As we begin the third quarter of 2022, energy costs remain at record, or near-record, highs. As of this writing, WTI is at $120.97/barrel, Brent is at $122.85/barrel and Natural Gas is at $8.088 MMBTU (a 13-year high). Goldman Sachs predicts oil to surge up to $140 a barrel due to the summer demand and restricted U.S. production.

Austin Smith, the owner of a small trucking company, posted on Facebook that it costs him $1,149.50 to fill up one truck; he owns three. And those trucks use a full tank of diesel each day, sometimes more. 

“My trucks generally run five-to-six days a week, so we’ll estimate on the low side and say five. That’s $17,242.50. Last week was [more than] $20,000 for one week.”

Trucking companies are going under left and right (literally hundreds weekly). If you are not aware, what you’re wearing, eating, driving, what products you’re selling and the materials you are using to manufacture your products were delivered via truck.

This is only one factor driving the escalation of the cost of goods sold in our PVF industry. In June, a North American manufacturer of carbon steel butt-welding fittings and forged-steel flanges initiated a price increase across its entire product line of butt-welding fittings.

Oil country tubular goods (OCTG) piping is expected to increase by 40 percent upon issuance of the final ruling from the U.S. International Trade Commission and the U.S. Department of Commerce regarding the anti-dumping and countervailing duty petition on OCTG from Argentina, Mexico, the Republic of Korea and Russia. The final ruling is expected to be released in September or early October. 

The dramatic increases in energy sources, oil, gasoline, natural gas, electricity, lubricants and logistical costs are root causes for the need for price escalation.

 Unless the mandated restrictions are eased and domestic production is allowed to expand further, price adjustments may be in the offing. I urge you to keep in close contact with your manufacturers and suppliers to avoid surprises in both price and availability.

Refining Market

Refining market analysts suggest high prices will not easily go away. Crude oil currently accounts for approximately 60 percent of the cost of oil products. The U.S. ban on Russian oil imports is a small contributing factor to market problems, but U.S. refiners will cope.

American refiners were already well on their way to cutting Russian oil before the sanctions. Replacing Venezuelan heavy crude is a much more challenging task, explains John Auers, executive vice president of Turner Mason & Co.

The Trump administration’s 2019 trade sanctions and the cancellation of the XL Pipeline have exacerbated the situation. Gulf Coast refiners are designed to process heavy crude oil from both Venezuela and Canada.

Consumer recovery from the COVID-19 pandemic has outpaced crude oil production by U.S. oil companies, contributing to the boost in crude oil prices and refined products. 

Russian supplies were targeted for the U.S. East and West Coasts, where infrastructure constraints, pipeline and rail limitations make it harder for refiners to obtain domestic feedstocks. In addition, the Colonial and Plantation pipelines are at full capacity.

Auers responded to how long diesel prices would remain high, noting that he did not see a quick and easy solution. High prices will incentivize production and discourage consumption; he hopes that restraint of consumption will not become serious demand destruction resulting in recession.

ENR’s 20-city average cost indexes up to June 2022 for:

Construction costs year-to-year, up 8.2 percent;

Annual building costs year-to-year, up 14.7 percent;

Material costs year-to-year, up 2.5 percent — with steel per pound up 39.1 percent.

Construction Projects

No company bid for the St. Louis, Mo., Cervantes Convention Center Phase Two as contractors continue to face pricing uncertainty and staffing issues.

The first phase of the expansion project drew one bidder. The city officials estimated the cost of the first project at approximately $70.8 million, but the board ended up approving a $123.9 million contract.

If project owners want more bidders, they need to be more flexible with contractors, given the uncertainties of the current climate, says Leonard Toenjes, president of the AGC of Missouri. He recommends including escalation clauses to ensure contractors will not be pinched by price changes, particularly on long-term projects.

On the brighter side, Georgia is set for two electric vehicle (EV) manufacturing factories totaling $10.5 billion. South Korea’s Hyundai Motor Group will build a $5.5 billion factory near Savannah. Rivian Automotive, a startup company, announced it would build a $5 billion electric pickup truck plant east of Atlanta.

The Hyundai plant will employ at least 8,100 associates in its first U.S. facility for EV and battery manufacture. Construction is set to start in 2023 with a completion date of 2025. The Rivian plant will begin construction this summer, with full operation set for 2024.

 USA Bio Energy of Scottsdale, Ariz., selected Bon Weir, Newton County, Texas, for construction of the first of its 12 planned advanced biorefineries for the production of sustainable aviation fuel (SAF), renewable diesel and renewable naphtha from wood waste feedstock sourced from East Texas forests.

These facilities also will be equipped with carbon capture and sequestration capabilities to support the growing U.S. market for sustainable and renewable fuels and its commitment to deliver 100 million gallons/year of SAF to LAX International Airport.

With the site selection decided, the operator expects to complete the Bon Wier plant’s first 34 million gallon/year phase by 2025. Plans are already underway for a future expansion that would double the biorefinery’s capacity to 68 million gallons/year. The timeline for the completion of the second phase has yet to be announced.

While import demands are dropping rapidly, predicated on inventory buildups of consumer goods, container spot rates remain elevated on a year/year basis (+73 percent to the West Coast and +59 percent to the East Coast.) Drewry’s container spot rates from China/East Asia to the West Coast plunged 41 percent month-to-month to $9,630 FEU, and China/East Asia to the U.S. East Coast is down 36 percent per FEU to $11,907. 

Persistent supply chain constraints, U.S. port-of-entry congestion, availability and high cost of trucking and suspect product quality issues are problems that must be dealt with to deliver the PVF industry’s needs on a timely, cost-effective basis. 

Supporting domestic manufacturing ensures reliable sources of supply, high-quality products and limited liability exposure, and bolsters our domestic PVF industry’s manufacturing sector.

PVF Roundtable News

The third PVF Roundtable Networking Meeting of 2022 will be Aug. 9 at Houston’s The Bell Tower on 34th.

The PVF Roundtable TroutBlast Fishing Tournament is scheduled for Oct. 7-8, 2022, in Matagorda, Texas, beginning with The Captain’s Dinner on the Oct. 7 at Storm Shack (County Road 259), 5-9:30 p.m.

The fishing tournament begins at 6 a.m. on Oct. 8 at Blackjack Tournament, Matagorda Harbor.

The golf tournament and TroutBlast are the two major fund-raising events held by the PVF Roundtable Charitable Foundation. 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 venue for you and your associates to network with your peers in the industry. These events provide the platform to share information, discuss pertinent issues, meet new contacts, develop new and long-lasting friendships, and pursue new opportunities in the industry.