Manufacturing at a Glance: Oil and gas field machinery manufacturing
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Oil and gas extraction supports sales growth among machinery manufacturers
The oil and gas extraction industry in Canada saw significant growth during the post-recession period of 2009 to 2013. This growth also generated economic activity for Canadian manufacturers of oil and gas machinery products. This Manufacturing at a Glance highlights the recent sales performance of this sector.
Real gross domestic product for the oil and gas extraction industry increased 15.0% from 2009 to 2013, compared with 11.2% for the economy as a whole. Over half of the gains in crude oil extraction reflect an increase in extraction from non-conventional sources, for example in-situ and surface mining bitumen extraction, in particular the Alberta oil sands.
In volume terms, the total amount of crude oil extracted increased 29.5% from 2009 to 2013, while the extraction of non-conventional crude oil rose 44.2% over the same period. At the same time, crude oil prices have been trending upwards after falling from their 2008 record high.
The expansion of the Alberta oil sands has buoyed the demand for machinery products used in oil and gas production, supporting sales growth among manufacturing industries that supply these products. Similarly, the recent expansion of oil production in Texas and North Dakota has led to higher Canadian exports of machinery products in recent years.
Investment spending in oil and gas bolsters demand for machinery
Capital expenditures include the costs of setting up infrastructure for oil and gas extraction projects as well as spending on machinery and equipment. Concurrent with the growth in real gross domestic product for oil and gas extraction, capital expenditures grew substantially following the recession. Following a 38.7% decrease in 2009, investment rebounded quickly from the economic downturn, up 57.0% in 2010, and nearly reaching its 2008 value. From 2010 to 2013, the amount invested in oil and gas extraction continued to increase, rising 43.8% to $69.4 billion.
Although investment in non-conventional and conventional oil and gas extraction have both exceeded pre-recession levels, growth for non-conventional extraction has outpaced conventional. As of 2013, non-conventional extraction represented roughly half of total oil and gas extraction, almost doubling in value from 2010 to 2013 to $32.7 billion.
Many manufacturers supply machinery and equipment used in both the conventional and non-conventional oil and gas extraction industry, including controlling devices, transportation equipment and other engine and power transmission equipment. Pumps and compressors used in bitumen recovery are also used in non-conventional extraction.
However, the bulk of demand for both non-conventional and conventional oil extraction stems from mining and oil and gas field machinery. The establishments in this industry produce a wide range of products, including derricks, drilling rigs and parts, as well as oil sands extraction machinery. Growth in non-conventional extraction has led to widespread gains among the numerous companies that supply oil sands projects.
Oil and gas field machinery manufacturing leads growth
Sales of mining and oil and gas field machinery increased almost every year from 2003 to 2013, more than doubling in value. While other manufacturing industries have struggled post-recession, sales for mining and oil and gas field machinery rose every year from 2010 to 2012. Sales for the industry fell 27.9% in 2009 to $3.3 billion, but rebounded quickly. Sales rose 29.6% in 2010 and 43.3% in 2011. The increase in 2011 represented one of the highest percentage increases for the manufacturing sector that year. Annual sales in 2011 were 33.9% above their pre-recession peak, while durable goods sales stayed below 2008 levels. Sales for the industry continued to increase in 2012, up 4.3% to a record high of $6.3 billion.
Sales of mining and oil and gas field machinery declined 14.3% in 2013, as the industry experienced a downturn. Sales continued to decrease in the first three quarters of 2014, declining 1.1% on a year-to-date basis. Similarly, unfilled orders have been trending downwards in 2014, after advancing every year from 2009 to 2013. They reached a peak of $1.1 billion in March 2013. Sales and unfilled orders for the industry can fluctuate and depend heavily on the implementation of oil and gas projects.
The manufacturing of mining and oil and gas field machinery is concentrated in Alberta, with Edmonton-based manufacturers accounting for over half of the sales in the province's industry in 2012. While mining and oil and gas field machinery manufacturers in Ontario and Quebec reported higher sales during the post-recession period, sales of oil and gas field machinery manufacturers in Alberta rose 75.6% from 2009 to 2013, accounting for the bulk of the national growth. In 2013, Alberta manufacturers accounted for over three-quarters of the industry's total sales. In contrast with the national trend, sales of mining and oil and gas field machinery in Alberta increased 4.7% on a year-to-date basis in the first three quarters of 2014.
Oil and gas projects in Texas and North Dakota increase demand for Canadian products
International demand has also bolstered sales for Canadian manufacturers of oil and gas field machinery. Although oil and gas projects in other countries (such as Russia and Australia) have contributed to higher demand for Canadian products in recent years, the United States continues to be Canada's most important trading partner in this sector. In particular, new oil and gas projects in Texas and North Dakota have contributed to increased demand for Canadian products.
A significant segment of exports for mining and oil and gas field machinery manufacturers are accounted for by boring or sinking machinery (self-propelled and not self-propelled), along with the associated parts for this equipment. Total domestic exports for these commodities fell 28.4% in 2009 and have yet to recover to pre-recession values.
However, exports were stronger in 2011 and 2012, reflecting higher sales for mining and oil and gas field machinery during those years. About two-thirds of the growth in 2011 reflected higher exports to the United States, mainly to Texas and, especially, North Dakota. Higher sales in North Dakota reflected increased crude oil extraction via horizontal drilling and hydraulic fracturing in the shale Bakken formation. But, 2013 saw total exports drop 33.6%, in line with the trend observed for mining and oil and gas field machinery.
The oil and gas field machinery industry remains very much project-driven and will fluctuate in the future depending on the implementation of new exploration and extraction operations in North America and abroad. This Manufacturing at a Glance highlights the dependence of the industry on extraction projects. This relationship will likely continue to shape the industry's development. The sales decrease observed in 2013 may indicate a turning point for the industry, particularly given recent declines in crude oil prices.
The article "Oil and gas field machinery manufacturing" will also appear soon in Analysis in Brief (Catalogue number11-621-M).
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