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In 2023, ongoing supply growth coupled with weaker demand growth will ease tight markets and see some relief in the price pressures that forced energy prices higher.
The easing in the fundamentals will see prices stay below the peaks achieved in the previous year; however, subdued investment and resurgent mainland China demand will keep markets tight throughout the year, resulting in price decline but remaining well-elevated above recent historic averages, notes Fitch Solutions Country Risk & Industry Research (FSCIR).
The FSCIR analysts noted that energy security efforts by governments, along with high energy prices, “will see another strong year of investment in energy infrastructure with more projects expected to receive final investment decision in 2023.”
However, they warned that high inflation across the industry in the form of increased rig, labor, materials and equipment costs erode the effectiveness of capital deployed as compared with previous years.
“Our Global Macro team expects a sharp slowdown in global growth from 3.1 percent to 2.0 percent in 2023,” FSCIR notes. “They believe that inflation will slow in 2023 but take a while to reach central bank targets. This means that central banks will maintain a hawkish bent, with only a few economies likely to cut interest rates in 2023.”
The analysts added: “The higher interest rate environment, along with higher inflation, will impact economic growth, lowering our expectations for energy consumption across 2023.”
Lower demand growth coupled with increased supply should keep energy prices from testing price peaks seen in 2022: “The prospect of a sharp fall in oil prices is our least likely view for the year.”
A separate report published by Envernus Intelligence Research notes that it expects near-term recession concerns and oil price weakness will not obscure a tight supply scenario for 2023: “We forecast Brent pinned above $100 per barrel on the back of OPEC supply management and EU sanctions on Russian exports.”
As of this writing, the price of Brent crude is trading at $76.68/barrel and WTI at $72.14/barrel.
Enbridge expects to deploy approximately $6 billion of capital expenditures (capex) in 2023, inclusive of maintenance capital.
“The global energy crises are shining a spotlight on the need for all sources of energy supply to ensure our energy security and economic competitiveness, while continuing to make progress on reducing emissions,” notes Al Monaco, president and CEO of Enbridge.
Targa Resources Corp. plans to build the Daytona natural gas liquid (NGL) pipeline as an addition to its common-carrier 550,000 barrels/day Grand Prix NGL pipeline system at an estimated cost of $650 million. Daytona will transport NGLs from the Permian basin to the 30-inch O.D. Grand Prix segment in North Texas for further delivery to Targa’s 963,000 b/d fractionation and storage complex in Mont Belvieu, Texas.
Cameron LNG has signed a nonbinding memorandum of understanding (MOU) with Entergy Louisiana to negotiate a 20-year service agreement to procure renewable energy from Entergy Corp. in order to reduce carbon emissions at the Cameron liquefied natural gas (LNG) facility in Hackberry, La.
“The MOU allows us to memorialize an agreement to bring enough renewable power to offset the emission for our facility, including the Train 4 expansion, when all renewable generations phases are added to the supply portfolio,” says Whit Fairbanks, president of Cameron LNG.
The $4 billion Train 4 addition would add 6.75 million tons/year of capacity to the existing three trains, a 12 million metric ton/year liquefaction facility. The project involves using electric drive motors in lieu of gas turbine drives, and the tie-in of facilities to sequester carbon dioxide from the new train.
It is expected to start construction this year with completion slated for 2027. Approval was received in October 2022 from the U.S. Pipeline and Hazardous Materials Safety Administration, including changes that would allow the facility to load two ships simultaneously at the related Cameron LNG terminal.
Carbon capture and sequestration, the chip manufacturing and data storage facility segments of our industry that are scheduled for construction starts in the calendar 2023 year, will provide the PVF industry with a strong demand for pipe, valves, welding fittings and forged-steel flanges.
Strong 1Q 2023
While the U.S. manufacturing sector is contracting, the U.S. industrial manufacturing industry is gearing up for a strong first quarter 2023, with $83 billion worth of projects projected to start up during this first quarter. Not all projects will move forward during the quarter as planned, but many will, putting the industry sector on pace for a strong 2023 in the Unites States, notes Industrial Info Reports.
As demand increases, the PVF industry and the mechanical construction industry continue to struggle with the availability and rising costs of skilled labor, escalating costs of construction materials, and supply chain constraints in a highly competitive market.
The price of steel scrap has softened; forged-steel flange manufacturers, on the other hand, are experiencing an increase in billets costs. During the month of December 2022, a major flange manufacturer announced a price increase on commodity forged-steel finished flanges.
Commodity carbon-steel welding fittings have seen two domestic manufacturers, and a master distributor, reduce prices in December 2022. One domestic manufacturer, however, indicated that it did not see reason to devalue inventories at this time.
While pricing for seamless carbon-steel pipe has soften by $100/ton, lead times are as far out as 20 weeks. The domestic seamless pipe market remains tight and domestic sizes 12 inches and larger are no longer available from U.S. mills.
With the developments mentioned herein, it is advised to remain in close contact with your manufacturers/suppliers to avoiding surprises in fluctuating prices and availability of product as demand increases.
During the holidays, I had an opportunity to discuss issues that our industry may encounter in 2023 with the managing director of the Geneva Capital Group. He notes that there is an approximate six-month lag time from the time the Federal Reserve increases the interest rate until its effect on the market is realized.
The Federal Reserve has increased the rates several times since March 2022 and continues its aggressive pursuit to lower inflation. The director expects to see the economy experience the shock of the increases by the end of the first quarter of this year.
He expects to see a profound effect on the economy, negatively impacting demand on goods and services. How large of an impact will be experienced by the construction and our PVF industry remains to be seen.
PVF Roundtable News
The next meeting of the PVF Roundtable will be The Cocktail and Commerce meeting on Feb. 21, 2023, commencing at 2 p.m. CST and closing by 7:30 p.m. The venue is Houston’s The Bell Tower on 34th.
This will be a table-top event with industry suppliers hosting end-user attendance.
To date, close to $2 million in scholarships have been distributed by the PVF Roundtable Charitable Foundation to universities and trade schools for the development of a skilled labor force for the PVF industry.
The PVF Roundtable golf tournament, the TroutBlast and the Weldbend-sponsored PVFRT October dinner were the major fund-raising events held by the PVF Roundtable Charitable Foundation during 2022. 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 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 PVF industry. These events provide the platform to share information, discuss pertinent issues, meet new contacts, develop new long-lasting friendships and to pursue new opportunities in the industry.