Construction growth in 2015 gained strength as the year progressed from a slow start increasing at a rate of 13 percent over 2014 at closing. In 2016, growth in construction is expected to increase by 6-7 percent. Dodge Data & Analytics forecasts a 6 percent rate of growth vs. the 7 percent increase that FMI Corp. and The Portland Cement Association forecast for construction put-in-place in 2016.

A sluggish PVF market is expected to continue into the first quarter reflecting the negative impact of oil price declines due to over-supply and diminishing global demand. Many of the key players in the drilling and oil production segments of the industry have reduced Capex budgets for 2016 in response to the current global market. 

Refiners chased margins during 2015 as big margins during the summer months increased their already robust utilization rate to 96 percent taking advantage of low-priced crude. As we enter 2016 refiners are expected to see approximately $5.4 billion in projects beginning construction in the U.S. during the year. Of that $5.4 billion, $0.4 billion is expected to impact the Gulf Coast.

Pricing for basic raw materials required for the production of carbon steel welding fittings and forged steel flanges that include seamless pipe, plate and rough forgings has remained stable through the end of 2015. Stability in both pricing and availability is anticipated to continue through the first quarter.

Continued monitoring of the market is suggested as uncertainty in global events may cause an unexpected disruption in availability as well as having adverse effects on the cost structure of raw materials required for domestic production.

Despite the rough economic times for our industry there are positive signs for improvement during 2016: 

Texas tops the United States in planned first quarter starts for oil and gas terminals. Approximately 32 active U.S. terminal projects worth around $2.5 billion are set to break ground during the first quarter.

Louisiana, Oregon and Puerto Rico also have planned groundbreaking for large ticket terminal projects that are scheduled for the first quarter. The projects will likely start even while domestic oil and gas industries are experiencing hard times since funding for these projects was approved well in advance.

Magellan Midstream is expected to spend $1.6 billion on its capital expansion project through 2016 and beyond. This includes 2015 projects underway at $850 million, $700 million for 2016 and $50 million beyond yearend:

• Midstream is focused on completing three major projects in 2016 that include:
  • A $100 million Carr-to-Plattville extension of the Saddlehorn crude oil pipeline.
  • A $200 million refined products pipeline in Arkansas from the Fort Smith terminal to Little Rock.
  • A 50,000 BBL/d grassroots condensate splitter in Corpus Christie, Texas.

The Southwest region that includes Arkansas, Louisiana, Oklahoma and Texas is forecasted to see more than $18 billion in first quarter startups. The power industry leads the region with $6.2 billion in projects. The oil and gas production industry comes in second at $2.5 billion in project starts. Included in the $2.5 billion is Enterprise Products Partners LP’s $500 million addition of a ninth train at a NGL fractionator in Mont Belvieu, Texas. The 100,000-BBL/d fractionation train will increase the facility’s capacity to 700,000-BBL/d to accommodate increasing volumes of natural-gas liquids from Eagle Ford shale.

The Southeast region that includes Alabama, Florida, Georgia, Mississippi, Tennessee, Puerto Rico and The Virgin Islands is forecasted to have $14.3 billion in project starts during the first quarter. Industrial manufacturing leads the region with $4.6 billion in projects set to begin construction. One of the largest is a munitions plant in Alcoa, Tenn. valued at $550 million.

The oil and gas industry comes in at second place with $2.7 million in construction starts scheduled in the first quarter. The largest project being Kinder Morgan’s $2.5 billion LNG plant in Savannah, Ga.

The New England region that includes Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont is forecasted at $1 billion-plus on project starts during the first quarter. The power industry leads with 17 power projects with a combined investment valued at approximately $1.3 billion. Industrial manufacturing is in second place with combined project valued at approximately $650 million. Pharmaceutical and biotech follows in third place with a combined startup value for 11 projects at $360 million.

The Rocky Mountain region that includes Arizona, Colorado, Idaho, Montana, New Mexico, Nevada, Utah and Wyoming is forecasted to see 56 projects with a combined value of approximately $5.9 billion with $2 billion already entering the construction phase and the balance pending construction startup based on projected economic conditions.

Oil’s vast influence 

Oil is predicted to remain south of $60/BBL through 2016 continuing the impact of global over-supply and weakened global demand.

Continental Resources CEO Harold Hamm, stated in a CNBC interview on Dec. 21 that he believes crude-oil prices would rise to $40-$50 per barrel in the first half of the year.

That said, Saudi Arabia has decided to maintain OPEC production at current levels. Saudi’s revised budget reduces spending and increases taxes due to reduced revenues. This may increase dissatisfaction among OPEC members, and combined with internal opposition to the budget, could trigger a revision in policy in the near future.

Meanwhile, the low cost of oil has dramatically impacted Russia’s GDP and its petroleum-based economy. There is a question as to how long Vladimir Putin will tolerate Saudi’s position on maintaining high production rates to hold on to market share and discourage competition.

The low price for oil as previously stated in last quarter’s forecast is a temporary phenomenon that is subject to global supply and demand swings as well as political influences. Change can happen very quickly. Our industry is preparing for the future, and oil will not remain at the current levels for an unlimited period of time.