Editor’s note: Earlier this year, Supply House Times ran a story on the state of the industrial pipe, valves and fittings industry. Included here are MRC Global President and CEO Andrew Lane’s full responses to Editor Mike Miazga’s questions.
What is your opinion on the current state of the industrial PVF industry? Are things starting to turn upward again, staying about the same or continuing to worsen?
AL: This is markedly one of the worst oil-and-gas cycle downturns in history with global exploration and production spending down more than 45% in the last two years. We haven’t experienced a two-year sequential decline of this magnitude since the mid-1980s and while there are many predictions on when a recovery could take place, commodity oil-and-gas prices remain very volatile. Fortunately for us, MRC Global is well-balanced across all three oil and gas sectors: upstream, midstream and downstream, which minimizes the most extreme effects of this downturn.
While we live in a world of volatile energy prices, the recent swings in commodity pricing have become even more severe. In 2008, we had a WTI U.S. oil price of $140/barrel, only to see it drop to $28/barrel in early 2016. Our customers, other PVF distributors, oilfield service companies, drilling-rig contractors and all equipment suppliers and service companies either directly or indirectly tied to the oil-and-gas end market have had to adjust to the current industry outlook.
What do you attribute the current climate to?
AL: Currently, we are in the middle of a two-year down-cycle that is primarily the result of an oil-and-gas global over-supply situation and, most recently, a slowing of China and global energy demand that worsened the current situation. For the current oil-and-gas over-supplied market to correct itself, drilling is being reduced, which will eventually result in decreases in oil and gas production, putting supply and demand more in balance.
One or two things that continue to concern you in the industry?
AL: There has been a significant loss of jobs during this two-year down-cycle and we will need to attract skills and talents back when growth begins again during the next upcycle.
What current industrial PVF positives are you seeing in your dealings with customers?
AL: We are focused on areas of the business that we can control: managing our costs and staying focused on our customers by helping them solve the problems they face in today’s challenging market. Certain portions of our midstream sector have been less affected by the downturn. We also have seen many customers interested in expanding contracts to new services or geographies with MRC Global to create value without sacrificing service or product quality. These contract renewals and expansions are indicators of confidence in our company in spite of the current downturn. When the industry turns to the next upcycle, we will be positioned to continue helping our customers bring energy to the world.
Do you see this current downturn as shorter-term or something that could be longer-term?
AL: Our primary energy end market always has been cyclical. There’s no doubt we are in the midst of one of the most challenging two-year cycles in oil-and-gas history, but the market will turn as the global demand for energy continues to increase. The question is only when that recovery will happen.