with oil pricing as of this writing (mid-July) at $103.88 for WTI and $105.77 for Brent — still in the $100 range but down from record highs. The natural gas price is down from $8.088 MMBTU, as reported in July, to $6.246 MMBTU as of this writing. While improving, gas at the pump remains painful.
U.S. refiners are trending toward increasing gasoline production rather than diesel. However, projects for renewable diesel are picking up through refinery conversions, grassroot or refinery additions.
BofA Global Research states that it sees Brent averaging $102/barrel this year and in 2023. It also highlighted a potential spike to $150/barrel that could happen if Russian oil production is pushed via sanctions to below 9 million barrels/day.
The market does not seem to be pricing in a decade-long Russian supply crisis as long-dated oil prices remain firmly anchored in our long-term oil price band of $60/barrel to $80/barrel.
Extended sanctions on Russian energy could act as a price floor even if near-dated spot oil prices’ downside risks grow. Even if the world goes into recession, BofA estimates Brent could still average more than $75/barrel in 2023.
The U.S. economy has become the largest economy in the world, driven by an abundant energy supply available from low-cost domestic producers. Energy is the epicenter of our economy. Disruptions, natural and artificial (as imposed by the current administration), have negative cascading impacts across all sectors of the economy (nondurables, durables, agriculture, etc.).
Increasing the growth of the economy is being constrained by this administration’s limit on oil/gas drilling on federal lands and in the Gulf of Mexico, and punitive regulations on refineries and pipeline construction. Inflationary pressures due to excessive spending, interest rate hikes and an imbalance of supply and demand are also factors inhibiting growth.
The Biden administration received a stunning blow from the U.S. Supreme Court in the court’s recent decision in West Virginia v. The Environmental Protection Agency (EPA). It decisively declared that the EPA vastly exceeded its authority regarding power plants and their use of fossil fuels.
“Now the Supreme Court has thrown down the gauntlet: Unelected agencies can’t make big decisions unless Congress has authorized them to do so,” notes Steve Forbes.
We can expect additional legal challenges as we move forward; the industry needs to be attentive.
Industrial Manufacturing Projects
Despite the growing concerns of a recession this year, the industrial manufacturing project spend growth remains healthy in North America for 2022 — more than $201 billion as reported in May (current available data), up 36.57 percent.
The pipeline industry (oil, gas, liquids) had a 12.6 percent decline from the 2021 spend —from $32.37 billion to $19.78 billion. A recent discussion with Kinder Morgan indicates it has multiple projects in the planning stages to meet the projected increase in demand yet is constrained by the difficulties in obtaining permits to begin construction.
Oil country tubular goods (OCTG) piping is expected to increase by 20 percent to 40 percent upon issuance of the final ruling from the U.S. International Trade Commission and the U.S. Department of Commerce regarding the anti-dumping and countervailing duty petition on OCTG from Argentina, Mexico, The Republic of Korea and Russia.
The final ruling is expected to be released in September or early October.
California’s Worker Classification Law
Another issue affecting the supply chain issues is the Supreme Court’s turning away a challenge to California’s radical worker classification law that virtually outlaws independent contracting, including independent trucking, and clamps down on the gig economy.
California’s 70,000 owner-operators have seven days to cease long-standing businesses, taking tens of thousands of truck drivers off the road. This will have a devastating impact on an already fragile supply chain, increasing costs and fueling runaway inflation.
With these developments in mind, it is critical to maintain close relations with your manufacturers/suppliers to avoid being unprepared for price increases and shipping delays. This is especially true for those relying on offshore products.
Supporting domestic manufacturing ensures reliable sources of supply, high-quality products and limited liability exposure, and bolsters our domestic PVF industry’s manufacturing sector.
U.S. Refiners Move to
As presented in the Petroleum Refining, Alternative Fuels & Crude Oil Global Outlook webinar held June 22, several major U.S. refiners are pivoting to renewable diesel production.
Shell plc is converting its Convent Refinery to a low-carbon fuels plant in Louisiana. Shell shuttered the plant in November 2020 as it became unprofitable due to the demand destruction following the COVID-19 pandemic. Construction is expected to begin in 2024, with completion in September 2024.
Marathon Petroleum Corp. closed its Martinez Refinery in the San Francisco area in 2020 and is at work on a $550 million Phase 1 conversion, with Phases 2 and 3 to follow.
The New England region —
Connecticut, Massachusetts, Maine,
New Hampshire, Rhode Island and Vermont — has more than $19.6 billion in industrial projects under construction. Pharma-biotech accounts for more than $10.4 billion.
Cheniere Energy made a positive Final Investment Decision (FID), issuing full notice to proceed to Bechtel Energy to continue construction of the 10-plus million tons per annum liquified natural gas (LNG) Corpus Christy Stage 3 Liquidation Project. The Stage 3 project began earlier under limited notice to proceed. The project is estimated to provide much-needed volume to the global LNG markets by the end of 2025.
Williams Cos. reached an FID to move forward with the Louisiana Energy Gateway pipeline project. The project will gather 1.8 billion cubic feet/day of natural gas produced in the Haynesville basin for delivery to the Transco pipeline system, industrial markets and LNG export facilities along the U.S Gulf Coast. The project is scheduled to go into service in late 2024.
PVF Roundtable News
The fourth PVF Roundtable Networking Meeting of 2022 will be held Oct. 11, 4:30 p.m., at Houston’s Marriott Houston Westchase, 2900 Briarpark Dr.
This will be a dinner event sponsored by The Weldbend Corp. The keynote speaker, Robert Bryce, will address industry issues such as energy production. Bryce is an Austin, Texas-based author, journalist, film producer and public speaker.
The PVF Roundtable TroutBlast Fishing Tournament is scheduled for Oct. 7-8 in Matagorda, Texas, beginning with The Captain’s Dinner on the 7th at Storm Shack (County Road 259) from 5 to 9:30 p.m.
The fishing tournament begins at 6 a.m. on the 8th at Blackjack Tournament, Matagorda Harbor.
The golf tournament and the Trout Blast are the two major fund-raising events held by the PVF Roundtable Charitable Foundation. Funds raised are dedicated to the PVF Roundtable Scholarship Programs. To date, $1.4 million in scholarships have been distributed to universities and trade schools for the development of a skilled labor force for the PVF industry.
As a member of the board of directors, 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 peers in the industry. These events provide the platform to share information, discuss pertinent issues, meet new contacts, develop new long-lasting friendships and pursue new opportunities in the industry.