North American Oil & Gas Sector Spending Continues Growth

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Researched by Industrial Info Resources (Sugar Land, Texas)--As spending in many industrial sectors has been relatively weak in 2010 as a result of slow economic recovery, spending in the oil & gas industry is experiencing fairly robust growth.

According to Industrial Info's Project Spending Index, total spending on projects scheduled to kick off in 2010 is nearly double the figure of construction starts in 2009. In 2009, Industrial Info tracked more than 550 projects valued at $14.08 billion. Industrial Info is currently tracking more than 670 projects which have or are scheduled to begin construction in 2010, representing more than $24.58 billion of project spending in the United States and Canada.

The three industry groups that compose the oil & gas industry include Terminals, Transmission (pipelines) and Production (which includes oil & gas processing, drilling programs and thermal oil sands extraction plants).

The Transmission and Production industries have shown an increase in spending for 2010, while the Terminals industry has seen a significant decline in spending. Activity in the Terminals Industry has dropped more than 50%, falling from $3.42 billion in 2009 to $1.66 billion in 2010. The decrease in spending for 2010 is primarily due to the slowdown of spending on liquefied natural gas (LNG)-import terminals. In 2009, more than $1 billion was invested on two LNG projects, but there was no North American LNG investment in 2010. The bulk of the spending for the Terminals Industry in 2010 is being spent on natural gas storage facilities and tank inspections and maintenance. Very few capital dollars have been slated for new tank construction due to a lack demand for refined products, resulting in refiners running plants at lower capacities for a significant part of the year. An uptick in planning for new tank construction is expected to begin in late 2011, going into 2012, following signs of optimism in the refining sector.

Looking at the Transmission Industry, there has been a very significant increase in spending for 2010 compared with what occurred in 2009. In 2010, there is $8.89 billion worth of planned project spending, which is an increase of more than 90% compared to the $4.6 billion that began construction in 2009. The majority of the spending is occurring in the Rocky Mountain, Southwest and Southeast regions in the U.S. and in Western Canada in Canada.

The bulk of this spending can be attributed to the shale gas boom, which is requiring the construction of new natural gas pipelines. These pipelines are connecting shale plays such as the Fayetteville and Haynesville shales in Arkansas, Texas and Louisiana, which are located in nontraditional natural gas production areas. Continued increased production activity in the Rocky Mountain states and the Montney shale in Western Canada is also driving the need for new natural gas pipelines to move gas from remote, sparsely populated areas to the more densely populated consumption markets.

The increase in spending is most apparent in the Production Industry. In 2009, $6.06 billion worth of projects began construction. In 2010, Industrial Info is tracking $14.03 billion of projects planned to begin construction, an increase of more than 130%. Regions in the United States where spending is greatest include the Rocky Mountains, Southwest, Northeast and Midwest, where major shale plays are located. These include the Barnett, Fayetteville, Haynesville and Eagle Ford shales in the Southwest; the Marcellus shale in the Northeast; and the Bakken shale in the Midwest.

However, with all of the activity in the U.S., the majority of the increase in dollars is slated to occur in Western Canada. The Canadian oil sands in Alberta have really seen resurgence from 2009 to 2010. In 2009, there were virtually no capital expenditures for in-situ (thermal, SAGD) projects. Looking at 2010, there are 21 oil sands projects worth more than $5 billion. Before the bust in the oil sands sector and the overall economy, the projects proposed were mega-projects valued at $10 billion to $15 billion. Today, project owners are taking smaller, multi-phased approaches, which make the projects more manageable and reduces the amount risk. Higher crude oil prices and the growing availability of financing have been instrumental in the resurgence in spending in the oil sands.

The oil & gas sector has been one of the few consistently bright spots in today's ever-changing economy. Many projects that were placed on hold 12 to 18 months ago have been reactivated, and the remaining projects are expected to be evaluated and brought back to the table or outright cancelled by 2011. As many other industries are just beginning to trend upward, the oil & gas industries have made a rapid turnaround, and this positive momentum is expected to continue through 2011 and 2012.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR'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.