How Will the Drilling Slowdown Affect the U.S. Industrial Landscape?

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Researched by Industrial Info Resources (Sugar Land, Texas)--The recent announcements by oil field services companies Schlumberger (NYSE:SLB), Baker Hughes (NYSE:BHI) and Halliburton (NYSE:HAL) that they will be laying off employees in the near future came as little surprise to those keeping an eye on oil prices, declining rig counts, and sizable cuts in the capital budgets of global oil producers.

The majority of these layoffs will occur in the oilfields as drilling slows. However, many producers have hedges in place, which continue to make production worthwhile in all but the most expensive drilling areas, helping protect companies from the drastic drop in oil price for several months to come.

The slowed drilling programs will delay some midstream and downstream infrastructure construction such as pipelines and storage capacity, but most larger production plans remain in place, although these may occur on a slower schedule. Industrial Info executive vice president Michael Bergen says, "It's sort of a waiting game to see where oil prices level off. The Oil Production projects most at risk are those that require a lot of up-front capital and high break-even prices, such as in the Alberta oil sands, and we had already seen some of these projects put on hold or cancelled long before oil prices declined because of both cost issues and environmental concerns."

Bergen emphasizes the importance of natural gas on the North American industrial market. "The most important driver of major projects in North America is natural gas feedstock," he says. "While lower gases price could hinder some of the transmission and processing projects, especially in the Marcellus region, the domestic demand for gas hasn't really declined. The Chemicals Industry is benefitting substantially from the abundance of natural gas. Some of the LNG projects on the table will fall out because of lower global LNG prices, but this was expected to happen anyway with so much new capacity from Australia and the surrounding area entering the market over the next couple of years. The lower demand from South Korea and Japan this year has been an eye-opener for many potential LNG producers."

While much of the media's focus, particularly in strong oil-producing states such as Texas and North Dakota, emphasizes the "doom and gloom" scenarios surrounding lower oil prices, it's important to keep in mind that the drop in oil prices is good for overall economic conditions in the U.S. Consumers will stronger spenders in 2015, driving demand for goods and services, such as the Automotive and Food & Beverage sectors. Overall, the U.S. GDP is expected to rise 0.5% to 0.8% if oil prices hold $50-$60 per barrel for an extended period of time.

For those seeking a better understanding of how the changing prices of oil and gas are affecting industrial project activity, Industrial Info's 2015 Market Outlook and Networking Event on January 29 is a good place to start. The outlook will discuss the major trends and movement expected to occur in North America's industrial landscape in 2015, with special emphasis on the U.S. Southwest and Gulf Coast regions.

In addition to a top-line spending forecast and a discussion of the U.S. craft labor market, Industrial Info's industry experts will provide presentations on industry sectors, including:

• Oil & Gas Production, Pipelines, Terminals
• Power Generation
• Petroleum Refining
• Chemical Processing

This complimentary event will begin at 3:30 p.m. on January 29 at the Hilton Americas in downtown Houston. Hors d'oeuvres and cocktails will be served after the presentations, providing you valuable time to meet and greet your peers and ask questions from our industry experts.

Space is limited, so make sure to RSVP today!

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and ten international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.