2014 Market Snapshot: The Good Times Will Continue to Roll in the Oil & Gas Biz

A recent  Wall Street Journal article on the plans by Germany’s BASF to invest approximately $4 billion in its U.S. plants because of the dramatically cheaper energy prices in the United States and some recently released long-range import/export projections by the U.S. Energy Information Administration  are two of the clearest indicators yet that the excitement in the growth of the oil/gas industries is very real — and very positive for electrical manufacturers, distributors, reps, electrical contractors and other end users that service the energy industry.

The WSJ article said a key reason BASF is investing in its U.S. production facilities is that electricity prices in Germany are currently double that of prices in Texas, where it currently has a joint venture with Total Petrochemicals and Refining USA in Port Arthur, Texas. The article said other new foreign-owned industrial facilities either new on the drawing boards or under construction include $1.4 billion fertilizer plant in Iowa that Egypt’s Orascom Construction Industries SAE intends to build; a Tennessee tire plant that Korea’s Hankook Tire Co. will start building in 2014; and a new ammonia plant that BASF wants to build in the Gulf Coast region with Norway’s Yara International ASA.

Another interesting indicator of just how much impact the oil & gas industries have had on some regions of the country can be found in the federal government’s Bureau of Economic Analysis’ data on the growth of the gross metropolitan product (GMP)  broken down by metropolitan statistical area (MSA). GMP is the market value of all final goods and services produced within a metropolitan area. At least half of the 10 MSAs that experienced the most GMP growth from 2008-2012 are in oil & gas regions — Beaumont-Port Arthur, Texas; Odessa, Texas; Bismarck, N.D.; Williamsport, Pa.;  and Midland, Texas.  The future looks bright for several of these MSAs, according to the U.S. Metro Economies report that IHS Global Insight prepared for the United States Conference of Mayors and the Council on Metro Economies. IHS Global Insight data for real GMP growth rates for 2014 forecasts that Midland (+4.4%) and Odessa, Texas (+3.4%); Fargo, (+4.6%) and Bismarck, N.D. (+4.6%) are expected to be among the leaders in GMP growth.

Expansion-minded electrical distributors are already in these growth markets. Border States Electric, Fargo, N.D., expanded its existing facility this year in the Midland-Odessa MSA to service that region’s oil and gas business, and during the last two years, Elliott Electric Supply, Nacogdoches, Texas; Graybar Electric Co.; and Summit Electric Supply, Albuquerque; have opened new locations servicing Texas’ Eagle Ford Shale play. Graybar also opened a branch in Williamsport, Pa., to service that region’s Marcellus shale industry.

Regular EM  readers are familiar with the branch expansion that’s occurred in Fargo and Bismarck, N.D., where Consolidated Electrical Distributors (CED), Irving, Texas; Graybar; W.W. Grainger Inc., Lake Forest, Ill.; and QED Inc., Las Vegas, have opened up new branches in the Bakken region, which was already loaded with branches run by the area’s largest independents — Border States and Dakota Supply Group, Fargo.

These regions of the United States should continue to produce plenty of business for years to come for those electrical distributors that service the oil and gas industry with explosionproof industrial products from companies like Crouse-Hinds/Cooper Industries/Eaton, Killark/Hubbell, the EGS Electrical Group’s Appleton and OZ Gedney businesses and R. Stahl Group, as well as other products for drilling sites, refineries and other petrochemical facilities.

In its Annual Energy Outlook 2014 report, the U.S. Energy Information Administration says the growth of the U.S. oil and gas industries will have a far-reaching impact on the nation’s economy.  The EIA report says growing domestic production of natural gas and crude oil continues to reshape the U.S. energy economy, with crude oil production approaching the historical high achieved in 1970 of 9.6 million barrels per day. The report also said the low cost of natural gas make it a much less expensive fuel alternative for energy-intensive industries and electric utilities, and it expects many utilities to switch from coal to natural gas over the next few decades. It says that by 2040, natural gas will overtake coal with 35% of total electric power generation, compared to 32% for coal.

Another related opportunity in the Gulf Coast and in port cities along the East Coast and West Coast may be the construction of new export terminals for liquefied natural gas (LNG).  The EIA report says the United States will soon become a net exporter of LNG and that by 2029 annual exports will increase to 29 trillion cubic feet. According to the American Petroleum Institute (API), Washington, D.C., and the Federal Energy Regulatory Commission (FERC), developers have proposed more than two dozen export terminals, many along the Gulf Coast.

API said in a recent release, “As of Oct. 1, 2013, the U.S. Department of Energy (DOE) had approved only four applications for permits to export liquefied natural gas (LNG) to non-free trade agreement nations. There are currently 21 pending applications, covering 19 facilities where U.S. businesses are seeking to build and operate terminals to process LNG for sales abroad.”