April 2026 Vol. 81 No. 4
Features
Energy price surge drives cost pressures for utility, pipeline contractors
Daniel Shumate, Managing Director, FMI Capital Advisors Inc.
The conflict that erupted in late February 2026 between the United States, Israel and Iran has sent shockwaves through global energy markets that underground utility and gas contractors are now feeling on every job site.
The head of the International Energy Agency, Dr. Faith Birol, characterized the situation as the "greatest global energy security challenge in history," and the numbers bear that out. Brent crude was trading above $100 per barrel as of mid-April – roughly $35 higher than a year ago, driven by the near-shutdown of tanker traffic through the Strait of Hormuz; prior to the conflict, it had carried approximately 20 percent of global oil supplies. For contractors running fleets of equipment, this translates directly into operating cost increases that were largely unforeseeable when bids were submitted months ago.
The diesel price surge has been particularly punishing. The producer price index for diesel fuel soared nearly 38 percent from February to mid-March alone – a one-month increase that rivals only the spike seen during the Gulf War in 1990. Since prices were collected for that index, the average retail cost of diesel climbed an additional 71 cents per gallon, or 14 percent, according to AAA.
Contractors are being hit from multiple angles simultaneously – higher fuel costs for their own equipment, and rapidly escalating fuel surcharges on the thousands of material and equipment deliveries arriving at job sites. HDPE pipe, conduit, fittings and aggregate all move by truck, and every delivery now carries a premium. The producer price indexes for aluminum mill shapes and steel mill products have also surged dramatically year-over-year, compounding the pressure on projects requiring ductile iron, steel casing, or copper components.
The financial bind for underground contractors is especially acute because of how the industry prices work. Contractors can seldom pass along cost increases after committing to a project, meaning these sudden and extreme jumps are causing major hardship across the industry. Firms that locked in lumpsum or fixed-unit-price contracts for gas main replacements, water and sewer installations, or conduit runs in 2025 are now executing that work at a significant loss in some cases.
Federal Reserve officials have warned there is a limit to how many price increases the market can absorb before owners begin putting projects on hold; early signs of that pattern are already emerging. For gas distribution contractors in particular, the irony is sharp: the very conflict disrupting their cost structure is also driving renewed domestic interest in energy infrastructure investment. But securing relief on in-progress contracts remains an uphill battle while the geopolitical situation stays unresolved.
UCCI performance, updates
The Utility & Communications Construction Index (UCCI) below (Figure 1) presents the stock performance of the sector’s publicly traded stocks over the past quarter and the past year. In the first quarter of 2026, the UCC Index experienced healthy growth relative to the S&P 500 and continues to benefit from trends in data center and energy demand that are driving interest in the sector. Comparatively, the UCC Index was up 37 percent vs. the S&P 500, which grew 2.8 percent over the same period. Volatility will impact the market performance through June (and beyond) while the Trump administration defines the global trade rules.
Mergers, acquisitions
The first quarter of 2026 saw a group of closed transactions after a flurry of activity near the end of 2025. While expectations for the industry remain high (especially compared to other sectors), Trump energy and infrastructure policy, communication policy and infrastructure funding continue to drive demand for the sector. The long-term trends of utility infrastructure repair and replacement, and electrification of the power grid continue to drive activity. Additionally, the amount planned to be spent on power delivery and water, and wastewater segments continue to drive interest in investment by private equity.
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