The new year begins with optimism and apprehension for the energy sector of the U.S. economy. A federal appellate court has ruled that the Biden administration must go ahead with the oil and gas Lease Sale 261 without the “11th-hour” restrictions the administration added on acreage and ship speeds.

The U.S. Court of Appeals for the 15th Circuit ordered the Bureau of Ocean Energy Management (BOEM) to hold the lease sale by no later than Dec. 22, 2023.

The downside of this event is that Lease Sale 261 is one of only three lease sales to be issued for the Gulf of Mexico by the BOEM under the Biden administration through 2029.

FERC Authorizes Pipeline/Compressor Stations

Williams Cos.’ Transcontinental Gas Pipe Line Co. (Transco) has received U.S. Federal Energy Regulatory Commission (FERC) authorization to construct and operate a new pipeline and compressor station in Chilton and Coosa Counties, Ala., compromising its 150 million cubic feet/day (MMcfd) Southeast Energy Connector.

The project will provide year-round firm transportation service from existing supply points in Mississippi and Alabama to Unit 5 at Alabama Power Co.’s 2 GW Ernest C. Gaston Electric Generating Plant located in Shelby County. 

It consists of the installation of 1.9 miles of a 42-inch O.D. pipeline loop and a new 11,110 horsepower Solar Taurus 70 gas-fired, turbine-driven compressor. Transco anticipates the project to enter service in late 2025.

A second FERC order authorized Transco to build and operate its 105 MMcfd Commonwealth Energy Connector in the Virginia counties of Mecklenburg, Brunswick and Greenville. The project will provide firm transportation service for the incremental volumes to Virginia Natural Gas.

The project includes the installation of a new 33,000 horsepower electric motor-driven compressor at Transco’s Compressor Station 168 in Mecklenburg County, doubling the station’s horsepower. In addition, the project includes 6.35 miles of a 24-inch O.D. loop of Transco’s South Virginia Lateral B-Line, scheduled for late 2025 operation. 

The order further authorized TC Energy’s Columbia Gas Transmission to construct and operate its Virginia Reliability project in Sussex, Surry, Southampton, Isle of Wight, Greenville and Prince George Counties and the cities of Suffolk and Chesapeake, Va.

This will consist of upgrading the existing pipeline to provide an additional 100 MMcfd of firm transportation capacity, delivered into Columbia’s system at an interconnection with Transco’s system at Emporia, Va., for redelivery to Virginia Natural for its southeastern Virginia gas market. 

Virginia Reliability will involve replacing 49.2 miles of 12-inch NPS pipeline with 24-inch O.D. pipe and the installation of a 5,500 horsepower electric-natural gas hybrid compressor.

Higher Oil Prices Ahead

Oil prices are expected to rise in the new year after some OPEC+ oil producers voluntarily pledged to cut output. The cartel released a statement that did not formally endorse production cuts; however, individual countries announced voluntary reductions totaling 2.2 million barrels per day for the first quarter of 2024.

The way the production cuts were announced fueled trader’s confusion and skepticism. If members do fulfill their pledged cuts, crude prices are set to climb.

When the cuts expire at the end of the first quarter, the removed barrels will only return gradually, “which should help keep the oil market in deficit in the first half of 2024,” UBS strategist Giovanni Staunovo wrote in a note following the decision, adding he expects prices to rise in the undersupplied oil market.

Goldman Sachs also forecasts higher prices, adopting a wait-and-see approach on OPEC+ members adhering to the pledged cuts.

“We estimate a modest mechanical boost from the extra cut to Brent Dec24 prices of around $4/barrel (Bbl) relative to our prior OPEC+ assumption,” the investment bank said in a note, adding that it expects the group “can maintain Brent oil in the $80 to $100 range in 2024.” 

As of this writing, WTI is $71.26/Bbl and Brent is at $75.95/Bbl.

The good news for PVF suppliers and equipment manufacturers: Major refineries, including CVR Energy, Valero, Marathon, PBI Energy and ExxonMobil, plan nearly $800 million in maintenance-related refinery turnarounds in the first quarter of 2024.

1Q Construction Starts

U.S. manufacturing activity remains flat as demand continues to show contraction, according to a report issued by the Institute for Supply Management. Still, Industrial Resources is tracking approximately $67 billion of U.S. industrial manufacturing projects planned for first-quarter 2024 startup, of which 33 percent are attributed to data center starts.

Amazon will construct two new areas at its data center complex in New Albany, Ohio, with a total investment value of $1.2 billion. The North Beach West project includes the construction of 18 data center buildings and 11 new buildings at the North Beach East project.

One of Meta’s first-quarter project starts is a $160 million grassroots data center in Sandston, Va., near Richmond. The project consists of two buildings totaling 675,00 square feet.

Overall construction starts are expected to rise 7 percent in 2024, following a 1 percent increase in 2023, notes Richard Branch, chief economist at Dodge Construction Network, at the 2024 Dodge Construction Outlook on Nov. 17, 2023.

Manufacturing will fall by the end of the year at a rate of 5 percent, after an astounding increase of 217 percent in 2022, before increasing 16 percent in 2024, Branch says. The increase is “not a surprise, considering the impact of the CHIP and Inflation Reduction Acts.”

Nonbuilding starts, still bolstered by the Infrastructure Investment and Jobs Act, were up 25 percent in 2023 and are expected to increase an additional 7 percent in 2024.

PVF Supply Chain at High Risk

Israel’s prosecution of the war with Hamas, recent attacks on U.S. naval and commercial vessels in the Red Sea by Iranian surrogates, an increase in hostile action by the Chinese navy in the South China Sea and the possibility of an escalation of U.S. involvement, the supply chains for offshore raw materials, finished and unfinished PVF products (such as welding fittings, forged flanges, steel pipe and valves) are at high risk.

 The Chinese military ordered its naval force to mobilize and track the USS Gabrielle Giffords after China claimed the warship violated its sovereign waters, according to a statement from the People’s Liberation Army Southern Theater.

As of this writing, the pricing for commodity carbon steel butt-welding fittings and forged steel flanges remain firm based on current market conditions. Availability for both commodities remains strong.

PVF Roundtable News

The demands of megaprojects continue to drain the pool of skilled labor by drawing large numbers from local markets, presenting problems for smaller construction projects in various sectors of our industry.

The PVF Roundtable (PVFRT) continues to work diligently to support the education and training of young associates for the PVF sector by providing scholarships through the PVF Roundtable Charitable Foundation.

The PVF Roundtable Golf Tournament and TroutBlast are the major fundraising events scheduled for 2024. The Weldbend Corp., Ferguson Industrial and MRC Global are key sponsors of these events. 

The annual PVFRT Casino Night and Christmas Celebration was held Dec. 12 at Houston’s The Bell Tower on 34th. The turnout was amazing, and the event was awash with toys for children in need.

The next meeting of the PVF Roundtable will be The Cocktails and Commerce Tabletop Show and Membership Drive, Feb. 13, 2024, at The Bell Tower on 34th.

This will be a free event for all attendees, so mark your calendars accordingly. You do not want to miss it!

As a member of the board of directors, and I speak for all members, we sincerely thank you for your participation in these events.

With the uncertainties in the current turbulent PVF market, these meetings are a unique venue for you and your associates to network with your peers in the PVF industry. These events provide the platform to share information, discuss pertinent issues, meet new contacts, develop new, long-lasting friendships, and pursue new opportunities in the industry.