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© 2014 IHS
US Outlook
IHS
The US Construction Outlook 11 November 2014
Scott Hazelton, Managing Director +1 781 301 9044, [email protected]
ECONOMICS
© 2014 IHS
The US economy is gaining momentum
• Growth will be supported by accelerations in consumer spending and homebuilding, along with continued robust capital spending.
• An end to above-trend inventory accumulation will be a brief headwind.
• Consumers will cautiously boost spending in response to gains in employment, income, and household net worth.
• The recovery in homebuilding is proceeding slowly, as young adults delay household formation and homeownership.
• Capital spending is supported by global market growth, strong cash flow, replacement needs, and technological advances.
• Interest rates will rise significantly over the next three years as monetary accommodation is withdrawn.
2
© 2014 IHS 3
US real GDP growth will be sufficient to bring further reductions in the unemployment rate
Real GDP and unemployment
4.0
5.2
6.4
7.6
8.8
10.0
-9
-6
-3
0
3
6
2006 2008 2010 2012 2014 2016
Perc
ent
Annu
al p
erce
nt c
hang
e
Real GDP growth (Left scale) Unemployment rate (Right scale)
© 2014 IHS 4
Western and southern states will lead in job growth
Annual percent change, 2014-19
Percent 0.6 to 1.0 1.0 to 1.5 1.5 to 1.9 2.0 to 2.5
© 2014 IHS 5
Household formation has surprisingly downshifted
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2013201120092007200520032001199919971995
Mill
ions
Change in number of occupied housing units
Why are households not forming?
• Weak wage growth
• Slower immigration
• Lower marriage rates
• Limited access to credit
• Less mobility
• Student loan burdens
© 2014 IHS 6
A setback in household formation is delaying the recovery in housing starts
Housing starts and formation
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
1980 1985 1990 1995 2000 2005 2010 2015 2020
Mill
ions
Housing starts Household formation
© 2014 IHS 7
AIA Index continues to signal growth
American Institute of Architects Index
30
40
50
60
70
Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13
Billings Inquiries
Billings and Inquiries
(Diffusion Index; 50=Neutral)
© 2014 IHS
US Nonresidential Structures
8
-25
-20
-15
-10
-5
0
5
10
050
100150200250300350400450500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Nonresidential Structures (Lef t scale, billions 2009$)
Growth (Right scale, percent change)
Structures Construction Spending
© 2014 IHS 9
Real private investment in industrial structures is dominated by energy-related projects
Investment in structures
0
25
50
75
100
125
150
175
1990 1995 2000 2005 2010 2015 2020
Bill
ions
of 2
009
dolla
rs
Manufacturing Mines & wells Utilities
© 2014 IHS
US real construction growth by sector
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Real investment in structures
Percent change 2013 2014 2015 2016
Total construction 5.7 5.3 7.5 7.2
Residential 12.0 3.0 11.7 10.3
Commercial 8.0 10.2 11.4 18.0
Manufacturing -1.3 11.2 5.5 6.0
Mines & wells 0.5 7.3 -1.3 -1.0
Healthcare -9.0 -8.5 9.4 22.3
Public utilities -7.0 13.5 -2.6 -9.9
Highways & streets -1.8 1.9 2.5 0.9
Public education -11.4 0.6 4.9 2.4
© 2014 IHS
Components of US Nonresidential Construction
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0
50
100
150
200
250
300
350
400
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Commercial Manufacturing Health Care Education
Structures major components, billions of 2009 dollars
© 2014 IHS
Lodging has lead commercial recovery, office catching up, retail will lag
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0
20
40
60
80
100
120
140
160
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Off ice Lodging Retail
Components of commercial, billions 2009$
© 2014 IHS
US Infrastructure construction
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0
50
100
150
200
250
300
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Highway & Streets Sewer Water Power Transportation
Infrastructure components (Billions of 2009 dollars)
© 2014 IHS
Oil prices will rise in the long run
• The continuing boom in US oil production is restraining prices.
• Weak global oil demand (especially from China) and high Saudi Arabian production pose downside price risks.
• Geopolitical tensions in Iraq, Syria, Ukraine, Libya, Venezuela, Nigeria, South Sudan, and Yemen present upside price risks.
• Restrictions on US crude oil exports are expected to end in 2016.
• While North American supply growth remains strong, other potential new sources (Iraq, Brazil, and Kazakhstan) face serious hurdles.
• As supply growth slows in the 2020s, a sustained period of higher prices will be needed to support development of frontier oil resources.
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© 2014 IHS
Oil Prices and Implications for US Production
• Geopolitical turmoil…..…..and still $80 oil
• Recent Saudi moves - instilling price discipline
• US tight oil investment driven by independent producers – react more quickly to price fluctuations
• Rate of US production growth will continue but at a slower pace
• Investment intensity of onshore exploration and production – faster decline rates require more activity
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© 2014 IHS
Oil Prices and Implications for US Production
• Most tight oil wells break even at $75 or less
• Export policy a critical factor moving forward
• Election results notwithstanding, bi-partisan approach on major policy issues will be necessary
• 2015 price outlook - $77/bbl WTI; $88/bbl Brent
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© 2014 IHS
Rising North American natural gas supply and demand
• Production continues to rise, aided by new pipeline capacity, processing capacity, and natural gas liquids takeaway infrastructure.
• A high pace of gas injections into storage has brought the Henry Hub price below $4 per million Btu.
• Associated gas from oil fields represents a rising share of production.
• Industrial gas demand will continue to grow, with significant investments in ammonia, methanol, and ethylene facilities under way.
• Mandated coal-fired power generation retirements and the advent of liquefied natural gas exports in 2016 will support gas prices.
• Upside risks to gas demand and prices include below-normal winter temperatures and railroad congestion (limiting coal deliveries).
17
© 2014 IHS
US crude oil and natural gas prices on different paths
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Crude oil and natural gas prices
0
2
4
6
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10
12
14
0
20
40
60
80
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120
140
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Dol
lars
/mill
ion
Btu
Dol
lars
/bar
rel
Crude oil, WTI (Left scale) Natural gas, Henry Hub (Right scale)Source: IHS Energy
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© 2014 IHS 19
The boom in domestic oil and gas production is providing stimulus to the US economy
Oil and gas production
20
30
40
50
60
70
1990 1994 1998 2002 2006 2010 2014 2018 2022
Qua
drill
ion
Btu
, ann
ual r
ate
© 2014 IHS 20
Unconventional sources of oil and natural gas are boosting US energy supplies
US energy supply and demand
0
20
40
60
80
100
120
2004 2007 2010 2013 2016 2019 2022
Qua
drill
ion
Btu
Oil & gas supply Other energy supply Energy demandUS energy supply Energy imports
© 2014 IHS
Unconventional Oil and Gas Plays in North America
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Enough to satisfy more than 100 years of consumption at current rates
© 2014 IHS
Nearly $5.1 trillion in cumulative capital investments are expected to be made between 2012 and 2035.
22
0
50
100
150
200
250
300
350
400
2012 2015 2020 2025 2030 2035
Unconventional Oil and Gas Capital Expenditures(billions of 2012 dollars)
Unconventional Gas
Unconventional Oil
© 2014 IHS
Supply Chain Analysis
23
• The unconventional oil and natural gas supply chain is far-reaching. The analysis captures supply chain participants in more discrete component parts.
• The detailed sectors within the unconventional supply chain are assigned to one of five core groups:
1. Capital goods: equipment and component suppliers to manufacturers and distributors.
2. Construction and well services: contractors and building trades, well drilling and other oil and gas field services.
3. Logistics: road, rail, water, and pipeline transportation.
4. Materials: various raw materials producers including sand, gravel, chemicals, and metals and metal fabrication and distribution.
5. Professional and other services: environmental and civil engineering, occupational health and safety, insurance, and management and technical services.
© 2014 IHS
The Unconventional Oil & Gas Supply Chain
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© 2014 IHS
Defining the unconventional energy supply chain
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Unconventional energy supply chain sectors by core group(NAICS code)Capital goods
3331 Agriculture, Construction, and Mining Machinery Manufacturing
333991 Power-Driven Handtool Manufacturing
4231 Motor Vehicle and Motor Vehicle Parts 334419 Other Electronic Component Manufacturing 4238 Wholesale Machinery and Equipment 334512 Automatic Environmental Control Manufacturing for
Residential, Commercial, and Appliance Use 332410 Power Boiler and Heat Exchanger Manufacturing 334513 Instruments and Related Products Manufacturing for
Measuring, Displaying, and Controlling Industrial Process Variables
332420 Metal Tank (Heavy Gauge) Manufacturing 334514 Totalizing Fluid Meter and Counting Device Manufacturing
333112 Lawn and Garden Tractor and Home Lawn and Garden Equipment Manufacturing
334516 Analytical Laboratory Instrument Manufacturing
333515 Cutting Tool and Machine Tool Accessory Manufacturing
334519 Other Measuring and Controlling Device Manufacturing
333611 Turbine and Turbine Generator Set Units Manufacturing
336112 Light Truck and Utility Vehicle Manufacturing
333612 Speed Changer, Industrial High-Speed Drive, and Gear Manufacturing
336120 Heavy Duty Truck Manufacturing
333613 Mechanical Power Transmission Equipment Manufacturing
336510 Railroad Rolling Stock Manufacturing
333618 Other Engine Equipment Manufacturing Construction and well services333911 Pump and Pumping Equipment Manufacturing 23* Construction of New Nonresidential Manufacturing
Structures333912 Air and Gas Compressor Manufacturing 23** Construction of Other New Nonresidential Structures333922 Conveyor and Conveying Equipment Manufacturing 213111 Drilling Oil and Gas Wells
213112 Support Activities for Oil and Gas Operations
* Construction of pipelines, rail, marine structures, storage facilities, LNG export facilities, and manufacturing structures. ** Construction of upstream facilities and structures.
Source: IHS Economics
© 2014 IHS
Defining the unconventional energy supply chain (continued)
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Unconventional energy supply chain sectors by core group (continued)(NAICS code)Logistics Professional and other services
483 Water Transportation 2213 Water, Sewage and Other Systems 4821 Rail Transportation 4931 Warehousing and Storage4841 General Freight Trucking 5241 Insurance Carriers486 Pipeline Transportation 5413 Architectural, Engineering, and Related Services
Materials 5419 Other Professional, Scientific, and Technical Services444 Retail Building Material and Garden Supply
Sector532412 Construction, Mining and Forestry Machinery and
Equipment Rental and Leasing3312 Steel Product Manufacturing from Purchased
Steel562219 Other Nonhazardous Waste Treatment and Disposal
4233 Wholesale Lumber and Construction Materials 811310Commercial and Industrial Machinery and Equipment (Except Automotive and Electronic) Repair and Maintenance
4235 Wholesale Metal and Mineral4236 Wholesale Electrical Goods4237 Wholesale Hardware, Plumbing, and Heating
Equipment4246 Wholesale Chemical and Allied Products212321 Construction Sand and Gravel Mining325120 Industrial Gas Manufacturing325180 Other Basic Inorganic Chemical Manufacturing327310 Cement Manufacturing327320 Ready-mix Concrete Manufacturing327331 Concrete Block and Brick Manufacturing331110 Iron and Steel Mills and Ferroalloy Manufacturing331315 Aluminum Sheet, Plate, and Foil Manufacturing332996 Fabricated Pipe and Pipefitting Manufacturing
Source: IHS Economics
© 2014 IHS
Unconventional supply chain employment
27
• While US manufacturing employment is expected to decline over the long term, employment growth in the unconventional supply chain sectors will exhibit strength and continue on a positive path.
© 2014 IHS
Supply chain sectors with the largest contributions
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• Construction, engineering, and support activities for oil and gas operations are among the supply chain sectors with the largest contributions supported by the unconventional activity.
Supplying the Unconventional Revolution / October 2014
© 2014 IHS
Supply chain sectors with the largest contributions (cont’d)
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(Number of workers)2012 2015 2020 2025 CAGR**
23t Construction of Other New Nonresidential Structures 58,806 74,333 82,577 103,299 4.4%5413 Architectural, Engineering, and Related Services 57,770 67,878 67,523 77,603 2.3%213112 Support Activities for Oil and Gas Operations 54,757 72,351 87,337 108,828 5.4%23tt Construction of New Nonresidential Manufacturing Structures 74,362 50,343 16,709 13,414 -12.3%212321 Construction Sand and Gravel Mining 28,228 36,434 42,197 49,944 4.5%333515 Cutting Tool and Machine Tool Accessory Manufacturing 27,460 36,225 42,287 50,435 4.8%4841 General Freight Trucking 24,139 32,079 37,724 44,545 4.8%4238 Wholesale Machinery and Equipment 17,449 24,339 28,903 33,742 5.2%3331 Agriculture, Construction, and Mining Machinery Manufacturing 18,155 21,832 21,818 25,382 2.6%3312 Steel Product Manufacturing from Purchased Steel 14,662 16,192 15,175 17,814 1.5%213111 Drilling Oil and Gas Wells 12,917 17,526 21,176 26,558 5.7%2213 Water, Sewage and Other Systems 12,769 16,243 18,046 21,474 4.1%332410 Power Boiler and Heat Exchanger Manufacturing 13,860 10,712 4,159 3,876 -9.3%333912 Air and Gas Compressor Manufacturing 10,079 13,318 15,566 18,566 4.8%332996 Fabricated Pipe and Pipefitting Manufacturing 9,219 11,497 12,673 14,872 3.7%Top-15 total 434,632 501,304 513,870 610,352 2.6%US total 524,413 615,910 638,762 757,802 2.9%
*The ranking for all years are based on employment in 2014.
** Compound annual growth rate from 2012 to 2025.t Construction of upstream facilities and structures.
tt Construction of pipelines, rail, marine structures, storage facilities, LNG export facilities, and manufacturing structures. Source: IHS Economics
Top-15 sectors: US unconventional energy supply chain employment*
© 2014 IHS
Manufacturing Supply Chain Sectors • Capital goods are ubiquitous throughout the supply chain and are the most
illustrative example of how unconventional oil and gas spending that impacts all 48 producing and nonproducing states. These impacts run throughout the energy value chain and reach deep into the various equipment sectors responsible for the manufacturing of capital goods.
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© 2014 IHS
Unconventional supply chain employment in producing and nonproducing states
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Supplying the Unconventional Revolution / October 2014
• While the supply chain economic contributions tend to be concentrated across the producing states, the network of the supply chain appear in all states. The share of non-producing states is around 18% of the total contribution.
© 2014 IHS
Unconventional supply chain employment in producing and nonproducing states (Cont’d)
32
Supplying the Unconventional Revolution / October 2014
• The top supply chain industries that support the largest number of jobs across the nonproducing states are concentrated in the capital goods core group.
© 2014 IHS
Supplemental Construction Assessment
33
• Substantial construction spending related to unconventional oil and gas development will occur between 2012 and 2025 to support production, distribution, and refining.
• This operator capital spending is also supplemented by considerable non-operator construction spending related to infrastructure, housing, commercial, and industrial construction activity.
Supplying the Unconventional Revolution / October 2014
Supplemental construction expenditure and employment impacts by type
2012 2013 2014 2015 2020 2025
Commercial 652 805 873 785 488 479Industrial 24 30 34 28 13 12Infrastructure 203 223 158 112 41 36Residential 2,273 3,042 2,897 1,921 2,249 3,040US total 3,152 4,099 3,962 2,847 2,790 3,567
Commercial 2,739 3,272 3,365 2,932 1,636 1,427Industrial 100 123 130 106 44 36Infrastructure 896 967 637 440 147 117Residential 9,594 12,469 11,197 7,212 7,590 9,149US total 13,329 16,830 15,329 10,689 9,417 10,729
Source:IHS Economics
Supplemental construction expenditure (2012 $M)
Supplemental construction employment (number of workers)
© 2014 IHS
Concluding Remarks
34
• Upstream, midstream, and downstream operators are responsible for the significant capital investment required for exploration, production, transport, and refinement of unconventional oil and natural gas. In recognition of this investment, the oil and gas industry is often depicted as the face of the ‘unconventional revolution’.
• However, it is the extensive oil and gas supply chain—labor, equipment, materials, services, and logistics—which represents the backbone that makes it possible to transform geological prospects into resource abundance throughout the energy value chain and the US economy.
• Full report and data available at www.ihs.com/shalesupplychain
© 2014 IHS
Project Overview • The Phase I study focused on lifting the oil export ban under two production trajectories and quantified the ‘Total’ impact of free trade on the US and state economies
• The Phase II study will deepen this analysis by assessing the supply chain impact using quantitative modeling and qualitative primary research to add real world examples
• The research will segment Phase I findings by industry, congressional districts, and type of impact to determine the implications on the supply chain across producing and non-producing states
• IHS will undertake a deeper analysis of selected industries/states to submit 6 briefing papers
35
US CRUDE OIL EXPORT - UNLEASHING THE SUPPLY CHAIN - OCTOBER 2014
IHS Confidential – Internal Client Use Only
© 2014 IHS
Crude Export Study Key Findings
Jobs & Income The resulting increase in crude production would support:
o 359,000 more jobs in 2016 o Peak at 964,000 additional jobs supported in 2018 o Average of 222,000 additional jobs supported for the
remaining years of the 2016-2030 study period.
GDP Gross domestic product would rise by nearly $73 billion in 2016
o Increase to more than $134 billion additional GDP in 2018 o Average an additional $73 billion annually for the
remainder of the 2016-2030 study period.
Tax Revenue Total government revenues would increase by a combined $1.3 trillion from 2016-2030
o Nearly $29 billion additional revenues generated in 2016 o $42 billion in 2020 o $105 billion in 2025 o $158 billion in 2030
Oil Production U.S. oil production would increase, beginning with an additional 949,000 b/d in 2016. The ability to export crude would then result in more than a million barrels per day in extra production each year going forward, peaking at 1.3 million b/d of additional production in 2030. The resulting increase in crude production would support:
o U.S. crude exports would reach 665,000 b/d in 2016 o Exports rise to more than 1.5 million b/d in 2020. o Exports peak at more than 1.7 million b/d in 2025
© 2014 IHS
Macroeconomic Results
37
The activity and the initial shock will have significant benefits to the US economy during next six years. In the longer term, the economy adjusts to the change and converge to the long run equilibrium.
© 2014 IHS
Thank you
Scott Hazelton
• +1 781 301 9044
38
