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| United States of America Gas Utilities
Despite continued manufacturing constraints and the shortage of certain product lines, the gas utilities segment was extremely robust in 2022, and we anticipate this momentum will continue for the foreseeable future. A significant amount of growth in this sector can be attributed to continuing infrastructure improvements and integrity projects, which have brought meter demand to an all-time high. Energy transition initiatives, such as hydrogen and renewable natural gas (RNG) projects, are further supporting capital investments and growth in this sector as gas utilities seek alternate ways to reduce their carbon footprint. Meter change-out programs and the use of automated meter reading devices (AMR) have slowed due to the lack of inventory and the continuing microchip shortage. Manufacturers are hopeful that a mid-year recovery on AMR meter availability could boost meter change-out and meter set assembly programs. However, with continued pressure on meter inventory due to labor and material availability, lead times are extending beyond 80 weeks. Manufacturers are now requiring cancelation clauses to protect from hedging activity, which means pre-planning, accurate demand planning and frequent collaboration are critical for surety of supply and continued operations. Customers are now complying with the new U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) rules for pipeline shut-off valves by seeking advice on how to meet these requirements and by placing orders for the appropriate valves and actuator configurations. The ruling, which aims to strengthen pipeline safety, reduce emissions and accelerate responses to pipeline ruptures, went into effect in October 2022. Downstream, Industrial & Energy Transition (DIET)
The downstream, industrial and energy transition sector was highly active in 2022 as turnaround requirements and other capital project work restarted after the delays experienced during the global pandemic. However, as 2022 ended, the downstream segment continued to adjust to additional obstacles, such as higher input costs, disruptions brought on by the Russian-Ukrainian conflict and continued workforce challenges. The booming renewables sector is expected to maintain momentum due to increased demand for clean energy and governmental incentives, including tax credits provided through the U.S. Inflation Reduction Act (IRA) that offer long-term support to developers who implement new, large scale renewable projects. Although the increased demand could lead to some supply chain constraints and extended project timelines in 2023, once capacity meets demand, this subsector will be set to accelerate into 2024 and beyond. To support the electrified future, the U.S. mining and minerals segment will experience increased demand for carbon, stainless and high-density polyethylene (HDPE) pipe, valves and fittings. Additionally, we believe there will be a similar continued demand increase in 2023 and beyond for liquified natural gas (LNG) to meet the demand for an energy alternative. While lead times on the material required to meet the demands of the DIET sector have shown some recent stability, the delivery times remain extended compared to pre-COVID-19 levels. Early collaboration on identifying, specifying and ordering these essential material needs remains critical for timely project execution and maintenance, repair and operations (MRO) efficiencies. Upstream Production
U.S. exploration and production spending is expected to moderate from 2022 growth levels but continues to increase at a double-digit rate. Capital discipline and shareholder returns, free cash flow generation and reducing carbon footprint through energy transition projects all remain top priorities of upstream customers. Large U.S. majors will continue shifting focus away from international projects and refocus investments in the Permian Basin and South America. The Permian Basin will be the primary beneficiary and is expected to lead the U.S. in new investment dollars and production rates for 2023. Commodity prices are forecasted to remain highly volatile as the global economy continues to work through recessionary pressures. While inflation remains a headwind, there are signs that costs are leveling off as global inflation rates are expected to fall through 2024. Growing concerns over energy security are creating urgency to diversify supply and accelerate energy transition investments. As a result, U.S. government incentives, such as the recently announced Inflation Reduction Act, could help to make cleaner energy investments by operators more economical in 2023 while allowing companies to achieve faster returns.
Midstream Pipeline
The 2023 outlook for the midstream pipeline sector remains positive with activity levels continuing to increase in the three largest natural gas areas: the Marcellus and Utica Shales, the Permian Basin and the Haynesville Shale. These robust areas, with substantial increases in production volumes from oil and natural gas and improvements in well productivity, are expected to drive the need for additional gathering and transmission pipelines and processing capacity. Additionally, the outlook for LNG exports remains extremely positive with the continued rise in demand, led by increases needed in Europe to replace Russian energy supplies. Energy transition and carbon capture and storage (CCS) pipeline projects will continue to gain momentum with the easing of U.S. policy and regulations, and the need for more customers to achieve emissions reduction goals and net zero targets. |
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