By the time this column is published, we will be halfway through the first quarter of 2023, giving us an indication of how the year will unfold for the PVF industry.

The shift to electric vehicles (EVs) is triggering an auto factory building boom, with approximately $33 billion pledged in the United States, including money for the construction of new assembly plants and battery-making facilities, according to the Center for Automotive Research based in Michigan.

Southern states such as Georgia, Tennessee and Kentucky have emerged as some of the largest winners in the battle to land new auto-factory projects. Rivian, which began building vehicles in Illinois in 2021, committed to a second factory in Georgia to open in 2026. Hyundai Motor Co. announced its plans for a $5.5 billion complex in Georgia as well.

Energy costs are a significant factor in choosing a battery plant site, as these facilities are huge energy consumers. For example, Tennessee has an average industrial electricity price of $6.89 per kW hour versus $8.38 in Michigan, predicated on data from the U.S. Energy Information Agency.

These investments contrast with belt-tightening moves in recent months as auto executives prepare for a possible downturn. Some companies laid off workers or restrained hiring. Jeep owner Stellantis N.V., is idling a 1,350-employee assembly plant in Illinois that makes the Jeep Cherokee.

John Lawler, CFO of Ford Motor Co., said despite recessionary concerns, auto companies cannot be short-sighted in their EV-related investments. Ford has multiple factory projects underway, including in Tennessee and Kentucky, and plans on investing $50 billion in EVs through 2026.

Good news for PVF suppliers in the southern states.

U.S. Oil Production to Increase

U.S. oil production is expected to return to record levels in 2023 — just barely. The U.S. Department of Energy (DOE) expects output to rise to 12.34 million barrels/day, rising from the previous record set in 2019 at 12.32 mb/d.

Petroleum inventories remain historically low and should offer support to both pricing and production early in the year. Energy companies are still leery about investing too much in new output due to financial pressure from investors wanting more return on investment and regulatory pressure from Washington.

U.S. oil demand is expected to be tepid during the year as growth across most major products stagnates, with the exceptions of jet fuel, LPG and ethane. 

The price for WTI as of this writing is $74.64/bl and Brent Crude at $79.83/bl.

Clean Water Act Jurisdiction Ruling

The EPA and the Army Corps of Engineers issued a final rule on Clean Water Act (CWA) jurisdiction that increases the regulatory pressures on increasing production. On Dec. 30, 2022, the Biden administration issued, as promised, a file restoring the Obama administration’s working definition of CWA jurisdiction.

The EPA and the Corps of Engineers did not shy away from the difficult issues of protection for what the CWA vaguely calls “navigable waters” and “the waters of the United States.” The agencies released a fact sheet saying federal jurisdiction will cover not only interstate waters, their tributaries and adjacent wetlands but also all other waters.

The other water bodies that could be covered by the rule include intrastate lakes, rivers, streams, mudflats, sand flats, wetlands, sloughs, prairie potholes, wet meadows, playa lakes or natural ponds.

Prairie potholes are lakes, ponds and wetlands located in the Williston Basin, North and South Dakota and eastern Montana. In that area, including the Bakken shale, oil production sites and pipelines are routinely developed amid numerous small bodies of water unconnected to interstate waters.

The Trump administration completed its own ruling in January 2020 that narrowed the jurisdiction of the CWA and was welcomed by spokesmen for the oil and gas industry.

The problem of the lack of a jurisdictional definition in the CWA has resulted in much legislation and default reliance on court rulings. In 2006, the U.S. Supreme Court’s decision in Rapanos v. United States became the landmark for restraining the reach of federal regulators.

The Rapanos decision may be overhauled by the Supreme Court this year in the pending Sackett v. Environmental Protection Agency case. Environmentalists fear the court will decide a continuous surface water connection is needed for jurisdictional waters, an approach leaving isolated water bodies and wetlands out of the federal reach. That approach was adopted by the Trump administration with applause from the oil and gas industry.

Energy Jobs in LA, TX

Louisiana and Texas are set to gain thousands of energy jobs in the first part of 2023, as stated by the LSU Center for Energy Studies in its 2023 Gulf Coast Energy Outlook (GCEO).  

LSU forecasts that drilling activity will continue to increase, but it is unlikely to return to pre-pandemic levels. Oil production is expected to reach pre-pandemic levels in 2023, a sign of continued efficiency improvements.

Oil and natural gas production in the GCEO region is anticipated to experience a decade of growth, even though oil and gas prices are both expected to decline in the forecast horizon. Significant investment in natural gas pipeline infrastructure is required to meet anticipated demand.

Decarbonization policies will challenge existing Gulf Coast energy manufacturing; however, they also will create opportunities for the region to take the lead in developing low and net-zero emissions products. GCEO sees decarbonization as creating considerable capital investment opportunities.

LSU concluded by predicting that Louisiana is expected to gain about 3,500 jobs by the second quarter of 2023. Texas is forecasted to gain about 12,200 upstream jobs by the second quarter of 2023.

Finding and keeping qualified workers will be a major challenge in filling these jobs. The industry is seeing a greater percentage of hires who are new to the industry wanting regular hours and a work/life balance not typical of hourly employees in oilfield services.

Supply-Chain Woes Continue

Supply-chain constraints caused by the economic recovery from the COVID-19 pandemic, sanctions resulting from the war in Ukraine and continued Trump-era trade policies with China will continue through 2023.

Pricing for commodity carbon-steel butt-welding fittings and forged carbon-steel flanges stabilized over the past months and looks to remain so during the first quarter of 2023. Uncertainty remains, though, regarding costs and the availability of seamless pipe and flange billet pricing. It is rumored that flange billet pricing will see an increase of 7-10%.

With all the uncertainty prevailing in our industry, it is in your best interests to keep the lines of communication open and healthy with your manufacturers or suppliers to avoid any surprises regarding pricing and availability of pipe, valves, fittings and flanges.

PVF Roundtable News

The next meeting of the PVF Roundtable will be The Cocktail and Commerce meeting, Feb. 21, 2023, at Houston’s The Bell Tower on 34th, commencing at 2 p.m. CST and closing by 7:30 p.m. CST.

This will be a tabletop event with industry suppliers hosting end-user attendance.

To date, close to $2 million in scholarships have been distributed by the PVF Roundtable Charitable Foundation to universities and trade schools for the development of a skilled labor force for the PVF industry.

The PVF Roundtable golf tournament, the TroutBlast and the Weldbend-sponsored October dinner were the major fund-raising events held by the foundation during 2022, with the funds raised dedicated to the PVF Roundtable Scholarship Programs.

As a member of the board, 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 unique venue for you and your associates to network with your PVF peers. 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.