When 2011 began, the expectation was for most global econo-mies to continue a steady trajectory of growth. For the energy industry, growth in most sectors was actually higher than expected in 2010, leading to projections of a sustained recovery.
But the early part of 2011 was marred by constant worries over political turmoil in the Middle East. By mid-2011, worries esca-lated on the back of economic troubles in developed areas such as the US and Europe. Stock markets tanked as reports showed softening consumer spending, rising debt and stubbornly high unemployment figures. Crude prices plunged about $20/bbl as worries persisted about overall demand for commodities.
On a global market exchange rate basis, gross domestic product (GDP) should grow by 3.5% in 2012, 3.6% in 2013 and 3.6% in 2014, according to the latest forecast from the American Chem-istry Council (ACC). Figures were down from prior ACC projec-tions, and all were below the 3.9% growth registered in 2010—at one point thought to be the beginning of a sharp recovery!
“Sharply higher commodity prices and temporary supply chain disruptions from the disaster in Japan have slowed growth,” said ACC chief economist Kevin Swift.
As such, the economic recovery that most downstream produc-ers took for granted a year ago remains in doubt as the industry enters 2012.
CONSTRUCTION
Since 2000, the global HPI has been expanding at a moderate rate. Economic cycles and the aftermath of the 911 (September 11, 2001) events yielded small gains. However, beginning in 2006, the HPI saw a wave of new project announcements for the global refining, petrochemical and (natural) gas processing industries. Emerging demand and strong economic growth by developing nations, especially in Asia-Pacific nations, became the driving force for new energy consumption and initiated new HPI processing capacity project activities.
In particular, numerous HPI companies, state-owned com-panies and national governments announced new projects and studies that potentially fill the new forecasted domestic and inter-national demand for transportation fuels and hydrocarbon-based consumer products. For some time, hydrocarbon-rich nations in the Middle East announced expansion plans for transportation fuels and petrochemical products—all gated as exports to meet the growing energy and product demand by China.
Over the past decade, China emerged as, and continues to be, the “factory floor” for the chemical and petrochemical industries.
Even with the importing of ethylene derivatives, Chinese manu-facturers can produce finished polymer and petrochemical-based consumer products and ship them to North America and Western Europe much cheaper than domestic producers.
However, GDP is the best measure of economic health and future consumption trends. Robust double-digit economic
expansion by China over the last decade has created a new middle class and developed the thriving HPI and downstream manufacturing centers in China. Other non- Organization for Economic Cooperation and Development (OECD) nations, such as India, have benefited from healthy GDP increases that require more transportation fuels and petrochemical products to support continued growth.
Some industry consultants have feared that there were too many announced projects and that some would not come to frui-tion, remaining an announcement or stalled in the engineering stage. The 2008/09 recession proved to be a significant adjust-ment in consuming markets. The depth of the global economic downturn destroyed some consumer markets. Such changes caused the rebalancing of supply/demand for HPI products; the adjusted demand and available supply caused some HPI projects to be delayed, if not cancelled, for a variety of reasons including diminished demand, financing, social and geopolitical reasons, changing environmental rules, lack of financing, and so forth.
A recent investigation of Hydrocarbon Processing Construc-tion Boxscore Database report for the last decade uncovered a unique development. The number of projects being completed over the past five years was unusually low. Such inactivity was
sup-Table 1. Worldwide HPI construction projects
Jun-08 Jun-09 Jun-10 Jul-11 Petrochem/chem 1,676 1,837 1,889 1,246
Refi ning 1,564 1,692 1,751 1,427
Gas processing 1,127 1,196 1,266 939
Synfuels 87 98 108 78
All others 650 650 718 639
Total 5,104 5,473 5,732 4,329
Total projects by product sector: June 2008 to July 2011.
June-08 June-09 June-10 July-11
HPI 2012 FORECAST
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JANUARY 2012 HydrocarbonProcessing.comported by the “boom” of project announcements followed by the
“bust” in product demand and economic development for most nations. (Editor’s note: Due to inactivity extending over several years, a number of projects were removed from the July 2011 Construction Boxscore. About one-third of the projects entered in the pre-July 2011 Construction Boxscore were considered extremely inactive or cancelled. All survey regions had a number of inactive projects. The Middle East, Asia-Pacific and Europe had the most number of projects removed from the system.) The HPI has gained much needed experience on qualified projects, as the present economic conditions and changing demand patterns will redirect the location of future HPI projects.
The Hydrocarbon Processing Construction Boxscore Data-base—a copyrighted industry report published online and available at ConstructionBoxscore.com—provides construction project information received directly from HPI operating companies, licensors, engineering and construction (E&C) worldwide. The July 2011 Construction Boxscore data reflected the correction to the “over announcement” dilemma from the past six years. As shown in Table 1 and Fig. 1, project activity still continues for global HPI companies. New project activity includes the construc-tion of grassroot facilities as well as the expansion of existing facili-ties to meet new demand and benefit from present infrastructure and distribution resources.
As shown in Table 1 and Figs. 1 and 2, refining and petrochemi-cal projects are the core of new construction. Refined transportation fuels and petrochemical products are clearly consumer goods. Natu-ral gas processing and liquefied natuNatu-ral gas (LNG) are indirect in
that this hydrocarbon is a feedstock for petrochemical products/fer-tilizer industries or is used extensively for electric power generation.
Many factors will influence project activity in 2012. The hope of continued economic recovery has been overshadowed by numerous events—continued instability in global stock markets, economic weakness in Europe and the euro, turmoil in North Africa and the Middle East, instability in the US market and government debt and pull back by China to control inflation. In short, there is substantive concern that may further stall economic recovery by nations and regions.
Many factors influence the development of an HPI project.
Product demand and secure feedstock supplies are vital in any proj-ect development. Financing is equally important; once the facility is built, it must pay for itself—capital, operating and maintenance expenses. Table 2 shows the global nature of this industry. An HPI project can take as long as 10 years from the conceptual design until commissioning and on-specification products are produced (Table 3 and Fig. 3). Even after construction completion, capital expenses still continue; plant equipment wears out or fails under normal operating conditions. Unexpected events (such as fires, explosions, hurricanes, floods, etc.) or other major catastrophes can compromise, if not, destroy key equipment, thus requiring full replacement of major or entire operating units.
TOTAL SPENDING
HPI 2012 spending exceeds $222 billion. The 2012 outlook for the global HPI still struggles to regain pre-2008 levels.
According to the World Bank’s mid-year 2011 report, the recent financial crisis is no longer a major driver hindering recovery of developing nations. The global economy expanded 3.8% in 2010;
much of the expansion is attributed to developing nations such as China and India. However, 2011 has been a continuing mix of political, social and natural disasters that unfortunately are sup-pressing economic expansion globally and locally. The social and economical events in North Africa and the Middle East infuse
Table 3. Breakdown of 2011 HPI projects by activity level and sector Breakdown of all 2011 HPI projects by activity level.
FIG. 3
Table 2. Worldwide HPI construction projects by region: June 2008 to July 2011
Jun-08 Jun-09 Jun-10 Jul-11
US 671 714 716 421
Canada 188 212 209 155
Latin America 458 530 607 469
Europe 1,153 1,261 1,283 956
Africa 192 215 231 179
Middle East 942 990 1,057 872
Asia-Pacifi c 1,425 1,551 1,629 1,277 Total 5,029 5,473 5,732 4,329 Breakdown of HPI projects by market sector—
July 2011.
HYDROCARBON PROCESSING JANUARY 2012
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29HPI 2012 FORECAST
fear into the futures market for crude oil supplies and likewise artificially raised oil prices in the first half of 2011.
OECD nations are forecast to have a slower expansion over 2010 levels. Many government stimulus spending programs ended in mid-2010. Issues of high unemployment and lack of job creation in the present recovery stalled economic growth. In the European Union (EU), fear of several nations defaulting on government loans adds more chaos to this trading region. GDP for this manufacturing block is forecast to decline from 2010 levels to 2.3%. The fragile finances of Greece, Italy and Spain chill investments in Europe.
Japan’s economy collapsed under the weight of the March 11, 2011 tsunami and following nuclear accident. This nation spent most of 2011 restarting production and energy provider services.
The March event shut down Japan’s manufacturing sector for several months.
What is the global energy outlook? Energy drives eco-nomic growth and sustains fiscal health; here are factors shaping the energy industry in 2012:
• The pace of global economic recovery will greatly influence the types of energy used over the next few years. Actions by gov-ernments on climate change and energy security are major factors that will impact the HPI.
• Energy demand will be driven by developing (non-OECD nations) and they will account for 93% of the new energy demand. China, the largest energy consuming nation, will be a major force in shaping the global energy marketplace.
• Fossil fuels (coal, oil and natural gas) will comprise the majority of primary energy resources; rising penalties on carbon emissions will encourage switching to low-carbon feedstocks in addition to efforts to reduce energy consumption.
• Unconventional oil will play an increasing role in the global oil supply. About 10% of the world’s oil supply is met by uncon-ventional oils and that number will increase. Canadian oil sands and Venezuelan extra-heavy crude are dominate sources. However, coal-to-liquids, gas-to-liquids and shale oils will play a role as future energy resources.
• Crude oil will remain a dominant part of the primary fuel mix. Nuclear energy is facing immense scrutiny and challenges for future new installations, and it is only 8% of the total energy mix. Renewable energy including hydro, wind, solar, geothermal and modern biomass, will increase their share of the energy mix.
But these energy forms struggle to be viable replacements for hydrocarbon resources. More research is needed to reduce manu-facturing cost. Government subsidies prevent renewables from competing on their own within the marketplace for many reasons.
Current state. The global HPI struggles to find a steady-state situation for demand. The 2008/09 recession was a significant economic tsunami that hastened demand changes for energy and petrochemical-based products. In 2010, there was significant talk, if not fear, that a double dip recession was very possible, given the economic news and political events. Yet, the global economy man-ages to squeeze through the year with improved demand numbers for crude oil. Again, the main driver for refined crude-oil based products and transportation fuels are the developing economies or the non-OECD nations that are exiting the downturn first.
In particular, China and India are the major forces for increased demand for transportation fuels and products.
The fragile economic forecasts in late 2010 and H1 of 2011 stalled advances in HPI project development. (Editor note: HP’s 2011 total spending numbers were revised for the slowdown in proj-ect activity; new total spending forecasts are listed in the Appendix.
These changes are reflected in the 2012 forecast spending numbers.) Changing demand for HPI products and fear of future envi-ronmental rules on products and operating facilities are affecting where new HPI facilities will be built, along with continued operations of existing facilities. HPI facilities allocate their bud-gets in three main categories: capital, maintenance and operating expenses. HPI facilities are long-term investments that involve expenses throughout their productive lives.
The costs for designing and constructing downstream HPI facilities increased in H2 of 2010 and Q1 of 2011, as shown in Fig. 4. It is a sharp rise as compared to previous years. This mea-sure reflects cost inflation on a global basis for HPI projects. Sharp increases in steel costs drove this recent surge in construction expenses. Costs for all steel-using projects have been rising since H2 2010. Equipment costs (reactors, heat exchangers, distillation columns, etc.) are now more expensive, thus raising capital costs for HPI facilities on new equipment and replacement units.
According to IHS’ mid-year report, construction labor costs continue to rise due to the weak US dollar. Rising demand for skilled tradesmen is elevating labor costs, especially for new proj-ects in developing nations. A true skilled labor shortage will keep labor costs on the rise. The industry is facing an increasing short-age of engineers and skilled labor over the next decade. The roller-coaster events of the energy industry have dissuaded young people to enter engineering programs. As more senior technical engineers and technicians retire, the HPI faces a massive gap in qualified workers. This trend applies to construction craftsmen and plant maintenance personnel too. Project management costs increased 5%. All factors keep rising HPI project total costs.
Looking forward in 2012, operating companies again will use disciplined spending over HPI projects. Rising costs for labor, equip-ment and raw materials require more attention. The best-of-class companies view the entire value chain of their products and manu-facturing centers and seek opportunities to control, if not reduce, total costs on all sector budgets. Grassroots HPI facilities are billion-dollar investments funded by financial groups. In the aftermath of the recession, financial groups continue to minimize their risk exposure and are more selective in financing major HPI projects.
Investment in HPI infrastructure is an ongoing event. These facilities were originally designed for 30 years of service. However,
Downstream capital cost index: 2000-2012.
FIG. 4
HPI 2012 FORECAST
30
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JANUARY 2012 HydrocarbonProcessing.comwith proper maintenance programs, HPI facilities can have long service lives. Modernization is also part of the planning for older facilities. The extreme operating conditions, and normal wear and tear on equipment, are factors in replacing old, major equipment with possible capacity expansion opportunities.
In 2012, the HPI’s capital, maintenance and operating budgets are expected to exceed $222 billion. Capital spending is projected to reach $56.3 billion; maintenance spending should reach $66 billion; and operating spending is estimated to exceed $99.9 bil-lion. The HPI continues to be more cost conscious. Core focus areas for projects include:
1. New grassroots HPI capacity will be constructed in devel-oping (Non-OECD) nations or nations that are hydrocarbon-rich with plans to be net exporters.
2. New demand for transportation fuels and petrochemical-based products are concentrated in non-OECD nations. These nations have evolving middle classes as well as increasing popula-tions. North America and Europe have aging populations that do not have the growing new demand for products.
3. Possible environment and safety rules will hinder invest-ment in HPI facilities. Uncertainty has unleashed rationalizations and mergers and acquisitions (M&A) in the HPI. All regions are affected. The ability to compete in the international markets has some major international companies selling assets in some regions and/or completely abandoning the downstream completely.
4. This uncertainty in future markets and operating rules by governments has delayed, if not cancelled, HPI projects.
5. Weakness in HPI markets is contributing disciplined spending. Future markets are changing. There is more capacity under development than can meet present demand. Such condi-tions create more volatility to the economic cycles.
HPI companies will invest in technologies to support their mission goals, such as to improve plant economics, increase energy efficiency, increase yields of desired products, eliminate unwanted
byproducts or wastes and increases sustainability of the company.
Other goals include:
• Energy efficiency as carbon rules will affect thermal/combus-tion units of HPI facilities
• Improve maintenance and monitoring programs to ensure more unit availability time
• New capacity to meet growing demand from developing countries, especially China and India
• Greater focus on new health, safety and environmental (HSE) rules
• Integrate process unit, plant and enterprise operations
• Increase process efficiency for product yields while minimiz-ing products and wastes
• Improve security of plant site and process information.
Contract services. Approximately 50% to 60% of the capital and maintenance budgets respectively are allocated for overhead, profit, labor and services. With continued personnel reductions and growing regulatory compliance requirements, HPI operating companies are directing considerable resources on outsourced services. Engineering companies, contractors, consulting firms and suppliers are part of the new workforce in constructing, maintaining and operating HPI worldwide.
CAPITAL SPENDING
Capital spending tops $56 billion. As shown in Table 5, the HPI will allocate approximately $56 billion for capi-tal spending. This tocapi-tal includes $25 billion on global refin-ing projects, $17 billion on petrochemical/chemical projects, approximately $10 billion on the gas processing sector and $4 billion in the synfuels sector. About $28 billion of the capital budget will be spent on equipment and material (Table 5); note that project materials cost are estimated to increase in 2012, following trends in 2011.
Changing product trends, political and economic instability and currency issues have delayed, if not cancelled, HPI construc-tion projects. Project spending is more cautious. HPI companies are strengthening their balance sheets and seeking opportunities to maximize market shares through strategic capital investments.
Such endeavors also include purchasing and revamping existing facilities over construction of a grassroots facility. Caution is still applied in major projects and capital spending.
The long lead time from engineering design to commission-ing allows HPI companies to stage entry of new capacity onto the market. The HPI has been working new capacity from the last buildup, but product demand wanes as economic conditions in developed countries continue to stall. Fear of excess capacity will remain in 2012.
HPI companies operating in mature developed markets, such as the US and Europe, will continue to find creep capacity increases via debottlenecking projects and processing modifi-cations. The need to maintain the reliability of existing assets and increase energy efficiency are major goals in many revamp projects. Other energy-conservation and environmental improve-ments from innovative equipment and new processing technolo-gies are also part of the investment strategy. The availability of new and improved equipment and construction materials, process control initiatives and environmental considerations continue to drive capital spending in 2012. HP
Table 4. 2012 Worldwide HPI total spending for equipment and materials
Budget, millions $ US OUS Worldwide
Capital 4,800 23,140 27,940
Maintenance 5,760 19,450 25,210
Operating 15,000 34,150 49,150
Total 25,560 76,740 102,300
Table 5. 2012 Worldwide HPI capital spending
Sector, millions $ US OUS Worldwide Petrochemical/chemical 2,300 14,700 17,000
Refi ning 4,350 20,660 25,010
Gas Processing 2,900 7,400 10,300
Synfuels 4,000 4,000
Totals 9,550 46,760 56,310
Table 6. 2012 worldwide HPI maintenance spending by sector
Sector, millions $ US OUS Worldwide Petrochemical/chemical 7,450 23,800 31,250
Refi ning 6,720 20,890 27,610
Gas Processing 1,660 5,360 7,020
Total 15,830 50,050 65,880
HPINNOVATIONS
HYDROCARBON PROCESSING JANUARY 2012
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31SELECTED BY HYDROCARBON PROCESSING EDITORS
New diode laser caters to range of applications
Servomex Group’s SERVOTOUGH LaserCompact 2900 (Fig. 1), a tuneable diode laser (TDL), is designed to deliver true continuous in-situ monitoring across short distances, for a new range of
Servomex Group’s SERVOTOUGH LaserCompact 2900 (Fig. 1), a tuneable diode laser (TDL), is designed to deliver true continuous in-situ monitoring across short distances, for a new range of