Analyst Flags USA-Made Oil, Gas Field Machinery Order Trend

Since 2016, orders of U.S. made oil and gas field machinery have yet to eclipse $2 billion for any month, Rystad Energy Senior Vice President Matthew Fitzsimmons revealed in a market update sent to Rigzone recently.

In the update, Fitzsimmons noted that these orders hit record highs from 2010 to 2014, “sustaining new monthly orders of near $3 billion”.

“Adjusting for inflation, the picture looks even bleaker - new orders in this year’s first quarter are almost one-third below the average between 2010 and 2014,” Fitzsimmons said in the update.

“In absolute U.S. dollar terms, new orders in the first quarter of this year were over $1.7 billion per month – the highest since the second quarter of 2015,” he added.

“When adjusted for inflation, however, they are below new orders in the first quarter of 2020 before the onset of the pandemic late in that quarter,” he continued.

Contractionary, or stale, trends have also been observed when normalizing new manufacturing orders in the U.S. for industrial machinery, electrical equipment, and power transmission equipment, such as turbines and generators, Fitzsimmons stated in the update, adding that none have boasted substantial inflation-normalized growth since the early 2000s.

“While technological advancements have helped, they have not offset rising labor costs,” he said.

“U.S. manufacturing activity is also heavily influenced by the strength or weakness of the U.S. dollar relative to other currencies,” he added.

“As the U.S. dollar strengthens, goods manufactured outside the U.S. become more cost competitive,” he went on to state, noting that between 2002 to 2007, the weak dollar was a major contributing factor to the surge in domestic manufacturing activity.

“Over the past two years, the dollar has been abnormally strong, triggering a significant cost disadvantage for U.S. manufacturing against international orders,” Fitzsimmons went on to state.

Low Carbon Manufacturing

The global low-carbon manufacturing opportunity set is both significant and growing rapidly, Fitzsimmons said in the update.

“While the U.S. is well positioned for domestic wind equipment manufacturing, that work has required a heavy reliance on foreign manufacturing imports,” he noted.

“The domestic supply chain was going to leverage the credits from the Inflation Reduction Act to better compete for international orders,” he added, warning in the update that if U.S. debt ceiling negotiations undercut the act’s low-carbon supply chain incentives, “the global competitiveness of U.S. manufacturing will take a significant hit”.

Investments in 2023 will grow year on year by over 25 percent for onshore and offshore wind, as well as 138 percent for hydrogen and 494 percent for carbon capture and storage, according to Fitzsimmons.

“All told, global investments in renewables are on track to be larger than those within oil and gas by 2025,” he said.

“Without the supply chain boosting credits from the Inflation Reduction Act, the U.S. low-carbon manufacturing sector will be at a significant disadvantage when competing globally,” he added.

“If the U.S. fails to capitalize on the opportunity, original equipment manufacturers in mainland China will swoop in and take an even larger slice of the global offshore wind sector,” Fitzsimmons continued.

USA Debt Ceiling

In a statement posted on its website earlier this month, the White House noted that new analyses by both the Congressional Budget Office and the U.S. Department of the Treasury suggest the U.S. is rapidly approaching the date at which the government can no longer pay its bills, “also known as the ‘X-date’”.

“History is clear that even getting close to a breach of the U.S. debt ceiling could cause significant disruptions to financial markets that would damage the economic conditions faced by households and businesses,” the White House said in the statement.

“An actual breach of the U.S. debt ceiling would likely cause severe damage to the U.S. economy. Analysis by CEA and outside researchers illustrates that if the U.S. government were to default on its obligations - whether to creditors, contractors, or citizens - the economy would quickly shift into reverse, with the depth of the losses a function of how long the breach lasted,” it added.

“A protracted default would likely lead to severe damage to the economy, with job growth swinging from its current pace of robust gains to losses numbering in the millions,” it continued.

In a statement posted on his Twitter page last week, U.S. President Joe Biden said, “I just concluded a productive meeting with Speaker McCarthy about the need to prevent default and avoid a catastrophe for our economy”.

“We reiterated once again that default is off the table and the only way to move forward is in good faith toward a bipartisan agreement,” he added.

“While there are areas of disagreement, the Speaker and I, and his lead negotiators Chairman McHenry and Congressman Graves, and our staffs will continue to discuss the path forward,” Biden continued.

I just concluded a productive meeting with Speaker McCarthy about the need to prevent default and avoid a catastrophe for our economy.

We reiterated once again that default is off the table and the only way to move forward is in good faith toward a bipartisan agreement.

While…

— President Biden (@POTUS) May 23, 2023

To contact the author, email andreas.exarheas@rigzone.com