Proliferating quality problems causing increasing concern in the PVF sector
BY MORRIS R. BESCHLOSS
PVF and economic analyst
At a time when the manufacturing component of the U.S. economy is exhibiting unexpected strength, a proliferation of product failures has marred the development of projects and maintenance in the critical domestic energy sector.
A major case in point is one resulting in a lawsuit that has been filed by oil giant Exxon Mobil, which has initiated legal action against U.S. Metals Inc. and Maass Flange Corporation, citing these companies for not meeting the called-for specifications on compliance, causing substantial losses in Exxon’s Baytown and Baton Rouge refineries.
More recently, an Alaskan North Slope pipeline broke and ruptured in mid-July during a pressure test. This occurred while the trans-Alaska pipeline was shut down for planned annual maintenance and oilfield operators were taking the opportunity to work on related equipment. BP, which was in charge of the operation, was replacing corroded valves on an 8" pipeline within a larger casing for protection, when it blew out. Investigations as to what caused the blowout are continuing.
Although such failures in process piping and other aspects of fluid control are not necessarily becoming epidemic, a new sense of transparency, in light of the July 2010 Gulf of Mexico catastrophe, seems to be taking center stage. This is a major turnaround from the shroud of silence spread over previous product failures in similar situations, impacting a variety of various oil installations.
Such leading U.S. PVF manufacturers as Weldbend, Bonney Forge, Welding Outlets Inc. and Conbraco, a wholly-owned corporation of the Netherland’s Aalberts Industries, are actively advertising the rigid steps they are taking to protect the end user. Furthermore, the U.S. public must be protected against the monumental damages and physical disasters that malfunctioning components can cause to the multitude of process systems involved in the huge multitude of flow control projects.
It’s incumbent on distributors, specifiers, contractors, end users, original equipment manufacturers and others involved in this gigantic fluid powering sector to be sure that the origin of products with which they are involved meet the most stringent safety requirements. The quality of such products will become increasingly critical to the future development of the complex energy process piping with which these manufacturing companies are involved, now and in the future.
Industrial distribution — leading indicator of U.S. manufacturing strength
A recent Wall Street Journal article focused on Fastenal Company, a national chain of 2,500 local stores providing “out of stock” service on a wide range of industrial goods. These include everyday items that cover a wide spectrum of usage by plumbing-heating-cooling contractors, electricians, janitorial services, local industrial outlets, original equipment manufacturers and metal fabricators, etc.
This Stock Exchange-listed company is so pervasive, both geographically and in the broad-based industrial goods customers it serves, that the Wall Street Journal article considers Fastenal a weathervane of the progress of America’s reawakening “nuts and bolts” manufacturing sector throughout the U.S.
Since Fastenal is one of the biggest publicly-traded industrial distributors in North America, its quarterly-reported financial results provide an incisive insight into the heart of the nation’s ongoing commercial/industrial activity. If that can be considered a reliable gauge, Fastenal’s recent performance should provide encouragement to economic observers, like me, that the overall manufacturing sector continues to perform surprisingly well.
Fastenal’s shares have jumped 21% since January, in capitalizing on the upward surge that America’s basic industrial business has manifested since the end of last year.
Even more encouraging to Fastenal and its constituent stockholders is the 15% upward surge in the company’s stock price since early June. This has been largely due to surprising 25% May sales generation from a year earlier. Giving a more graphic scenario of everyday industrial maintenance and project activity, without catering to the turbulence of automotive and major industrial sector mass production volatility, the Fastenal performance is likely among the best barometers as to the continuing expansion of America’s independent distribution sector, which services America’s local and regional needs.
This type of distribution also brings the service level closer to the utilizing customer, thereby keeping the nation’s industrial wheels spinning without undue delays. A matter of great satisfaction to me is that several of the industry’s outstanding pipe-valve-fitting producers (my long-time sector of continuous involvement) are regular vendors to Fastenal’s broad-based national distribution system.
Long-term commitment key to future business success
Business in general, and industry in particular, has gone through monumental changes in the past half-century.
During that period, one can cite rapidly evolving technology, worldwide commercial integration, or even the shift of global economic power toward developing nations, but the most telling change has been the human factor. With the stupendous growth of multi-billion-dollar conglomerates, the disappearance of private businesses through liquidation, mergers and buyouts and the incredible shrinking of America’s manufacturing base, long-term commitment to a particular economic sector, whether consumer, industrial or service-oriented has become a veritable relic of the past.
This accelerated evolution has had an unintended consequence on the careers of high school and college graduates looking forward to a lifetime career in the vast American business arena, unless specifically focused on such professions as medicine, law, accountancy or engineering.
When I entered the plumbing-heating-cooling-piping industry 55 years ago, decades-long experience with a specific firm was not unusual. At that time, all the major manufacturing companies comprising that important sector, covering all types of construction, energy development, refining, and maintenance and industrial production numbered dozens of outstanding decision makers, who had eventually achieved iconic status.
Today, such a combination of lengthy tenure, strong involvement with industry organizations, as well as building their own companies into significant success stories, are very few and far between.
This is especially true of today’s leading manufacturers, most of whose key positions are occupied by managers of corporate divisions and subsidiaries. Although there are still a few multi-generational producers who have maintained their businesses’ stature, the dominant plumbing-heating-cooling-piping industry personalities emanate from the distribution segment. Since these are generally independent businesses, their experience spans a lifetime of getting to know all aspects of that multi-faceted major industry sector.
OPEC crowns Venezuela as leading world oil reserve retainer
While Saudi Arabia has long held the title of top retainer of potential oil production and export, this focal point of OPEC, which controls a questionable 264.5 billion barrels of ?crude as of December 2010, has fallen to second place behind Venezuela.
Even that Saudi amount is not assured, since there have been no independent audits since the Saudis nationalized all indigenous oil production decades ago. It’s also postulated that out of five massive oil fields that provide 90% of Riyadh’s production, three are reaching diminishing production, while no new finds have been reported.
The Organization of Petroleum Exporting Countries (OPEC), which controls 45% of the world’s annual shipments, has elevated Venezuela to the new leadership position, according to its annual statistical bulletin.
Although attributing almost 300 billion barrels of crude oil reserves to Caracas, Venezuela’s oil minister, Rafael Ramirez, states that these crude reserves include synthetic oil, similar to Canada’s tar sands, which are located in that nation’s Orinoco Belt, adjacent to Lake Maracaibo.
Iraq, which is finally gaining full production momentum for the first time since the beginning of the U.S. invasion in 2003, reports a solid 143 billion barrels, 24% higher than the amount reported in December 2009.
In addition to the ongoing geopolitical volatility throughout the Arab Middle East, and the Iranian threat overhang, extraction costs in previously cheap development areas are rising meteorically. With the exception of Libya, which has been reduced to a minuscule outflow of its easier-to-refine lighter crude, most of the oil emanating from the Mideast is the heavy, sour variety, which is much harder and more expensive to refine.
With the “light sweet” West Texas Intermediate crude hanging in around the $100-per-barrel mark, it’s doubtful that substantially lower prices will be available in the foreseeable future. The big demand drivers are China and India, where, literally, several hundred millions are joining the internal combustion engine world in an ongoing manner.
Currently, the U.S. is reducing demand to 18.5 million barrels a day — about three million barrels a day under the level reached just before the mid-September global financial collapse. In spite of this, the supply/demand equation is increasingly tilted to the disadvantage of the former, due to the major net gain in an ever-increasing world oil appetite.
Morris R. Beschloss, a 55-year veteran of the pipe, valve and fitting industry, is PVF and economic analyst emeritus for The Wholesaler.