By the time this article is published and read, the November elections have been decided, and the future direction for the energy sector is defined. Is the industry confronting more restrictions on drilling, additional restrictive regulations and future exploration sites declared off-limits? Or is it looking at a “Drill, baby, drill!” policy, reduced costly redundant regulations and future exploration sites open for development?

It’s either higher energy costs for the consumer or lower costs and energy independence.

As of this writing, oil pricing is reacting to the Middle East war, anticipating an imminent Israeli strike on Iranian oil fields and refineries, with WTI at $75.93/barrel and Brent at $79.46/barrel.

The American Petroleum Institute (API) said on Sept. 9 that a recent federal court decision could imperil new and existing oil and natural gas exploration and production in the Gulf of Mexico.

On Aug. 19, the U.S. District Court of Maryland found that the National Marine Fisheries Service’s (NMFS) biological opinion for oil and gas drilling in the Gulf failed to protect the endangered Rice’s whale. The court stated it would allow the biological opinion on Gulf of Mexico leasing to lapse on Dec. 20, 2024, if NMFS fails to complete a new one. The NMFS told the court it will probably not complete the new one until early spring 2025.

The Bureau of Ocean Energy Management told the court if a resolution cannot be found before the court-ordered dismissal of the biological opinion, NMFS could experience thousands of individual consultation requests for daily activities in the Gulf.

“The workload created by the individual consultations for all Gulf activity would be enormous, diverting valuable agency time to a virtually endless cycle of paperwork and hindering NMFS’s ability to finalize a new biological opinion,” said API President Mike Sommers.

“Without a solution in place, this decision will create a significant bureaucratic bottleneck for the federal government and potentially halt all oil and gas operations in the Gulf of Mexico,” he wrote to U.S. Commerce Secretary Gina Raimondo.

According to the U.S. Energy Information Administration, U.S. Gulf of Mexico production accounts for 15 percent of total U.S. crude oil production (nearly 2 million barrels a day) and 2 percent of total U.S. natural gas production.

ILA Agreement Awaits Ratification

The International Longshoremen’s Association (ILA) reached an agreement that includes the return to work, thus avoiding a catastrophic work stoppage at a critical time as the holiday season approaches.

The strike is over; however, other issues need to be worked out to ratify the contract by Jan. 15, 2025. What is clear is that the union’s agreement to return to work includes a substantial wage increase that will raise the costs of offshore goods. Whether the rank-and-file slow-walk the unloading of ships to pressure settlement of unsolved issues remains to be seen.

A slowdown by ILA associates began as early as August. Currently, 100 vessels are backlogged (anchored), along with docked ships awaiting unloading.

What is clear is that this event has focused on the dependence on offshore sourcing for critical materials ranging from produce and medical supplies to critical equipment and construction materials. 

It’s a good reason to support the movement to restore onshore manufacturing by incentivizing the U.S. manufacturing sector to invest and relocate to the homeland.

Weak Demand for Manufacturing

The economy’s manufacturing sector has contracted for the sixth consecutive month and has no incentive to increase due to the current policies of the Biden administration.

The September Purchasing Managers Index found manufacturing activities failed to grow for the sixth month, with weak demand and declining output as businesses remain hesitant to invest in capital equipment or inventory.

The September Manufacturing Employment Index slipped -2.1 percent from August to 43.9 percent. The transportation equipment, machinery and fabricated metal products sectors show an unwillingness to invest in capital and inventory due to federal monetary policy and election uncertainty.

Discussions with attendees at the PVF Roundtable’s October Networking Meeting confirmed that the PVF industry is experiencing a definite slowdown, with some suppliers indicating a decline in sales of as much as 30 percent.

Data Center Projects to Dominate 1Q 2025

Mega data center projects, chip manufacturing facilities and lithium battery production projects dominate the construction activity as we approach the end of the year and the first quarter of 2025.

End-users accustomed to the Amazon mentality that everything is competitively priced, in stock and available for immediate delivery are vulnerable to surprise supply chain shortages. Delivery times for large-diameter, carbon steel butt-welding fittings and forged steel flanges are as far out as six months, predicated on the current information in this writing.

New or inexperienced engineers designing the piping systems for these mega projects are designing them with pipe sizes and quantities exceeding normal usage patterns that distribution relies upon to populate their inventories and manufacturers to schedule production.

Reliance on low-cost suppliers to increase profit margins can have the reverse effect when the supplier cannot meet the promised delivery schedule for time-of-the-essence projects.

As an example of the Amazon mentality of low cost and availability, recently a large distributor chose a low-cost supplier to provide a large quantity of large-diameter carbon steel forged flanges to enhance its profit margin. The distributor relied on the producer to meet its delivery requirements for a time-sensitive project with a penalty clause for failure to meet the agreed upon date.

As of this writing, the supplier has not performed, forcing the contractor to seek alternative sources at higher costs to meet the construction deadline. There are still items for sizes and quantities out of historical usage patterns critical to the piping system that have yet to be sourced due to limited sources and available production time.

This emphasizes the need for the end-user, mechanical contractor, supplier and manufacturer to do due diligence and coordinate their efforts to ensure a reliable supply chain of quality products for a realistic project completion schedule. 

Longer Lead Times for Offshore Steel Products

Lead times are extending for steel products no longer made by U.S. manufacturers: offshore carbon steel butt-welding fittings, forged steel flanges, seamless pipe and valves. 

Offloading slowdowns at the ports, pending negotiations with the ILA, and an influx of inventory orders from reluctant suppliers who had postponed replenishing depleted supplies will have a major impact on offshore suppliers’ abilities to meet the demands, resulting in extended lead times. 

Lead times for large-diameter fittings and flanges could be up to 6 months, depending on the size and quantities needed.

Businesses worldwide are facing increased costs, supply chain disruptions and stock shortages. The ripple effects will ultimately be felt by the consumer, who will bear the burden of higher prices and longer lead times.

 Along with tensions continuing to rise in the Middle East, the escalating war with Hezbollah in Lebanon, anticipated Israeli retaliation against Iran, the potential crisis involving Taiwan, along with the rerouting of shipping from the Red Sea caused by the continuing attacks on commercial shipping by the Houthi, supply chains continue to be at risk for major disruptions.

Another factor influencing the availability and pricing of carbon steel pipe, welding fittings, forged steel flanges and fittings is the supply of ferrous scrap (recycled steel scrap). Demand is outpacing the world supply and has been in the making for several years and will continue unabated, per the Boston Consulting Group. 

The shortage could significantly affect steel supplies and trade, ultimately affecting the price and the availability of PVF materials needed for economic growth.

Pricing and availability of commodity carbon steel butt-welding fittings and forged steel flanges remain stable as of this writing. Both domestic and offshore manufacturing and suppliers continue to cope with increasing labor costs, currency fluctuations, increasing energy costs, regulatory costs, increases in port handling charges and transportation costs.

It is, therefore, wise to still be in close contact with your manufacturer/supplier to avoid surprises regarding U.S. Tri-Seal compliance, pricing and the availability of pipe, forged flanges, butt-welding fittings, valves and other PVF-related products. 

PVF Roundtable News

The PVF Roundtable Golf Tournament scheduled in May was canceled due to extreme flooding. The Tournament has been rescheduled for Dec. 9, 2024. Please check the website (www.pvf.org) for updates and details.

The next Networking Meeting of the PVF Roundtable is Dec. 10, beginning at 4:15 p.m. The Christmas Party and Casino event, along with the PVF Young Professionals Annual Toy Drive, will be held at Houston’s The Bell Tower on 34th.

This will be the last meeting to be held at this venue. All future meetings and events will be held at our new venue, the Bayou City Event Center, 9401 Knight Rd., Houston, 281-501-6720.

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

The pending U.S. election and geopolitical uncertainties in the world today and the potential impact they present to the PVF sector give reason for concern. 

Networking Meetings are now, more than ever, essential for you, your associates and clients to discuss the issues of concern. 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.