Maritime Today: Oil & Gas Execs: Market Moving Up , 1/23/2012 9:22:42 AM

While forecasts of financial gloom dominate mainstream news casts, there is an emerging feeling of optimism in fo the near term prospects for the oil and gas business. Oil and gas industry leaders have forecast improved performance and higher levels of capital expenditure this year, despite concerns over global economic instability, according to a new report on the future of the sector.
Increased investment across the industry will focus on exploration activity, with North America emerging as the area with the greatest opportunities in 2012.

Big Spenders: The outlook for the oil and gas industry in 2012, is the Economist Intelligence Unit’s second annual industry barometer, commissioned by GL Noble Denton, an independent technical advisor to the industry with considerable insight into many of the issues faced by those operating in the oil and gas sector.

82% of the 185 board-level directors and industry policy makers surveyed for the report are either highly or somewhat confident about the business outlook for their company, compared with 76% last year. Just 8% of those polled described themselves as pessimistic over performance in 2012.

Findings from the research also show that nearly two thirds (63%) of executives plan to invest either somewhat or substantially more over the next year, in contrast to 49% in 2011. 41% of industry professionals expect to see increased investment in exploration activities over the next year, with only 4.3% anticipating a decline.

There remains a caveat, however; if global economic conditions deteriorate, oil and gas companies will have to scale back their spending commitments where they can do so without creating damage to their wider portfolios, according to the report.
Other key findings from the research, as reported by the Economist Intelligence Unit, include:
- Rising operating costs emerge as the top barrier to growth. More than 50% of respondents say that they expect there to be an increase in wages over the next 12 months. 54% of respondents also expect the cost of contractors to increase, compared to only 11% anticipating a decline.
- Risk remains a key challenge. An overwhelming majority of respondents – 82% – either strongly or somewhat agree that regulatory issues have become more important in the post-Macondo period. Increasing regulation is regarded by more than 30% of respondents as the main challenge for their company over the next 12 months.
- Skills shortages are becoming more acute. According to the Economist Intelligence Unit’s research, this issue comes out of the survey as one of the major obstacles to growth over the next 12 months. Last year, skills issues came fifth on the list of barriers and were only identified as a top three issue by 25% of respondents. This year, the issue has risen to second on the list, and has been identified as a key barrier by 34% of respondents.

Unconventional gas: A global game changer?
The advent of projects like the Marcellus, Barnett, Haynesville and Fayetteville shales have created a supply glut that has affected global prices. Yet there is widespread doubt as to whether the shale gas revolution can be exported outside North America.

Scope for optimism for refiners: After a dismal few years, the downstream sector is showing some signs of life, at least in the US. Refining profitability has improved where robust margins have resulted from a revival of consumption of refined products. But Asia and Europe remain in the doldrums.

Pekka Paasivaara, member of the GL Executive Board, said: “The second annual Economist Intelligence Unit oil and gas industry barometer sends a clear message: Companies are preparing to spend big in 2012, despite a slower growth in demand for oil and gas during the second half of last year, and concerns over the future of the global economy.

“But this doesn’t mean that our clients are sanguine about their prospects for the year ahead. Findings from the report highlight a wealth of barriers to success, from rising operating costs to the worry of an impending shortage of skilled professionals and an uncertain regulatory environment in the post-Macondo era.

“While capital expenditure looks set to take off, industry leaders will need to invest selectively this year, keeping operating risks low during a period of prolonged uncertainty. Their success will be defined by an ability to develop innovative approaches to operating more safely, efficiently and sustainably than ever.”

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Last week’s mildly positive jobs report was bolstered by better-than-usual hiring in an industry hammered by job losses.

Construction firms added 26,000 jobs in September, the most in seven months. The industry trailed only health care, professional and business services, and information in job creation. Overall, U.S. payrolls grew by 103,000 last month, and the unemployment rate held steady at 9.1%, the Labor Department said.

Contractors have added 53,000 jobs this year after losing about 150,000 last year and 2 million in the recession. Their hires lag behind most other industries in percentage terms, but they’ve lifted construction employment to 5.6 million.

Construction officials say the latest gains could herald at least a moderate turnaround next year for a sector decimated by the housing bust and commercial real estate downturn.

“With private-sector demand inching back up, the construction industry is finally on the brink of recovery from years of hardship and job losses,” says Stephen Sandherr, CEO of Associated General Contractors of America, a trade group.

September’s showing was fueled by the non-residential sector, which added 30,000 workers. Construction spending by retailers and electric utilities has been particularly strong lately, Census Bureau figures show. That’s partly due to state renewable energy requirements, but may also reflect rebuilding after Hurricane Irene. Also, many retailers are refurbishing stores after putting off projects the past couple of years, says economist Patrick Newport of IHS Global Insight.

Contractor Reed & Reed of Woolwich, Maine, has hired an additional 35 or so workers this year, bringing its staff to 250, as it scrambles to meet a surge in wind-power construction in New England, says CEO Jack Parker. “We’ve been fortunate,” he says.

Housing starts are still weak, and residential building firms cut 3,800 workers in September.

But both residential and commercial building inventories have shrunk so much that a 2012 rebound is almost inevitable, although it may not arrive until the second half, says IHS’ Michael Montgomery. He predicts construction payrolls will rise by about 200,000 in 2012.

Job growth could suffer from reduced federal infrastructure spending, Sandherr warns. Construction work made up more than half the fiscal 2011 budget cuts by Congress in April., he says.

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In a surprising turn upward, the Architecture Billings Index (ABI), a leading indicator of nonresidential construction, rose sharply into growth mode in August following four months of decline in demand for architecture services.

The August index rebounded to 51.4 following a very weak score of 45.1 in July, according to the American Institute of Architects (AIA), which produces the monthly report. Any score above 50 indicates an increase in billings, reflecting increased demand for design services.

The index reflects a lag of about nine to 12 months between billings and actual construction spending. August’s score also showed an increase in inquiries about new projects, up sharply to 56.9 from 53.7 the previous month.

AIA Chief Economist Kermit Baker said the turnaround is a surprise based on the poor economic conditions of the last several months.

“Many firms are still struggling and continue to report that clients are having difficulty getting financing for viable projects, but it’s possible we’ve reached the bottom of the down cycle,” Baker said.

In July, the fourth straight month of demand decline, the score fell to 45.1, down from 46.3 in June in the steepest monthly drop in the billings index since February 2010.

A survey of Colorado’s commercial real estate, construction and architectural sectors released this week by the Everitt Real Estate Center at Colorado State University reflected a dearth of optimism about the future for new construction. The first-ever statewide survey found a high level of pessimism among real estate professionals and “wishful optimism” among architectural and construction leaders.

All three sectors saw dismal prospects for private funding for new development projects in 2012. Architects believe demand for residential-oriented projects are most likely to increase next year, and real estate respondents believe such property types will most likely see modest value appreciation.

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The industrial construction sector in Polandis seen by construction companies as one that raises the most promising prospects for the construction industry in terms of maintaining sizeable order portfolios after most large road construction contracts come to the conclusion. Observers’ attention is focused on large energy projects, though gas investments are becoming increasingly popular, with a notable participation of shale gas projects.

A study which PMR Research conducted among senior staff of construction companies confirms increasing interest in industrial investment projects, which, in view of a falling number of road construction tenders, are perceived to offer a potential for keeping the growth momentum of the construction sector going. Respondents were asked to express their opinions on several statements describing prospects for the industrial construction sector, which, according to PMR’s classification, includes the construction of power generating units, gas and petrochemical investment projects and the development of production plants and waste incineration plants.

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Catching up … this morning from the Census Bureau reported that overall construction spending increased in April:

[C]onstruction spending during April 2011 was estimated at a seasonally adjusted annual rate of $765.0 billion, 0.4 percent (±1.6%) above the revised March estimate of $762.1 billion. The April figure is 9.3 percent (±1.6%) below the April 2010 estimate of $843.1 billion.

Private construction spending also increased in April:

Spending on private construction was at a seasonally adjusted annual rate of $483.0 billion, 1.7 percent (±1.4%) above the revised March estimate of $474.7 billion. Residential construction was at a seasonally adjusted annual rate of $232.1 billion in April, 3.1 percent (±1.3%) above the revised March estimate of $225.1 billion. Nonresidential construction was at a seasonally adjusted annual rate of $250.8 billion in April, 0.5 percent (±1.4%)* above the revised March estimate of $249.6 billion.

This graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

The small increase in non-residential in April was mostly due to power.  Office and lodging construction spending declined.

Residential spending is 65.7% below the peak in early 2006, and non-residential spending is 39.4% below the peak in January 2008.

I expect residential spending to pick up a little this year (mostly multifamily) – and residential will probably be above non-residential spending by the end of the year.

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Australia: THE federal government has released the biggest area in more than a decade for offshore petroleum exploration, underscoring the country’s commitment to exploiting its rich endowment of natural resources to cash in on Asia’s surging demand for energy.

Finding new energy reserves is a priority for Australia, which forecasts a trade deficit in crude oil, refined products and liquefied petroleum gas of more than $30 billion by 2015.

Some of the world’s biggest energy projects are under construction off the Pacific nation’s vast coastline, which has proven a fertile hunting ground for exploration in recent decades.

A total of 29 areas in nine basins in Australian waters covering around 200,000 square kilometres have been released, stretching from the West Coast through the Northern waters to Victoria in the south.

Acreage release gives companies the right to bid for exclusivity in searching for oil and gas, but not the right to drill exploration wells or run seismic surveys without further approval.

“The release of acreage is a critical step in maintaining Australia’s energy security,” Martin Ferguson, the government’s minister for resources, energy and tourism, said in Perth.

“The large areas are mostly located in frontier regions. The ‘super-sizing’ of frontier opportunities acknowledges the challenges of exploring in these areas.”

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Construction Claims – Oil and Gas Offshort Experts

Private nonresidential construction spending increased 0.9% in February, according to the April 1 report by the U.S. Census Bureau. However, despite February’s monthly performance, private nonresidential construction spending is down 13.2% from the same time last year. Total nonresidential construction spending — which includes both privately and publicly financed construction — stood at $523.2 billion in February, down 0.2% for the month and down 6.3% from February 2010.

Six of the 16 nonresidential construction sectors posted gains in spending on a monthly basis in February, including conservation and development, up 11.3%; manufacturing, up 5.4%; and power, up 2.5%. Five subsectors posted increases from the same time last year, including conservation and development, up 32.4%; highway and street, up 10.6%; and water supply construction, up 6.8%.

Those nonresidential construction sectors posting decreases for the month include water supply, down 5.9%; religious-related, down 3.8%; and educational construction, down 3.4%. The sectors with the largest year-over-year decreases include lodging, down 42%; manufacturing, down 30.1%; and office construction, down 19.9%.

Public nonresidential construction spending slipped 1.1%for the month but is up 0.4% from one year ago. Residential construction spending fell 3.8% in February and 7.8% compared to the same time last year. Overall, total construction spending was down 1.4% in February and down 6.8% from February of last year.

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Global construction will outpace GDP growth over the next 10 years, with China and India accounting for 38 percent of the $4.8 trillion increase in output by 2020, PricewaterhouseCoopers (PwC) said on Thursday.

After overtaking the US as the biggest construction market in 2010, China’s construction sector will more than double in size to $2.5 trillion by 2020, accounting for a fifth of world construction, PwC said, citing a report it sponsored.

Emerging markets, with their fast-growing populations, accelerating urbanisation and robust economic growth, will account for 55 percent of global construction by 2020, up from 46 percent today, PwC said.

The study, conducted by market research firms Global Construction Perspectives and Oxford Economics, forecasts that $97.7 trillion will be spent on construction globally during the next decade and the sector will expand by 5.2 percent on average every year, outpacing global GDP growth.

The construction sector worldwide currently accounts for more than 11 percent of global GDP and the report predicts that it will account for 13.2 percent of world GDP by 2020.

Just seven countries — China, India, the United States, Indonesia, Canada, Russia and Australia — will account for 65 percent of the growth in global construction to 2020, PwC said.

Spending on construction in India will overtake Japan, which faces the lowest construction growth among developed nations, by 2018, when India will become the world’s third-largest construction market, PwC said.

US TO OUTPERFORM

Construction in most developed countries will be constrained by large public deficits, austerity programmes, slow population growth and limited economic expansion. The United States will be the exception thanks to its growing population, PwC said.

An estimated $14.5 trillion will be spent on construction in the U.S. by 2020, with growth averaging 7.8 percent per year over the next five years, driven by residential and non-residential markets, the PwC-sponsored report said.

But years of underinvestment in U.S. infrastructure are unlikely to come to an end soon given the swelling public sector deficits unless more private investment is used in procurement, the report added.

Canada and Australia will also lead construction growth in developed countries, boosted in particular by demand for natural resources and favourable demographics, PwC said.

The combined growth in construction in Canada and Australia will almost equal growth in the entire Latin American construction market, including Mexico, Brazil, Argentina, Chile and Colombia, indicating its less bright prospects, PwC said.

Natural resources will play a key role in the Middle East and North Africa, where $4.3 trillion will be spent on construction across the region over the next decade, representing growth of almost 80 percent to 2020, PwC said.

The outlook is less rosy for France, home of the world’s largest public works group Vinci and largest cement maker Lafarge, as well as other Western European countries, which are set to register little construction growth.

Infrastructure in Britain will grow by less than 10 percent by the end of the decade, compared with growth of almost 135 percent in Asian emerging markets, the report said.

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LONDON—Royal Dutch Shell PLC said it is postponing for a year a controversial plan to drill for oil in the Arctic waters off Alaska after U.S. regulators withdrew a key permit.

The move reflects the growing public and regulatory scrutiny oil companies face in the wake of the Deepwater Horizon disaster, especially when they try to move into environmentally sensitive frontier regions.

The Anglo-Dutch oil giant said it would forgo its 2011 drilling program for the Beaufort Sea following a decision by the Environmental Appeals Board to invalidate its air-quality permit for drilling in Alaskan waters. Shell says of the …>more

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