Pipeline Leadership Conference - Welcome · –Market Summary 3 Objective ... (WTI) Natural Gas...

Mark Bridgers

Continuum Capital

Denver, CO

November 15, 2016

Pipeline Leadership Conference 2017 Pipeline & Distribution System Economic Overview

Sponsors

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11/15/2016

Pipeline & Distribution System Economic Overview

www.ContinuumCapital.net

Objectives

– Introduce the audience to the likely economic and construction

landscape they will face over the 3 years.

Agenda

– Industry Perspectives

– Capital Construction Spending

– Market Summary

3

Objective & Agenda

Mark Bridgers

11/15/2016



Industry Perceptions (1 of 2)

4

Source: Proprietary Continuum analysis of pipeline contractor perceptions over 2012-2016.

Liquid/Gas pipeline perspectives on construction market activity becoming less positive since peak oil price in 2014

Gas Distribution perspectives also peaked in 2014 and have remained both higher and more positive about their construction markets

Liquid/Gas Pipeline Contractors

74.9

76.7

74.5

76.4

66.0

63.9

58.8

Q2, 2013

Q3, 2013

Q1, 2014

Q3, 2014

Q1, 2015

Q3, 2015

Q1, 2016

Pipeline Construction Index

> 50 Indicates Growth (Better)

< 50 Indicates Slowing (Worse)

Interpretation: A reduction from 76.4 to 66.0 down to 58.8 for Liquid/Gas Pipeline Contractors indicates that while perceptions of the market are still

positive, they are much less positive than they were prior to 2015.

Mark Bridgers

11/15/2016



72.2

72.6

74.4

76.7

72.9

74.2

63.4

Q2, 2013

Q3, 2013

Q1, 2014

Q3, 2014

Q1, 2015

Q3, 2015

Q1, 2016

Gas Distribution Contractors

Industry Perceptions (2 of 2)

5

Exhibit xWhat changes do you foresee in the number of fulltime direct employees in your organization for xxx? (excluding natural attrition,

retirements, etc.)

0%

10%

20%

30%

40%

50%

60%

70%

>-10% -10%-5% -5%-0% 0% +0%-5% +5%-10% >10%

% o

f A

ll R

esp

on

de

nts

Q3, 2012 Q2, 2013 Q3, 2013 Q1, 2014

Q3, 2014 Q1, 2015 Q3, 2015 Q1, 2016

Comparison of hiring growth from 3Q 2012 to 1Q 2016

3.09%

4.56%

2.45%2.81%

5.07%

4.32%3.93% 3.96%

0%

1%

2%

3%

4%

5%

6%

Q3, 2012 Q2, 2013 Q3, 2013 Q1, 2014 Q3, 2014 Q1, 2015 Q3, 2015 Q1, 2016

% A

vg

All

Res

po

nd

en

ts

Comparison of hiring growth from 3Q 2012 to 1Q 2016

Mark Bridgers

11/15/2016



UCWA Objective

Underground Construction

Workforce Alliance (UCWA)

Long-Term Objective: – Solve workforce and field leadership availability over a 10-year

time horizon covering 2015-2025.

Short-Term Objective: – Build a coalition made up of Industry Associations, Unions,

Material / Equipment Suppliers, Engineers, Contractors, and Utility / Pipeline firms that develop the strategy and tactics necessary to achieve the long-term objective.

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Original Leadership Team

UCWA Leadership Team

– Doug Banning – CEO - Miller Pipeline

– Robert G. Darden - Executive Vice President -

Distribution Contractors Association (DCA)

– Peter Fojtik - General Manager - Gas Distribution -

Michels Corporation

– Rob Mooney - Vice President – Engineering &

Construction - NiSource Inc. - NiSource Gas Distribution

– Kyle Slaughter - Director Operations Support - Atmos

Energy Corporation

– Dave Wisniewski - Senior Director, Underground

Installations - Vermeer Corporation

– Eben Wyman – President - Wyman Associates

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Leadership Team Invitations

Utility

– Piedmont – Jeremy Koster & Antwan Jones

– AGL/Nicor – Pat Whiteside

– WEG/Peoples – Dave Lazzaro

– National Grid – John Kavanaugh

– Spire/Alagasco – Ken Blackmon

Contractor

– NPL – Steve Dockendorf

– Precision Pipeline Solutions – Eric Gerstel

– Quanta – Loren Brace, Kevin Parker, Vivek Arora

– Primoris – Jaeson Osborn, Jay Osborn

Contractor (Continued)

– Austin Meehan – ULS

– Stuart Buhrendorf – Hallen

Equipment

– Digital Control – Brian Mattson

– Hammerhead – Paul rogers

– DitchWitch – Blaine Easter, Gary Larson

Union

– None to date

Associations

– None to date

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Ohio Pilot

9

Pilot Local Implementation Team: – Central Ohio

– Confirmed shortage of workforce and continued growth in spending over 10 year horizon

– Touches 4 large LDCs

– Touches the edge of the Ohio shale fields

– Touches 5 large contractors and as many as 10 medium to small contractors

Mark Bridgers

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$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

$0

$20

$40

$60

$80

$100

$120

$140

$160

Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Nat

ura

l Gas

($/

Mcf

)

Cru

de

Oil

($/B

bl)

Crude Oil (WTI) Natural Gas (Henry Hub) Natural Gas (Europe) Natural Gas (Asia)

First & Second price decoupling: Gas Up,

Crude Down

Third price decoupling: Crude Up, Gas Down

Conclusion – Slow global and US economic growth is constraining oil prices and constraining liquid pipeline construction

– Low natural gas prices are slowly increase demand for heating fuel, fuel switching, coal to gas conversion, etc. and will result in more pipeline spending over the long-term

10

Commodity Price Drivers

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11/15/2016



Initial & Subsequent DIMP Market Focus

LDCs struggling to manage DIMP – Currently there are nearly forty LDCs with greater than 50,000 services and

nearly eighty with greater than 20,000 services. Many of these LDCs are large enough to support a serious analysis of leak locations and trends as part of their DIMP program and in support of their pipe replacement program authorized through periodic rate case proceedings.

LDCs struggling to manage Transmission IMP 2.0 – Currently there are over twenty LDCs with greater than 1,000 miles and nearly

eighty-five with greater than 100 miles of gas transmission piping. PHMSA is currently developing an update to the gas transmission IMP regulation (called IMP 2.0) that is expected to triple the pipe mileage requiring assessment. Economic considerations are expected to weigh in favor of making lines piggable that were previously assessed by direct assessment.

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Political

12

From a primary tornado to a general election hurricane!

2016 Forecast: Trump driven Republican convention turmoil splits

electorate, hands White House to Hillary Clinton. Mark Bridgers

11/15/2016



Construction Spending Forecast

Conclusions

– North American spending grew 5x between 2004-2014 and will continue to

exhibit health growth for 15+ years

– Variability in spending is primarily driven by pipeline spending activity

13

10,390 12,502

18,847

27,254

38,402 40,767

36,576 36,507

43,746 47,740

52,625

45,902 44,992

48,413

56,445

65,521

29.3%

20.3%

50.8%

44.6%40.9%

6.2%

-10.3%

-0.2%

19.8%

9.1% 10.2%

-12.8%

-2.0%

7.6%

16.6% 16.1%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Canada T&D Gas/Liquid

U.S. T&D Gas/Liquid

% Change

Source: Building permits, construction put in place, and trade sources. Continuum prepared forecasts for 2015-2019.

Mark Bridgers

11/15/2016



Canada Construction Spending Forecast

Findings & Observations – Canadian spending is much more volatile due to its higher percentage of pipeline spending.

– 2014/2015 drop tied to commodity price

– Approximately $1.5 to $2.0 billion in underlying distribution spending in Canada that is relatively consistent year to year

14

1,2

15

1,4

17 2

,582

2,6

42

6,0

13

5,6

46

3,3

17

3,7

66

6,0

09 6,9

81

8,4

88

7,4

86

4,7

41

4,6

39

5,0

41

6,7

42

10%17%

82%

2%

128%

-6%

-41%

14%

60%

16%22%

-12%

-37%

-2%

9%

34%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

-

2,000

4,000

6,000

8,000

10,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Canada T&D Gas/Liquid

Spending Change

Source: Statistics Canada. Continuum prepared forecasts for 2015-2019

Mark Bridgers

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14,0

00

11,0

00

12,0

00

13,5

00

15,5

00

9,0

00

9,0

00

9,1

00

11,0

00 1

4,0

00

-22.2% -21.4%

9.1%

12.5%

14.8%

-41.9%

0.0%1.1%

20.9%

27.3%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Gas/Liquid Transmission

% Change


US Transmission & Gathering

Construction Spend

US Transmission & Gathering dropped dramatically during 2015/2016 – Typical pipeline contractors saw revenue reductions of 40-60% from 2013/2014

peaks.

– Early recovery occurring in 2018, late recovery possibly pushed out to 2019/2020 depending on market conditions, environmental concerns, and regulatory activity

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Transmission Spread Estimates

2015 Spread Estimates

2016 = 119 Spreads

2017 = 100 Spreads

2018 = 85 Spreads

2016 Spread Estimates

2016 = 85 Spreads (-29%)

2017 = 123 Spreads (+23%)

2018 = 83 Spreads (-2%)

2019 = 46 Spreads

16

Source: INGAA Foundation Fall Meting, November 4, 2016.

Mark Bridgers

11/15/2016



US Distribution

Segregation of Distribution

– New – Highly depressed since 2006/2007 peak in new home construction; is now coming back and

expected to accelerate post 2017

– Replacement – Rapid run up since 2008 with continued acceleration in cast iron, bare steel, old

plastic replacement and significant system integrity/strengthening in the works

17

19,259 21,741

25,738 27,259 28,637 29,416

31,251

34,675

40,404

44,779

12.5%12.9%

18.4%

5.9%

5.1%

2.7%

6.2%

11.0%

16.5%

10.8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

New

Replacement

% Change


Mark Bridgers

11/15/2016



Distribution Market Summary

Strong Market Fundamentals Attracting Competition – Continued acceleration in distribution replacement activity

– Slow and unbalanced increase in new housing starts driving service and main construction activity

– Aging infrastructure and safety concerns of gas distribution system are a driver of activity

– Shale oil and gas availability and low commodity prices are a driver if increased natural gas demand and PUC’s are able to grant riders and rate increases that are invisible to rate payers

– Power generation regulation disadvantaging coal and is a driver of high pressure distribution and short segment transmission lateral activity

– Qualified labor and experienced supervision availability will serve as a constraint to spending growth over the next 5-10 years • Build competitive advantage in control of scarce labor and supervisory resources

– Competition will increase from well run, non-traditional pipeline contractors who are seeking to grow into the pipeline market and major existing national competitors who are trying to aggressively grow.

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19

Transmission Market Summary

Strong Long-Term Market Fundamentals Facing Short-Term Headwinds – Very strong long-term outlook for accelerated expenditures for gas/liquid

transmission work driven by regulatory and economic conditions

– Transmission and gathering sectors will continue to face near-term headwinds on new construction until commodity prices rise or demand for natural gas exceeds supply or system capacity

– Gas pipeline sectors will continue slow growth as demand for gas and capacity resolutions continue to accelerate

– Pump and compressor station sectors will remain slightly counter cyclical and show some growth while pipeline expenditures are down.

– Integrity and maintenance sectors will continue to slowly grow as pipeline systems expand, system continue to age, and regulatory demands more construction and construction like activity increase.

Mark Bridgers

11/15/2016



Thank You

MARK BRIDGERS

shipping: mailing:

405 Forsyth Street PO Box 31026

Raleigh, NC 27609 Raleigh, NC 27622


919.345.0403

[email protected]

Twitter: @MarkBridgers

Skype: mark.bridgers.continuum

LinkedIn: www.linkedin.com/pub/mark-bridgers/12/9b4/81

Mark founded and leads a Utility Vertical Market team team at Continuum Capital. He

works with gas/electric utilities, power generators, pipeline companies, and energy

companies. As a recognized expert in capital construction and operational challenges,

Mark was recently honored with membership in the Society of Gas Operators (SOGO).

Mark helps firms prepare for and successfully navigate “strategic transitions.” His passion

is helping organizations achieve breakthrough innovations through collaborative or

integrated relationships. He is the architect of an approach for integrated service provider

management referred to as the “Extended Enterprise” among construction industry

participants.

Mark Bridgers

Mark is an avid educator, trainer, and writer with more than 20 years of industry expertise including financial

performance analysis; development and implementation of tools to reduce construction cost, life-cycle cost, and

operational friction; restructuring of processes and procedures - often times using LEAN Construction

techniques; and leader development.. He is a recognized expert in capital construction and operational

challenges . Mark is also author of over 150 articles and research papers published internationally in industry

journals, including ENR, PE – The Magazine for Professional Engineers, Pipeline & Gas Journal, Utility

Contractor (NUCA), Underground Contractor, Electric Energy (RMEL) and Electric Perspectives (EEI).

Mark holds a master’s degree in business administration from the University of Virginia’s Darden school of

Business and a bachelor’s degree in financial management from Clemson University. In addition, he earned the

designation of Chartered Property and Casualty Underwriter (CPCU) and Associate in Reinsurance (ARe).

Pipeline Leadership Conference - Welcome · –Market Summary 3 Objective ... (WTI) Natural Gas...

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