Industry Analysis

Part
01
of four
Part
01

Oil & Gas Industry Overview

The United States and Canada are leaders in the oil and gas industry in North America, with $181 billion and $101 billion in revenue in 2018, respectively. While this market is faced with various economic, infrastructural, and political challenges, it is poised for modest growth.

State of the Industry

  • Producing 17.94 million barrels per day of oil and 864 billion cubic meters of natural gas, the market size, in terms of revenue, of the US oil and gas industry was about $181 billion in 2018, "a substantial increase since the lowest point of the decade in 2016." The country is the world's largest oil and natural gas producing and consuming nation.
  • Producing 5.38 million barrels per day of oil and 128 billion cubic meters of natural gas, the market size, in terms of revenue of the Canadian oil and gas industry was an average of $101 billion between 2016 and 2018. It is the 5th and 6th largest global producers of oil and natural, respectively. "Canada’s production is expected to grow modestly in 2019 and 2020 because of export capacity constraints and mandatory production curtailments set by the government of Alberta."
  • "In the US, crude oil production will average 13.3 million barrels per day (b/d) in 2020, a 9% increase from 2019 production levels, and 13.7 million b/d in 2021, a 3% increase from 2020. Slowing crude oil production growth results from a decline in drilling rigs during the past year and it's projected to continue through most of 2020 and 2021." In Canada, the total annual production of crude oil is expected to rise by about 3% until 2021, then slow to an average growth rate of 1% per annum.
  • The industry is popular segmented into upstream — explores and produces crude oil and natural gas, midstream — processes, stores, markets, and transports crude oil and natural gas, downstream — include oil refineries, natural gas distributors, and retail outlets.
  • The capital investment provides insights into the attractiveness of the oil and gas, as "they are relatively long-lived and often relatively illiquid commitments." From 2016 to 2018, the capital expenditure (capex) of the US and Canada both grew by 21%, to CAD$239.3 billion and CAD 50.7 billion, respectively.
  • Capex in Canada dropped by 57%, from $81 billion in 2014 to $35 billion in 2019. In the US, shale producers are expected to reduce their capex for the second straight year in 2020, as prolific oil and natural gas output impacts prices and profit, leading to a significant dip in production growth — from 1.3 million bpd from between 2018 and 2019 to 1 million bpd in 2020.
  • While much of these growths were accounted for by the capex of both upstream sectors, the investment environment in the upstream sector of Canada, "the lack of pipeline capacity for exported oil and gas" and low oil prices present a future barrier to growth.
  • Another performance metric is the number of drilling rigs, as "significant changes in rig counts should be a meaningful indicator of changes in the expected profitability of upstream oil and gas activity across geographical locations." The rig count in the US rose from 876 in 2017 to 1,032 in 2018 while it declined from 206 in 2017 to 191 in 2018 in Canada. Furthermore, experts expected this decline to continue by 58 units from January 2019, as rigs shift to the US — reducing competition.
  • The US and Canadian liquefied natural gas (LNG) exports contributed about 60% of demand growth and will reach about 20 billion cubic feet per day by 2030." However, "nearly all of Canada's crude oil and natural exports are destined for the United States because Canada lacks sufficient export capacity to send its liquids elsewhere."

Key Players

  • Some key players in this region based on their current and future capex projects in the region include AGDC, TC Energy, Venture Global Partners, Canada Stewart Energy, Sempre Energy, Tellurian Investments, NextDecade, Shell, Pacific Future Energy, and Pemex. AGDC tops the list with $37.9 billion expected to be spent on four oil and gas projects within the region from 2019 to 2025.

New Regulations

  • Following the new U.S.-Mexico-Canada Agreement (USMCA) Trade Agreement, the American Petroleum Institute (API) backs the deal as it will maintain a tariff-free flow of natural gas, oil and refined products; strengthen the US energy leadership and economy; and ensure the continued access of American households to affordable energy.
  • The new agreement further ensures "more flexible rules of origin requirements for oil and gas moving between the three countries and a streamlined regulatory process for U.S. liquefied natural gas (LNG) exports to Mexico and Canada."
  • The International Maritime Organization's (IMO) new 2020 regulations that demand the reduction of sulfur emissions impact the oil product markets as they face massive changes and significant reductions in global shipping.
  • President Donald Trump's move to roll back methane-emissions rules have split the opinions of the oil and gas producers in the US, between those in support and those against.
  • In Canada, "the Canadian Energy Regulator (CER) Act requires the CER to consider new factors in its project reviews, including gender-based analysis, potential impacts on the rights of indigenous people, climate change and environmental obligations. It is also expected to develop an early engagement program and foster greater indigenous participation and more inclusive public participation."

Industry News

  • When compared with average from the last 12 months, "North America’s oil and gas industry saw a drop of 46.7% in deal activity during June 2019." With M&A deals worth $6.25 billion, the popular deals include Comstock Resources’ $2.2 billion acquisition of Covey Park Energy and the $966 million merger of NRC Group and US Ecology.
  • Three international oil and gas associations — the International Association of Oil and Gas Producers (IOGP), the American Petroleum Institute (API), and the Asociación Mexicana de Empresas de Hidrocarburos (AMEXHI) — united to form a partnership through an agreement (MOU) that'll strengthen working inter-relationships, facilitate operational performance, and promote the North American oil and gas industry.
  • "The US is expected to sell about 12 million (blue) barrels of oil from its emergency government stockpile just as global crude demand takes a hit from the spreading coronavirus."
  • The outbreak of coronavirus in Asia has affected the Canadian oil industry’s efforts to build trade relations with Asian crude buyers.
  • The virus outbreak also affects the US oil and gas industry, as "the daily Chinese oil demand is already down 20% because of dwindling air travel, road transportation and manufacturing since China consumes 13 of every 100 barrels of oil the world produces" with the US having about 17% share of this market.
Part
02
of four
Part
02

Chemicals Industry Overview

The US is home to many global companies, such as DuPont, in the regional (North America) and the global chemicals industry. Worth $553 billion, it is expected to grow by 2.3% in 2021. Its Canadian counterpart, while lagging in terms of the market size (CA$58 billion), is expected to see a modest growth due to the rise of investments in the area, increase in exports, among other reasons. Some key players in this market include DuPont, Dow, PPG Industries, Agrium Inc., Potash Corp. of Saskatchewan, Nova Chemicals, etc.

State of the Industry

  • "The United States is the largest national producer of chemical products globally," while in Canada, the industry is the 4th largest manufacturing sector. Globally, the United States stands as a competitive domain for chemical companies for reasons such as access to low-cost natural gas, state-of-the-art research facilities, strong product identification and quality, and a robust regulatory framework.
  • The size of the US chemical market is $553 billion and it provides 542,000 jobs in the region, while the Canadian market is worth CA$58 billion in exports and it employs approximately 87,900 workers. "Its chemical industry focuses mainly on crude petroleum and natural gas processing, as well as the refining of coal and ores."
  • The annual projection growth of this market in the US is 2.3% year-over-year in 2021, while "a modest growth is expected in Canada due to potential new investments in the province, some increase in exports encouraged by new trade deals, growth in sales for some sub-sectors, and improvement in industries using chemical inputs."
  • The chemical industry is segmented into basic chemicals, specialty chemicals, agricultural chemicals, pharmaceuticals, and consumer products.
  • In the US, the output value of chemicals was over $765.4 billion while the value added by this industry was about $354 billion in 2017. The output value is expected to rise by 3.6% in 2019, compared to 3.1% in 2018 — partly because of the increase in production capacity and the increase in demand in key end-use markets. "Significant additions to capacity will result in above-trend growth in basic chemicals through 2023, in addition to solid output growth in other segments."
  • From the US, the total revenue by export shipment into Canada was about $22 billion in 2017. In 2018, it was $46 billion to Canada and Mexico. Conversely, "nearly a quarter of all U.S. chemical imports are from Canada and Mexico," while Canada traded $65.1 billion in chemical products with the U.S. and Mexico.
  • There is an opportunity for chemical companies in this region as the race towards the adoption of sustainable practice gathers pace. "There is an existing $120 billion market opportunity in the United States and Canada alone for plastics and petrochemicals that could be developed by recovering waste plastics."

Key Players

  • "Chemical companies from the United States are among the industry’s leading global players." Having a revenue of $85.97 billion, DuPont is one of the largest chemical companies in the US and worldwide.
  • Other leading U.S. chemical companies are Dow, LyondellBasell, PPG Industries, Ecolab, Eastman Chemical, Mosaic, Huntsman Corporation, Air Products and Chemicals, and Praxair.
  • The top Canadian players in the chemical industry are Agrium Inc., Potash Corp. of Saskatchewan, Nova Chemicals, Dow Chemical Canada, Methanex Corp., BASF Canada, DuPont Canada, Chemtrade Logistics Income Fund, PPG Canada, and Canexus.

New Regulations

  • "Chemical companies could face more trade barriers and tariffs if the US and China fail to reach some kind of agreement that addresses their trade grievances." Also, there is this likelihood that China will reduce its reliance on US chemicals and plastics — impacting on the demand for these products, as China remains the largest market for chemicals, without enough domestic production capacities.
  • These uncertainties will likely result in the unpredictability of demand, and in turn, a negative impact on the general growth outlook. Already, "the retaliatory tariffs imposed by China on US chemicals and plastics caused a 24% decrease in US chemical exports in 2018 compared to 2017."
  • According to the American Chemistry Council (ACC), the new North America Trade Agreement (USMCA) is expected to grow the chemical industry in the region, minimize barriers to North American chemicals trade, eliminate tariffs and other barriers, lead to new jobs, change the conditions of doing business across borders in North America, and encourage regional investment and economic integration.
  • Environmental regulations on the reduction of carbon emissions in Canada could affect energy-intensive sectors and emission-intensive and trade-exposed (EITE) industries such as the chemical industry. Furthermore, "potential actions by the US administration to curtail the Clean Power Plan, could further reduce the prospects of advancing competition and pressure from sectors that don't have similar plans."

Industry News

  • Pembina Pipeline and Kuwait’s Petrochemical Industries Company (PIC) have reached an agreement to build a $3.41 billion integrated 550,000 tonnes per annum petroleum facility in Alberta, Canada.
  • Chevron Phillips Chemical, a US-based petrochemical joint venture (JV), is said to have placed an offer worth over $15 billion, including debt, to acquire Nova Chemicals, a Canadian plastics manufacturer.
  • "A Canadian court ordered Nova Chemicals to pay Dow CA$1.43 billion ($1.08 billion) as a settlement in an ethylene feedstock dispute between the two petrochemical companies."
Part
03
of four
Part
03

Manufacturing Supply Chain Industry Overview

The North American manufacturing supply chain industry is experiencing growth in production, specifically, in export orders. However, the industry is also having a contraction in supplier deliveries due to delays caused by Chinese holidays and the coronavirus threat. According to recent news, the industry's growth could be hampered by the growing skills gap in manufacturing, but executives have a positive long-term outlook.

State of the Industry

    United States

    • The Institute for Supply Management (ISM) reported that the economic activity in the US manufacturing sector is growing alongside the overall economy.
    • According to the latest ISM Manufacturing PMI (Purchasing Manager's Index), production is growing. Last February, there were 6.3% more respondents in the sector reporting higher production than respondents reporting lower production, compared to December last year's -18.6%.
    • However, despite the growth in production, fewer new orders are coming in. Specifically, orders for transportation equipment, and petroleum and coal products continue to decline. The New Orders Index decreased by 2.2% in February from the previous month.
    • Employment in the manufacturing sector is also contracting. Only three manufacturing industries reported employment growth, which are (1) food, beverage and tobacco products, (2) plastic and rubber products, and (3) computer and electronic products. Half of the 18 manufacturing industries reported a decline in employment, while the remaining six reported no change.
    • Suppliers are struggling to deliver, according to Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee. Of the 18 manufacturing industries, 13 reported slower supplier deliveries and 4 reported no change. The primary metals manufacturing industry alone reported faster supplier deliveries.
    • With 14.6% more respondents having slower supplier deliveries than respondents having faster supplier deliveries, backlogs of orders are growing. Backlog of Orders Index was up by 4.6% in February, compared to the previous month.
    • According to Fiore, raw materials inventories in the manufacturing sector continue to contract in the last 9 months at a faster rate.
    • Similarly, customers’ inventories of 11 manufacturing industries are reported to be "too low."
    • Although the New Export Orders Index in February was 2.1% lower than January, exports continue to grow, compared to last year's negative figure. Eight of the 18 manufacturing industries reporting an increase in new export orders. The wood products manufacturing industry reported the highest growth, followed by paper products.
    • On the other hand, imports are declining, with respondents attributing the contraction to the Lunar New Year and the 2019 coronavirus. ISM's Imports Index dropped by 8.7% in February from last month.
    • Prices of raw materials are also contracting, dropping 7.4% in ISM's Prices Index in February. Fiore said the contraction is "driven primarily by steel, scrap steel, aluminum, natural gas, corrugate, copper and all basic manufacturing fundamentals."

    Canada

    • In Canada's manufacturing sector, production is also growing, according to IHS Markit Canada Manufacturing PMI. The sector's PMI rose to 51.8 in February, compared to 50.6 in January.
    • Export orders are increasing due to higher demands from US customers, and employment levels grow.
    • However, supplier deliveries are also lagging in Canada's manufacturing sector, attributed to delays in China and rail transport blockades.

Key Players

New Regulations

  • In the US, manufacturers are presented with new economic opportunity through the Tax Cuts and Jobs Act (TCJA), which was passed in December 2017. With the act, US multinationals’ foreign profits can be categorized as Global Intangible Low-Taxed Income (GILTI), which has an effective tax rate of 13.125%. The new rate makes the US competitive with low-tax jurisdictions, like Luxemburg and Ireland.
  • The new regulation would discourage manufacturers from moving their intangible assets (intellectual property) and profits out of the United States.
  • The United States-Mexico-Canada Agreement (USMCA) is the replacement for the North American Free Trade Agreement (NAFTA), expected to affect the automotive manufacturing industry.
  • To qualify for zero tariffs, the original NAFTA requires car manufacturers to have 62.5% of its car parts made in North America. In USMCA, the figure is raised to 75%.
  • The USMCA also includes labor provisions for workers in automotive manufacturing and exemptions from future tariffs on automotive products.
  • The new regulation is likely to increase production costs for the automotive manufacturing industry.

Industry News

  • Recent news in the manufacturing sector on the Council of Supply Chain Management Professionals (CSMP) website include the shortage of skilled workers in the US and the concerns of manufacturers regarding a likely recession this year.
  • The article, which cited a Deloitte study, reports that the growth of the manufacturing sector could be stalled by the increasing manufacturing skills gap over the next decade.
  • Meanwhile, manufacturing executives believe that the ongoing trade wars and geopolitical instability could lead to a global recession this year. The article, which cited a LevaData survey, also reports a positive long-term outlook among manufacturers.
Part
04
of four
Part
04

Mining Industry Overview

The North American mining industry has a total value of mineral production worth $158.2 billion in 2018. While the increase in the price of commodities is expected to drive growth, some experts project the industry to remain generally flat in 2020 due to various macroeconomic and political factors within the region. Some key players include Freeport-McMoRan Inc., Barrick Gold Corporation, Newmont Mining Corporation, among others.

State of the Industry

  • "Canada is the world‘s largest producer of potash and is one of the world‘s top 5 countries for aluminum, diamonds, gold, cobalt, nickel, platinum group metals and uranium. The US is rich in oil and coal deposits and is a world leader in the mining of lead, molybdenum, gold, copper, palladium, zinc, and platinum."
  • The combined markets of the US, Canada, and Mexico produced minerals with a total value of $154.8 billion in 2016, with the US and Canada contributing $98.40 billion and $30.99 billion, respectively — which aggregates to $129.39 billion in 2016.
  • However, in 2018, the value of mining or mineral production in Canada increased to $47 billion, rising more than $3 billion or 4.3% from the 2017 level while in the US, the value rose to $111.2 billion in 2018 ($27.7 billion for metals, $56.3 billion for industry minerals, and $27.2 billion for coal) and an estimated $111.4 billion in 2019 ($28.1 billion for metals, $58.200 for industry minerals, and $25.1 billion for coal). These bring the total value of mineral production in the North American mining industry to $158.2 billion in 2018 (i.e. $47 billion + $112.2 billion = $158.2 billion).
  • The global rise in commodity prices is expected to spur the growth of the North America mining industry despite some challenges including the increasing environmental concerns over water use and the contamination of water sources due to mining operations. However, the market is expected to remain generally flat in 2020.
  • Furthermore, "experts believe that the biggest area of concern is the lack of new discoveries in North America to replace existing mines that are being mined out, as well as the amount of time required for a prospective mine to secure a permit."
  • In the Canadian mining sector, the bullish trend of commodity prices is expected to drive mergers and acquisitions but "thermal coal prices are expected to fall on the back of reduced demand." Also, while the macroeconomic environment and the political stability of this market encourages growth, the infrastructural shortcomings of North Canada could pose a challenge.
  • In the US mining sector, strong macroeconomic factors, vast reserves, and deregulation under President Donald Trump are some growth drivers of the industry in the next few years. However, decreasing coal demand, rising environmental concerns, and political instability/uncertainty are possible development barriers that could lead to a dip in profit margins for US coal mines.
  • Some trends in this industry include the use of data-driven analytics to optimize the efficiency of systems; the adoption of blockchain and cloud solutions; the adoption of digital solutions such as robotic process automation, autonomous equipment, and artificial intelligence; and the shift from traditional commodities, such as coal, to later-stage commodities, such as lithium and graphite.

Key Players

  • The leading North American players include Freeport-McMoRan Inc., and Barrick Gold Corporation, which are ranked in the top 40 global mining industry leaders.
  • There are about 1,200 companies in the Canadian mining industry with over 400,000 direct employees. "65 of these companies are in the metal-mining sector, while 1,136 are in non-metals."
  • The largest Canadian mining companies are Barrick Gold Corporation, Nutrien Ltd., Agnico Eagle Mines Ltd., Teck Resources Ltd., and Kirkland Lake Gold Ltd.
  • In the US, the top players are Newmont Mining Corporation, Peabody Energy Corporation, Arch Coal Inc., Contura Energy Inc., and US Silica Holdings Inc. The companies in this region contribute to about 1.3 million employments.

New Regulations

  • Following the findings of the U.S. Department of Commerce on the threat to national security in 2018, it placed additional import duties for aluminum articles and steel articles.
  • "The U.S. mining industry exports more than $40 billion in metals, minerals, coal, and related products to Canada and Mexico each year." Hence, the US mining industry has backed the new United States-Mexico-Canada Trade Agreement (USMCA). The new deal will strengthen the trade relationships within the three countries and ensure a secure and reliable supply chain within the North American mining industry.
  • Furthermore, following this agreement, the ad valorem duties for aluminum and steel imports were removed for Canada and Mexico. As of December 2019, aluminum imports and steel imports from all countries, excluding Canada, Mexico, and others, remained subject to 10% and 25% ad valorem tariff, respectively.
  • The uncertainty and dynamics of the US-China trade wars have seen the US industry undergo various changes in tariffs. However, at the end of 2019, "the US had a 25% tariff on approximately $250 billion of imports from China, including nonfuel mineral commodities, while China had additional tariffs ranging from 5% to 30% on approximately $110 billion of imports from the United States."

Industry News

  • The American Newmont Mining Corporation acquired the Canadian rival, Goldcorp, in a deal worth $10 billion. This acquisition will make the North American company the largest gold producer in the world, as the new company — Newmont Goldcorp — acquired a market value of $28 billion in 2019.
  • In 2018, Barrick Gold moved to acquire Randgold Resources in a merger worth $6 billion and in January 2019. The new company went public on the NYSE and TMX exchanges with a market capitalization of $22 billion.
  • "One of the world's largest mining companies, Rio Tinto and BHP Billiton, has obtained permission from the U.S. Forest Service to move ahead with the Resolution prospect near Apache Leap in Arizona. This would become the largest copper mine in North America once the mine is operational in the 2020s."
  • "The Mining Association of Canada (MAC) declared support for the government’s commitment to write-off the full cost of clean energy equipment, as the government moves to extend the business tax deduction for zero-emission vehicles and equipment to cover mining operations."
  • "The Trump administration is asking Congress for $1.5 billion over 10 years to create a new national stockpile of U.S.-mined uranium, saying that propping up U.S. uranium production in the face of cheaper imports is a matter of vital energy security."
Sources
Sources

From Part 01
From Part 02