The second quarter of calendar year 2024 begins with crude oil prices edging higher on supply concerns as shipping disruptions continue to plague the supply chain. The Iranian-aligned Houthi have continued their attacks on shipping in the Red Sea. While the Israel-Hamas war has not significantly constrained oil supply, it has increased freight rates and shipping time, thus leaving barrels of oil on the water for extended periods.

Exacerbating the situation, the Houthi rebels have now sunk a United Kingdom-owned cargo ship. This has significant environmental consequences due to the oil spill and 41,000 tonnes of fertilizers being dispersed in the Red Sea, potentially disrupting crucial shipping routes essential to global trade. 

Additionally, three Red Sea underwater fiber cables providing global Internet and telecommunications have been cut as the waterway remains a target of the Houthi rebels.

The cables affected are reported to lie within Yemeni maritime jurisdictions. Rerouting traffic has begun via Tara Communications immediately rerouting their service.

The cut lines include Asia-Africa-Europe, the Europe India Gateway, Seacom and TGN Gulf, and Hong Kong-based HGC Global Communications, affecting 25 percent of traffic through the Red Sea.

Also, rising tensions on the Israel- Lebanon border are another contributing factor to the rising price of crude oil, in addition to the OPEC+ decision to extend its production cuts through the second quarter. In fact, the cartel could keep the cuts in place for the remainder of the year.

As of this writing, WTI is at $78.19/barrel and Brent is posting at $82.30/barrel.

Adding to the crises in the Mideast on shipping, the severe drought impacting the Panama Canal is causing supply chain disruptions, especially liquid natural gas (LNG) tankers. The persistent drought due to the El Niño influence is expected to worsen with no end in sight until at least late spring this year.

Alternative routes via the Suez Canal or the Cape of Good Hope will result in persistent congestion and diversions, which could lead to longer journeys, a shortage of available vessels and, consequentially, higher shipping rates, notes the International Energy Agency.

2Q Projects

Good news for Tennessee: Hancock Tire’s Tennessee plant aims to double the manufacturing facility with the addition of 2.2 million square feet of new space. Clayco is constructing the project and ICT Thomasson is performing the mechanical, electrical and piping work. The total value of investment is confidential; however, it is estimated at $1.6 billion.

In Illinois, Wieland Rolled Products NA plans to expand its metal rolling mill in East Alton. The project consists of the construction of building space and equipment foundations, installation of a new rolling mill, and overhead crane and support equipment. Grayer Construction Co. will be the general contractor. The project’s estimated engineering, procurement and construction (EPC) cost is $500 million.

Oklahoma is another Midwest state to see a major project start. Stardust Power (a startup company) plans to construct a lithium refinery at Southside Industrial Park in Muskogee. The project incorporates the construction of building space, equipment foundations, erecting structural steel, installation of storage tanks, reactors, and sorbent loading, washing, stripping, polishing, crystallizers, filtration, bagging and load-out equipment.

The refinery will be able to produce 50,000 metric tons of battery-grade lithium per year. Construction is expected to begin by the end of this quarter. Total EPC cost is $1 billion.

Natural Gas Exports

The U.S. Federal Energy Regulatory Commission (FERC) has approved two projects to increase U.S. natural gas exports.

FERC granted Tellurian a three-year extension to put its 27.6 million tonnes/year Driftwood plant on Louisiana’s Calcasieu River in service, despite objections from the Sierra Club and other environment activists. Tellurian now plans to bring the project online by April 18, 2029.

FERC also granted ONEOK a presidential permit to build and operate the Saguaro Connector natural gas pipeline border crossing into Mexico from Hudspeth County, Texas.

The Saguaro Connector will use 155 miles of 48-inch pipe to transport Permian basin gas carried by ONEOK’s existing WesTex intrastate pipeline and other sources to Mexico.

FERC could face a lack of quorum as early as June 30, 2024, should Commissioner Allison Clements decide not to extend her existing term until the end of the Congressional year on Jan. 3, 2025. Clements has announced she would not seek another term. Without a quorum, FERC cannot issue orders or new policies.

LNG Pause Concerns

The Biden administration’s LNG authorization pause could take the Department of Energy (DOE) months to evaluate U.S. LNG exports’ impact on the climate and the economy, per David Turk, DOE deputy secretary.

Dr. James Watson, secretary general of Eurogas, an association representing 101 companies across the European natural gas sector, said the organization fears the pause could preserve Russia’s grip on Europe’s gas supplies. 

The decision “will reduce the likelihood” that the March 2020 agreement between the White House and the European Commission stating that the United States would provide 50 billion cubic feet/year of additional LNG to Europe until 2030 would come to fruition.

Watson questioned the Senate committee whether the move was a pause or a stop. “Where are we going to get our gas?” he asked, noting that Europe has agreed to buy gas through 2049, ensuring a steady-growing LNG market. Watson’s testimony was interrupted by climate protestors.

Sens. Bob Casey and John Fetterman of Pennsylvania stated that if the pause puts jobs at risk, they will push the administration to reverse it.

Attorneys general (AGs) from 26 Republican-led states, including Louisiana and Texas, laid out seven pages of legal arguments against the decision to halt LNG export authorizations.

The AGs argued that the LNG halt threatens the U.S. economy and its diplomatic position while hurting U.S. allies. Meeting allies’ natural gas demands “requires new export terminals leading to billions of dollars in capital expenditures and tens of thousands of new jobs,” AGs wrote. The pause “jeopardizes” this without any “clear congressional authorization to issue this pause in the first place,” per the AGs.

Pricing and the availability of commodity carbon steel butt-welding fittings and forged steel flanges remain stable. However, with tensions rising in both the Pacific and the Mideast, along with the shipping constraints at the Panama Canal, supply chains remain vulnerable to disruptions and higher costs.

It is wise to remain in close contact with your manufacturers/suppliers to avoid surprises regarding pricing and the availability of pipe, forged flanges, butt-welding fittings, valves and other PVF-related products.

The annual Mechanical Contractors of America Association convention convened March 17 in Orlando, Fla. The temperature of the mechanical contractor industry regarding the outlook for the construction sector this year will be reviewed in the May issue.

PVF Roundtable News

The PVF Roundtable’s annual golf tournament is scheduled for May 13 at The Clubs of Kingwood in Kingwood, Texas. This is the most popular fundraising event of the year for the PVF Roundtable Charitable Foundation, drawing participants from all parts of the country.

The PVF Roundtable Golf Tournament and TroutBlast are the major fundraising events scheduled for 2024. The Weldbend Corp., Ferguson Industrial and MRC Global are key sponsors of these events. 

The next Networking Meeting of the PVF Roundtable will be May 14, following the PVF annual golf tournament, beginning at 4 p.m. at Houston’s The Bell Tower on 34th.

    As a member of the board of directors, and I speak for all members, we sincerely thank you for your participation in these events.

With the geopolitical uncertainties in the world today and the influence they have on the PVF market, these networking meetings are of the utmost importance for you and your associates. These events provide the platform to share information, discuss pertinent issues, meet new contacts, develop long-lasting friendships and pursue new opportunities in the industry.