Morris R. Beschloss 2014-11-06 01:00:06
As we had previously noted in the last three months, 2015 looks to come forth as a banner year for the $100 billion-plus plumbing-heatingcooling- piping industry with major aspects of energy development leading the way. While residential (buoyed by continued expansion of apartment building growth) and commercial (primarily health-care facilities and metropolitan office space) construction will continue to improve, the exploding economic growth surge will derive from all aspects of the energy segment’s amplification. Most of the highly publicized energy growth activities are focused on the massive oil and natural gas excavation still in its early stages. The hottest growth activity likely will come from infrastructure, which has been badly lagging due to the national piping systems being geographically unrelated to the sprouting shales that have generated the bulk of multimillion oil barrels now providing America’s route to crude-oil and naturalgas production world-leadership. Also supplementing America’s rise to the peak of global energy development are the 140-plus refineries fulfilling the nation’s need for such derivatives as gasoline, heating oil, jet fuel, diesel and a raft of oilbased finished goods. This also has allowed the U.S. to come close to leading the international group of global exporters (a list that includes China, Japan and Germany) as the accelerated refined oil derivative production of U.S. refineries is not subject to the 1973-1974 Arab oil embargo that had prevented all shipments of U.S. crude oil outside the U. S., with the exception of Canada. But if the U.S. administration’s energy agency can overcome the fracking blockage of the Environmental Protection Agency and the administration’s hostility toward the Trans-Canada XL oil pipeline, which would feed Canadian crude faster and more voluminously to Gulf Coast U.S. refineries, America is sure to become the world’s No. 1 energy totality by the end of this decade. Exports becoming a U.S. wild card With the United States’ negative trade balance narrowing to nearly half the amount that existed before the outbreak of the great financial recession, much of the credit is erroneously attributed to belt-tightening and cutbacks in crude oil imports. Although the latter is a contributing factor, the major untold story relates to America’s exports that have doubled to more than $2 trillion annually while still expanding from less than half that amount a mere 10 years ago. This has vaulted the U.S. from a global export alsoran to the world’s leading “Big Four” position along with China, Japan and Germany. In terms of America’s trade imbalance being cut in half and it continuing to shrink further, there are two major factors in play here: 1 The lessened need of foreign oil. America’s fracking revolution has cut overall crude oil imports by five million barrels a day in the past decade, an amount that could approach the proverbial “zero” by 2020. If Canada and Mexico can be included in this category as partners in the North American Free Trade Authority, the energy Independence vainly called for by President Nixon and his successors may be realized by the end of this decade. 2 However, less known and certainly less publicized is the inestimable role exports have played in liberating the U.S. economy from increasing dependence on foreign workshops and services. A leading factor in evolving America from its traditional role of generating the great bulk of its production toward domestic consumption (with the exception of World War II and the subsequent Marshall Plan) has been the upsurge of America’s unprecedented technological breakthroughs, the global superiority of America’s highly venerated brand names (supported by its exceptionally high-quality standards), its continued leadership and growth in the world’s armaments industry, and its globally leading agricultural sector that provides more of the world’s outward-bound food shipments than any other nation. The return of manufactured goods previously transferred to foreign shores in the 1980s, 1990s and early 2000s due to major cost differences is only experiencing a minor shift back to the U. S. at this time. Whether this becomes torrential in the future is primarily dependent on the impact of converting national gas surpluses into LNG exports, the repeal of the 1973 oil embargo and a more hospitable support base for business and industry by federal and regional regulations that are increasingly business-unfriendly. Whatever the outcome of these shifting factors brings in the future, it’s a certainty that both exports in general, as well as a shrinking trade deficit, will be substantially improved before the current decade celebrates its passing. The future of oil While OPEC, the once mighty hub of the world oil centrum, teeters on the verge of realignment and possible disintegration, the temporary decline in the demand of the black gold is bringing prices down. It’s become axiomatic that current major components of the world’s daily oil thirst of 90 million daily barrels is dependent on the unquenchable Demand of the two southeast Asian developing economic giants, China and India, comprising 37% of the world’s population. China, especially, has become the gyrometer of world oil prices since it is not only the single most profuse daily generator of oil demand, but buys in bulk on the world market when it believes pricing is most auspicious. And since China is still the fastest growing world economy as it accelerates transition from an agrarian to a metropolitan economy by the hundreds of millions of its population the past two years alone, Beijing’s global oil buying power is a significant factor in Brent Crude global oil pricing. If these periods of crude oil price depreciation linger for a lengthy period of time, they also can play havoc with deep-sea drilling, hydraulic fracturing, and long-term drawing-board plans to expand production, refining and distribution capabilities. Unlike the more basic traditional excavation of oil still used in the Middle East (Saudi Arabia, Iraq, Iran and Kuwait, etc.) where oil production is cost-effective at more than $25 a barrel, the fracking extraction now comprising the bulk of U. S. oil production comes at much higher costeffectives, approximating $85 to $90 a barrel. If oil were again to drop to an unlikely level below $50 a barrel (like it did during the depths of the 2008-2010 recession), ongoing production would be severely affected and likely curbed. Currently, world oil markets are experiencing their most severe turbulence in years as a combination of geopolitical changes, global demand shifts and temporary supply surpluses are negating the reality that global demand, recently stabilizing at less than 90 million barrels a day, is expected to increase to 120 million barrels a day by 2020. This is primarily driven by the sheer pace of population growth and accelerated economic development of southeast Asia, and to a lesser extent, population expansion in Africa and South America. It is likely that even the predicted 2014- 2015 moderate global economic growth predicted by the International Monetary Fund will be beset by major cutbacks in the heart of OPEC’s Mideast/north African segment with prices likely rising back above $100 for Brent crude and West Texas Intermediate alike. Veteran industry analyst and writer Morris R. Beschloss is the industrial PVF columnist for Supply House Times and the American Supply Association’s industry analyst. Beschloss, whose career in the industrial pipe, valve and fittings sector spans more than five decades, was the recipient of the 2012 ASA Fred V. Keenan Lifetime Achievement Award. Beschloss also writes commentaries for USA Today’s website (tinyurl.com/p4m9ulb).
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