ROD DEAN'S 2006 REVIEW
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E & C Hydrocarbon Review - The Global view from Europe. Looking back on 2006 & ahead to 2007.
GTL
GTL has continued to move on in the past 12 months - the EPC project under execution with Technip Italy for Sasol/Chevron plant is now complete and will be producing product very shortly and an expansion programme is already in the planning stage. Qatar remains the centre of early activity with the huge Shell Pearl project (2010/11 planned completion) leading the way. The Chevron Escravos project is in execution in Nigeria but is not without its problems. The Algerian project has been delayed until mid 2007, but may be later and another project is on the drawing boards in Australia. As mentioned earlier Exxon Mobil is taking a deep breath and shelving their Qatar GTL plant until the Pearl project is either well on it way or actually completed. Many of you have probably seen the Pearl GTL project announcements last week =related to the current forecast total cost which came as a surprise to many of us. Shell has however said that the current forecast is within their economic model and nothing has changed since their previous statements.
Refining
The refining recovery had continued apace and there were some very interesting opportunities coming forward. We have stated for a number of years that the U.S. oil industry needs new refineries due to the lack of refining capacity. There is no spare refining capacity in the U.S. today and that means" that the usual supply and demand balancing act has been thrown off kilter. Refineries have been operating at full capacity, whereas the average U.S. manufacturing plant operates at 75% capacity and this is probably falling. Since 1981, when refineries operated at 69% of their capacity, the number of refineries in the United States has dropped from 324 to 150. However at last we have good news to report - well not quite new refineries, but massive expansions are underway in Port Arthur with Motiva and Louisiana with Marathon - there maybe more to come? This is good news for the US contractors and good news for country generally. These two expansions will add close to 600,000 BOPD to the nations stocks and up to $5 bn of capex. Even the long gestation Arizona Refinery (near Yuma) is on the agenda again - I first remember this project being flagged in 1990 when I was with John Brown. Bechtel will probably get the order if and when it proceeds.
Refiners have hit the limit of their ability to pump light, sweet crude in particular. They have more capacity, but it's not the right sort. Light, sweet crude remains in many corners of the world, but the energy industry doesn't have the capacity to pump it. We are now seeing some very large grassroots and expansion seeing the light of day in Saudi Arabia and the Gulf States - these will take time to bring to fruition but we are moving in the right direction.
Simplistically though there are five main points to take into account:-
Global crude will become heavier and more sour - the premium for conversion is will increase
Significant demand growth expected with little anticipated supply growth
Increasingly global product market
Refining margins and ROACE expected to rise
Refining margins are driven by upgrading capacity - facilitating investment decisions
This will mean major additional work for the major E & C Companies and in Europe that will require Heavy Oil Upgraders plus some more complex schemes
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