Underground Construction - January 2019 - 4

EDITOR'S LOG
Robert Carpenter | Editor-in-Chief

Market Sense in an Irrational World

This is the time of the year when we
start looking at the future for key
underground infrastructure markets.
Some call it predictions; I call it guesswork.
Now more than ever, there is no
certainty, no clear path for our markets. Clearly, we have become a global
economy in so many ways. Worldwide impacts range from economic to technological to academic, but
nonetheless the impacts are real and
significant.
Perhaps the most obviously connected worldwide underground
infrastructure segment is oil and gas
pipelines. Shale production has forever changed the U.S. industry and subsequently shaken up the world energy
dynamic. The U.S. officially became
an oil exporter in December and has
been a gas exporter (LNG) for several
years, and continues to dramatically
expand in that area.
All that sounds great until you balance world supply and demand. Oil
storage remains at record highs - the
world is awash in oil. A slowing and
uncertain world economy potentially
could bolster oil stores. Oil prices had
tumbled into the 40s at press time.
Yet Big U.S. Oil (those companies
with capital to invest versus operating on borrowed money) continues to
invest in shale plays. With the radically decreased cost of production for
shale, majors can increase their shale
output and still make a healthy profit.
This is where pipeline construction comes into play. After coming off
one of its better years, the pipeline
construction market should again be
strong in 2019. Shale play ventures
tend to be in remote or undeveloped
areas, thus an entire pipeline infrastructure must be created and/or
expanded.
While sewer and water markets
tend to be more regionalized and, impacted by local conditions, issues are
common across the planet. In fact,

JANUARY 2019 | UConOnline.com

what the U.S. has been experiencing in terms of its aging and failing
sewer/water/stormwater infrastructure, occurred in Europe decades ago.
Much of the U.S. rehabilitation technologies originated in Europe.
Funding is the critical missing
element in the mix for adequate rehabilitation and construction of North
America's infrastructure. Our forecasting partner, FMI, expects sewer/
water expenditure to rise about 4 percent in 2019 through 2022 (see page
14). I would expect the biggest jump
in spending to continue to be in rehabilitation. Growth in all areas could
be even higher if an infrastructure
spending plan finally clears Congress
- a goal of both parties.
For those cities that have for
decades played the reliability-versus-risk game, it is coming time to
pay the piper. The costs of maintaining a system while keeping user fees
below cost levels worked for many
years, but not anymore. It's not just
the EPA those cities have to worry
about. Rather, their citizenry has become increasingly aware of unhealthy
sewer/water issues, and local candidates are learning how to do a twostep around this sensitive issue.
The Water Infrastructure Act of
2018 provides some much-needed
federal support in the near term to
cities,and the Drinking Water State
Revolving Fund comes in at $4.4 billion for the next fiscal year. However,
it's still a drop in the bucket.
Telecommunications construction
had another very strong year and
work is predicted to grow another
5 percent in 2019. The explosion of
5G wireless communication onto the
market is forcing carriers to beef up
their fiber capabilities even more to
accommodate the booming demand.
When we talk telecom, everyone
generally thinks new construction.
But time flies when you are building
fiber systems, especially long-haul fi-

ber. Those earlier projects are nearing
the end of their useful life. With 5G
and increased demand for bandwidth
in general, maintenance and development of this existing infrastructure
will have to be performed.
The electric power distribution
market benefitted in 2018 with an
unexpected increase in spending. That
is expected to continue in 2019. A key
trend that continues to resonate with
power companies is moving overhead
to underground. Much of this increased work is also credited to aging
systems approaching 70 years since
installation. Lower annualized maintenance costs combined with longer
life cycles are balancing out the higher
initial cost of construction.
Gas distribution contractors have
been on a multi-year upcycle that
shows no sign of slowing anytime
soon. Replacement of cast iron and
bare steel continues at aggressive
rates. Some estimates project that
$300 billion worth of work remains
before replacement is complete. Plus,
new construction pressures just keep
growing.
However, through all the exciting
opportunities, one major stumbling
block refuses to go away. The lack
of an adequate workforce persists
despite extreme measures taken by
industry. We're desperate for skilled
labor, general labor, any labor.
The critical lack of workforce has
become a significant inhibitor to
growth for essentially all elements in
infrastructure. The dearth of workforce has many layers of complexity
and root causes, much of which has
been discussed ad nauseam. Solutions
are trying to emerge, but for now the
workforce problem persists.
Hang on to your hardhats; it's going to be a wild year.

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Underground Construction - January 2019

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