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.
Lastly, but not least, because it opens the road to the future is the' Hydrogen Economy'. This could change the face of the Syngas market and we are already seeing 'carbon capture' projects lining up where Carbon Dioxide is reinjected (for future generations to sort out), hydrogen will fuel the associated Power Plant , leaving water as the waste product - not expected to happen in any volumes yet, but if it did, hydrogen demand will explode.
Petrochemicals
The Petrochemical Project Market has continued to shift from the US and Europe to low feedstock cost region of the Middle East and high demand growth countries such as China and South East Asia. Projected global chemicals sales growth through to 2020, offers a bright outlook. Global ethylene demand is growing much faster than demand for oil and gas and ahead of average GDP growth, probably at 4-5%. Absolute growth is still significant in the maturing markets of the world - in Europe and North America. But in relative terms, the growth in Asia - and particularly in China - is staggering. Consequently in 2005 we have seen a staggering number of world scale Ethylene / Petrochemical complexes in Saudi Arabia and the Gulf States, with more to come. Clearly its feedstock driven with Ethane the predominant feedstock of choice- this year I have calculated +15 MTPA of grassroots awards in the Middle East. Propylene demand is also growing healthily and is expected to overhaul both gasoline and ethylene by 2007. There of course new routes to propylene - some of which will be commercialised by then. What of the Ethylene Club - well it is unchanged- although the choice of EPCC partner can be a major factor is ultimate success and we have been seeing some second tier contractors entering this arena of late.
At this stage it is probably worth mentioning that the current boom has thinned out bidders list in moth numbers and quality. All the major EPC contractors are full of work and loathe pursuing too many hard price projects in the Middle East. This then lets in second tier (or worse) contractors who don't have the level of expertise or experience or perhaps even financial muscle to execute the work successfully. This cycle is just underway - hopefully by next year I may be able to tell you weather my unhappy premonition has come true or not - but I fear it will not be good news.
The major IOC's have, as in 2005, continued to ride the high oil price wave and all have produced very large profits (not large enough for some commentators though) - their capital expenditure budgets continue to increase. Their reserves continue to decline and the search for new ones continues unabated. This clearly will keep the long list of new projects in the 'pipeline' very healthy and good news for the E & C contractors and that takes us back to the first few paragraphs of this account. As I said at the start of the report this year it’s about resources (on both sides of the industry), escalation of labour costs (still only 11% of a project) and more so materials, equipment, and construction costs. Our clients are hopefully coming to terms with these unusual escalation levels and its our job to manage these unreal circumstances - be sure it won't last forever - something will happen in China and / or India that will bring these levels back to 'normalcy' as Warren Gamiel Harding once said. It did not do him or his successor much good so maybe we will think of another word that can describe these abnormal times and its return to stability!
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