outlook
Oil Price Decline Brings Push for Greater Effi ciency
T
rends in the energy market impact many segments of the welding industry, affecting the prevalence of jobs and projects and the labor pool of available welding operators, among other issues. The dropping global oil price is a major factor impacting today’s oil & gas marketplace. There are numerous geopolitical and environmental issues that impact oil prices globally. However, the main drivers for the recent fall in prices boil down in large part to simple sup- ply and demand. There is less demand for oil in many parts of the world, in- cluding the US and China. A slowdown in the development of the middle class and car purchasing and a slowing economy in China have resulted in reduced gasoline demand there, while more effi cient vehicles and fewer miles traveled by consumers have lowered US demand. That reduced demand is coupled with the increase in horizontal fracking in the US, which has become a more effi cient method of shale oil ex- traction than was expected when the technology emerged.
As oil & gas producers look to become more effi cient, that impacts the welding operations.
The result is more oil on the market, and crude oil prices that in the modern era once hit $130 a barrel have fallen below $50 a barrel in recent months. While in the past OPEC may have reduced production in
order to prop up the oil price, that has not yet happened in the current downturn, even though many OPEC countries face massive fi scal shortfalls due to the price decline. While smaller companies and midsized players in the US market may have trouble breaking even at the lower prices, some of those entities are selling off to larger companies, resulting in greater effi ciency and reduced break-even costs. US shale production is still pumping, though it’s pos- sible that will come down slightly by year’s end. Even with a decline in rig numbers, US oil production remains steady, as operations fi nd ways to cut costs and improve effi ciency.
Dave Wilken
Vice President ITW Oil and Gas
Other oil markets, including offshore production and the oil sands in Canada, are harder hit by the faltering prices. Those extraction processes are more expensive, but the op- erations will likely jump back into the market when prices rise to their break-even level. As with the entire industry, those players are also working to become more effi cient to lower their break-even threshold. Most of the mega-projects happening now are gas re- lated, and low oil prices don’t typically have a large impact on those. Numerous major projects in the Gulf Coast region now are petrochemical-based and moving full-steam ahead. Given those trends, the impact on many welding-related industries is mixed. Many process pipe applications, espe- cially those in gas and petrochemical, are seeing a high level of work activity and opportunities. MRO welding work, which is mostly related to aging oil refi neries, is also facing increas- ing pressure to become more effi cient, given the lower oil prices and the increased competition for welding labor. As oil & gas producers look to become more effi cient, that impacts the welding operations. The push for greater effi - ciency is industry-wide in welding and is only being amplifi ed by the changing pressures of the oil and energy market. There are advanced welding processes and technology on the market that can help oil & gas-related projects and operations remain profi table in tough times. Among these are processes that improve effi ciency, deposition rates and quality, such as the ability to use more prefabricated welding completed in a shop rather than the fi eld, which helps lower labor costs and improve quality; and automated systems. Lower oil prices and a shortage of welding operators are challenges the industry is likely to face for some time. This will spur more companies to consider innovative technologies and look to solutions such as automation, modular technolo- gy and prefabrication. As larger production companies make acquisitions in the oil market and bring with them more of a project-management mentality, it’s likely that effi ciency will continue to be a driving factor for the industry as production operations strive to lower their break-even level.
31 — Energy Manufacturing 2015
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