MRC Global InSight

Valves, Automation, Measurement & Instrumentation

Global valve and automation demand should remain steady in the midstream and downstream sectors with some softening in the upstream sector due to a decline in the North American rig count. Two factors impacting all three streams in the US are (a) the changes in the Section 301 List 3 tariffs and (b) the US Environmental Protection Agency (EPA) use of consent decrees on more downstream and midstream companies to control fugitive emissions levels escaping into the environment.

Tariffs on Chinese valves and valve components moved from 10% to 25% on June 1, 2019 and are expected to increase another 5% in mid-October 2019, bringing the total to 30%. Because the vast majority of cast commodity gate, globe, check, ball and butterfly valves are either manufactured in China or are manufactured elsewhere using Chinese castings and components, it is not possible to find available replacement capacity. Unless a manufacturer can produce a US Chamber of Commerce Certificate of Origin naming a country other than China, the Section 301, List 3 tariffs will apply.

In the US, the EPA has imposed consent decrees on refining and chemical plants, as well as some midstream business units, that use valves which have been found to exceed the fugitive emission limits allowed by the EPA. Meeting these requirements can require extensive documentation. MRC Global can supply producers with valves (and the required supporting documentation) certified to the latest API and ISO low fugitive emissions standards, which fully satisfies these consent decrees. MRC Global can also help customers under a consent decree maintain compliance to the low fugitive emission requirements of their affected operations.

Upstream

CAPEX budgets overall are down in the US. Analysts and most oilfield service companies are predicting a continued reduction in CAPEX through the remainder of 2019 and into 2020. However, the Permian Basin is still the busiest drilling region, Anadarko, Bakken, Eagle Ford and Marcellus basins active as well but at lower levels. Gathering systems continue to be installed, which is bringing new production to mainline transportation capacity. Storage capacity in these regions continues to be nearly full. tection and repair (LDAR) monitoring as well as a significant amount of documentation for valves being repaired or replaced. We anticipate more valves will be replaced rather than repaired for companies working under these consent decrees.

The upstream Canadian sector remains depressed due to a lower commodity price for heavy Canadian crude. Canadian pipeline projects are under discussion but moving slowly while producers endeavor to acquire funding. International activity has improved, most notably in the North Sea and the Norwegian Continental Shelf.

Midstream

Valve and automation demand remains steady due to the continued build-out of pipeline infrastructure in the US. Several main line pipeline systems are being installed in 2019, and the bulk of the necessary major equipment has already been purchased and delivered.

Liquid pipeline activity in the US requiring API 6D gate valves and electric motor operators continues at an all-time high. This bright spot of activity is being driven by the installation of major crude pipelines stretching from West Texas to the Gulf of Mexico ports for refining and export. Other liquid pipeline systems are also being installed to move crude from North Dakota, Western Oklahoma and the Rocky Mountains. As the transmission build-out continues, this segment will remain strong with lateral hook-ups and tank farm installations.

Gas pipeline activity is steady in the 24-inch and smaller segment. Larger diameter project valves and actuators have already been provided for main line installation.

The new 127,000 ft2 MRC Global Midstream Valve & Engineering Center in La Porte, TX can produce modifications to 30-inch to 42-inch mainline ball valves as well as 24-inch and smaller buttweld (BW) ball valves. Our team in this new facility also has the ability to weld high yield pipe pup transitions to BW valves, add stem extensions, lube lines, Differential Thermal Relief (DTR) modifications, and offer full coating capabilities for buried service valves. This facility offers full automation capabilities including pneumatic, high pressure gas, hydraulic actuators and electric motor operators for all sectors and is equipped to perform extended Department of Transportation/API (DOT) testing on all factory and modified valves.

The unusually high level of activity in the midstream sector has tightened the global supply chain for API 6D slab and expanding gate valves. This has resulted in extremely long lead times on these products as several key manufacturers are at capacity through Q2 2020.

Downstream

Downstream refining and chemical turnarounds and small or mid cap projects are expected to remain steady. Some of the large cap projects are expected to kick-off in 2019 with targeted completion in 2022. There is a strong pipeline of brownfield plant expansions in both Europe and the US, and there are some greenfield “mega” projects that are in FEED in the US. Demand and lead times are steady for downstream valves, although price is impacted in the US by the Section 301 tariffs as described in the opening paragraphs.