In my report on the recent winter PVF Roundtable meeting in Houston, Supply House Times columnist and ASA Industry Analyst Morrie Beschloss used the signature sign-on line from World War II-era radio commentator Gabriel Heatter to describe the outlook for the industrial PVF industry.
“There’s good news tonight.”
From talking to various people within the industrial PVF community in recent months, “good” may need to be upgraded to “great” in terms of the predicted growth of this market segment.
“This isn’t happy talk,” Beschloss told the record crowd. “America has the largest reserves of natural resources in the world. If you take all the natural resources underground in the U.S., we’re talking $100 trillion.”
Beschloss concluded his quarterly forecast by predicting 2014 will be the greatest year thus far in the millennium for the industrial PVF industry. And he’s not alone in his optimism.
Winter PVF Roundtable keynote speaker Dr. Don McNeeley (Chicago Tube & Iron) told the audience while factors such as government regulatory roadblocks and jobs creation still are causes for concern, the industrial sector is the one that will bear the good news. McNeeley’s research shows $1.5 billion in new economic activity in the next 36-month period, with a disproportionate amount of that spending in the industrial sector.
Raleigh, N.C.-based consulting firm FMI calls the current oil and gas climate an “extremely dynamic and competitive — if not unprecedented — business environment.”
“The refinement of hydraulic fracturing technology has allowed the U.S. to go from an increasingly dependent buyer of foreign oil to the second-leading producer of oil in the world,” FMI stated in a recent report labeled “Skills Shortages in a Booming Market: The Big Oil and Gas Challenge.” More on the negative words in the report title in a second.
FMI estimates had capital expenditures on oil and gas construction projects in the United States exceeding $55 billion last year (up 11% from 2012). It estimates this type of growth will continue at an average of 17% through 2017. FMI also estimates more than $330 billion will be spent on oil- and gas-related construction projects in the next four years, nearly double the amount spent in the previous four years.
FMI’s Sabine Hoover told me that $4.3 billion was spent on new onshore pipelines last year. Between now and 2020, industry experts estimate an additional $22 billion will be spent on new onshore pipelines.
In other words, the use of the phrase “gold rush” might not be too far off base when talking about the future fortunes of the industry.
However, FMI’s major concern, hence the title of its report, is an ever-growing construction labor shortage in the oil and gas industry.
In 2008, according to the FMI report, only 3.8% of the total construction workforce was engaged in direct oil and gas construction. By 2012, 6.4% of that workforce was engaged in direct oil and gas construction. According to estimates, FMI feels by 2017 nearly 10% of the total U.S. construction workforce will have moved over to the continually burgeoning oil and gas industry.
The report goes on to say near-term skill shortages likely will peak in 2014 and 2015 when oil and gas construction projects around the Gulf Coast are expected to come online.
Despite this glum forecast, Hoover doesn’t believe the skilled labor shortage will put a damper on the prevailing bright near-term industry outlook.
“A lot of capital is available in the oil and gas industry,” she said. “Things will still get built. It might just take a little longer. Companies that aren’t preparing for the upcoming labor shortages will be hit hardest. As for the oil and gas industry’s outlook, we don’t see activity slowing down anytime soon.”
Hoover also doesn’t see the labor shortage having a ripple effect that would quash momentum at the distribution level.
“If the distribution market is very fragmented, contractors will likely shop for bids to get the best material prices in this hyper-competitive business environment,” she said.
Just as Hoover suggested on the construction side, making sure your company is locked and loaded to provide the best possible customer service will allow you to reap the benefits of this predicted industry upswing.