The COVID-19 pandemic and economic downturn made a big difference in Industrial Info Resources’ (IIR) top-line forecast for U.S. pipes, valves and fittings project spending this year.

At the beginning of 2020, the top-line forecast for U.S. capital and maintenance project spending across 12 industries involving PVF was $13.6 billion for the year, up by nearly $400 million from 2019.

An even larger increase of more than $600 million was forecast for 2021.

Obviously, conditions have changed.

By July, the updated forecast was $11.6 billion, down $2 billion from the earlier forecast. 

The updated forecast sees spending for 2021 to be $11.7 billion (see Figure 1).

In comparison with spending in 2019, not all the 12 industries tracked by IIR registered decreases in the updated forecast. For example, spending by the power industry is projected to be $2.225 billion, compared with $2.210 billion in 2019.

COVID-19 has impacted more than $43 billion worth of all U.S. power project activity, mainly in the Southeast region, according to IIR’s project database (see Figure 2).

And while U.S. construction of natural gas-fired plants has slowed from the bubble seen a few years earlier, it remains a significant driver in new North American power generation. IIR tracked natural gas-fired projects capable of generating eight gigawatts across the United States as of mid-2020.

Also, supply chain interruptions and reduced demand for electricity, both stemming from the COVID-19 pandemic, caused more than 100 proposed U.S. solar power projects to be canceled or delayed as of mid-2020. But solar still has a very significant book of business in the country.

The states with the biggest appetite for utility-scale solar generation — including California, Arizona and Texas — are expected to see the greatest dollar value of solar project cancellations or delays over the 2020-2021 period.

That still leaves a large number of active U.S. solar projects under development. Developers are scheduled to begin construction on about 626 solar projects, valued at roughly $71.25 billion, between January 2020 and December 2021. Texas, California and Virginia top the list of states with the largest dollar value of solar power projects expected to turn dirt by the end of 2021.

IIR does not expect all those currently active solar-power projects to begin construction as presently scheduled. In years past, roughly 30 percent of solar projects were canceled or delayed.

Hopeful Signs Ahead

However, the overall economy has shown signs of growth. According to the Institute of Supply Management, economic activity in the manufacturing sector began rising again in May.

Industrial Info’s North American Industrial Project Spending Index, which measures the value of all active projects in the pipeline for the year, has been in negative territory since January, with the monthly statistics showing significantly less project spending from a year earlier. However, the drop in year-over-year spending began to lessen in June (see Figure 3). 

IIR’s North American Spending Gap Index, which measures the amount of fallout from canceled projects as well as ones placed on hold or moved to another year, began to show possible signs of easing or at least flattening out this summer (see Figure 4). 

Among the 12 industries tracked by IIR, chemical processing leads in forecasted spending involving PVF this year, amounting to nearly $2.27 billion, down from $2.49 billion in 2019.

The impact of COVID-19 and its economic fallout amounts to more than $36 billion worth of all chemical projects affected in varying degrees as of the third quarter, according to IIR’s project database. The effects range from brief maintenance delays to projects being put on hold (see Figure 5).

According to the American Chemistry Council, a drop in U.S. chemical production as of mid-2020 appeared to be easing, falling by 1.1 percent in June on a three-month moving average, following a 2 percent decline in May and a 3 percent decline in April. 

The pharmaceutical/biotech industry also has a strong PVF presence, with nearly $1.41 billion worth of related project spending predicted for 2020.

2021 Forecast

PVF project spending in the petroleum refining industry is forecast to rise slightly to $1.13 billion in 2021, compared with $1.01 billion in 2020.

The plunge in demand for fuel products prompted some refiners to announce closures, but some are weighing the option of repurposing some of those facilities to produce renewable diesel. Industrial Info is tracking 17 active renewable diesel projects in the United States worth nearly $1.8 billion (see Figure 6).

Growing production of renewable diesel fuel in the United States to meet low-carbon goals — either by converting existing petroleum refineries, expanding facilities or via grassroots projects — have been in the spotlight, primarily driven by California’s Low Carbon Fuel Standard (LCFS). The LCFS provides a subsidy for low-carbon fuels, which increase in value as the carbon intensity of the particular fuel decreases, according to a March 2020 report on biomass-based diesel by the Fuels Institute, a research think tank.

Phillips 66 announced plans in mid-August to reconfigure its San Francisco Refinery in Rodeo, Calif., to produce renewable fuels. The Rodeo Renewed project would produce 680 million gallons/year of renewable diesel, renewable gasoline and sustainable jet fuel from used cooking oil, fats, greases and soybean oils.
Combined with an existing hydrotreater conversion project, the refinery would produce 800 million gallons/year of renewable fuels.

PVF-related spending for oil and gas pipeline projects is forecast to increase to $880 million next year from $709 million in 2020. All segments of the oil and gas industry were hit hard this year as COVID-19 cut into demand for oil and refined products. Many midstream companies slashed their capital expenditure guidance for this year. 

Likewise, oilfield service companies reported heavy losses, with some filing for Chapter 11 reorganization. Oilfield service companies depend on drilling rig counts and the capital spending of drillers.

In a move cheered by independent oil and gas producers but opposed by major integrated firms, the Trump administration this summer unveiled two final rules that would undo regulations enacted by the Obama administration to lower methane emissions from the industry.

The new rules, almost certain to be litigated, come as some states are grappling with rising levels of vented and flared natural gas. Perennially low prices, weak demand and inadequate infrastructure to process the associated gas that is produced alongside crude oil are the leading causes. The new rules would apply to all wells drilled after 2016. 

The Trump administration has been working for two years to scale back the methane-capture rules enacted by the Obama administration, arguing they are an unnecessary and duplicative burden falling heavily on smaller firms. 

The industry also applauded the Trump administration’s move to auction oil and gas drilling leases in Alaska’s Arctic National Wildlife Refuge. Still, questions remain regarding the level of interest in such leases, given current oil and gas prices. 

Most U.S. onshore operators will have restored nearly all shut-in oil volumes by the end of the third quarter, with only a handful maintaining some level of curtailment for the rest of the year, according to a Rystad Energy analysis.

IIR will continue to monitor and analyze developments among all of the industries it covers.