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June. 2022
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North American Project Spending Up 23.5% in Latest Spending Index

North American project spending amounted to $690.97 billion in April, up 23.52% from spending in April 2021, according to Industrial Info's Project Spending Index. Of the 12 industries tracked by Industrial Info, only Oil & Gas Pipelines registered a year-over-year drop in spending (-39.8%).

The Project Spending Index is a monthly indicator that compares active spending rates to the previous year to get a measure of growth or contraction. The index provides spending details by industry and market region.

The index has shown year-over-year spending gains for 16 consecutive months. The effects of the COVID-19 virus and a collapse in oil prices sent project spending into a decline in 2020. But the index finally clawed its way back into positive territory in January 2021. For more on that, see January 20, 2022, article - North American Project Spending Rebounds into Positive Territory for 2021.

However, inflation and the potential for an economic recession could dampen project spending going forward this year.

One of the industries that saw an increase in spending was Oil & Gas Production, where the total investment value was $84.7 billion, up 22.62% from a year earlier.

See the chart below showing North American oil and gas production spending in April by region.

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During Industrial Info's U.S. and Canada Mid-Year Outlook event on May 18, Shane Mullins, Industrial Info's vice president of product development for the energy markets, said capital expenditures toward production in both the U.S. and Canada are back on a growth footing.

"We are seeing new compression, gas processing, pipeline and export terminal project announcements again," he said.

Mullins said the industry was able "to produce more with less as they worked off the number of drilled-but-uncompleted (DUC) well inventory over the past year."

But while "we are still seeing continued improvements being made to decrease the time to drill a well and to complete a well, the oil field is not immune to inflation," he cautioned. Costs are rising for steel, diesel, sand, labor, and pressure pumping, so overall costs are increasing 15-20% just to maintain flat production, he said.

To replenish well inventory and grow production drilling, activity has increased substantially, Mullins said. Data from at least 30 publicly traded oil and gas companies indicate a 30% spending increase in the U.S. this year, and a 40% increase in Canada, Mullins said.

On the natural gas side, "there's plenty of natural gas demand headed our way to keep production growing out to 2030," Mullins said. Energy prices and supply-chain concerns in the U.S. have driven a lot petrochemical and industrial plant development back to the U.S., which in turn fuels domestic demand for natural gas, he added.

"There's $156 billion in industrial projects in construction with a startup between now and the end of the year that add another 700 million standard cubic feet per day of demand," he said.

Also, "global demand for gas exports will add another 10 billion cubic feet per day of demand when you combine LNG and pipeline exports to Mexico, including Sempra's Costa Azul LNG plant being a contributor to that in 2024," Mullins said. Subscribers to Industrial Info's Global Market Intelligence (GMI) oil and gas production and pipelines databases can click here for a list of Sempra's (NYSE:SRE) (San Diego, California) Costa Azul projects in Mexico.

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