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2014 global construction outlook—Part 1

03.01.2014  |  Nichols, L.,  Gulf Publishing, Houston, TX

Keywords: [construction] [US] [China] [petrochemicals] [LNG] [natural gas]

According to Hydrocarbon Processing’s HPI Market Data 2014, total capital spending in the hydrocarbon processing industry (HPI) is estimated to exceed $77 billion (B). This amount includes investments in the development and construction of grassroots facilities, along with expansions and upgrades to existing HPI facilities to meet growing global demand.

With so much construction activity forecast around the world, there are several major construction trends and regions to watch. This month’s column discusses a number of these trends and projects that will be seen in 2014 and beyond. For more information, please view the 2014 Market Outlook Webcast at www.HydrocarbonProcessing.com.

New projects

A market share trend analysis of new project announcements from 2011–2013 (Fig. 1) shows considerable growth in regions such as the US. This is due mainly to the shale gas boom, which has provided cheap available feedstock to fuel the gas processing and petrochemical industries. New project market share for the US was near 8% in 2010, and it has since risen to approximately 30% during the past two years.

  Fig. 1. Market share analysis of new project announcements   
  by region, 2011–2013. Source: Hydrocarbon Processing’s
  Construction Boxscore Database.


The Asia-Pacific region has seen a dip of almost 10% since 2011, but the region still maintains the greatest total number of active projects. Africa, Latin America and the Middle East remain virtually unchanged over the past few years. The Middle East has seen a steady stream of new project announcements over the past three years. European construction activity has increased by a small percentage due to new project growth in Eastern Europe, Russia and the Commonwealth of Independent States (CIS).

Asia-Pacific

This region continues to dominate in total active construction projects. Growing middle classes, predominantly in China and India, have spurred demand for transportation fuels and petrochemical products. This scenario, in turn, has created the need for additional capacity in the Asia-Pacific refining and petrochemical sectors, which account for the majority of active projects in the region. Asia-Pacific will also surpass Europe as the world’s second-biggest natural gas market as early as 2016. Dozens of liquefaction and regasification terminals are planned or already under construction.

The majority of the construction activity in the region consists of petrochemical and refining projects in China and India. These two countries account for over 50% of the total active projects in the region and almost 15% of the total active projects globally. According to India’s 12th Five Year Plan, refining capacity is expected to reach 313 million tons per year (MMtpy) by 2017, or approximately 7 million barrels per day (MMbpd). Indian refiners are investing over $30 B in refinery construction, expansions and upgrades through 2017 to meet spiking demand for transportation fuels.

Presently, Indian gas production meets about half of domestic demand. However, Indian gas demand is forecast to triple by 2017. Demand from gas-consuming industries, such as power and fertilizer, are rising steadily. This scenario has forced India to import gas, mainly in the form of liquefied natural gas (LNG). In response, India is expanding capacity at its LNG terminals and has proposed the construction of over a dozen LNG terminal projects in the next five years. This includes floating LNG (FLNG) facilities such as the Kakinada LNG import terminal, and the industry’s first barge-based FLNG regasification unit offshore Andhra Pradesh.

China is in the midst of a refinery building boom, with almost 20 major new refinery facilities, upgrades and expansions taking place. China is expected to raise its existing refining capacity of 11 MMbpd to 14 MMbpd by 2015 and to 16 MMbpd by 2020.

The threat of overcapacity has delayed the start of some projects, however. PetroChina has delayed the startup of more than 600 thousand barrels per day (Mbpd) of new refining capacity for up to two years, and expansion plans for other refineries have been postponed.

The Chinese petrochemical and gas processing industries also continue to remain strong. China’s ethylene capacity is forecast to hit almost 25 MMtpy by 2015, representing an increase of more than 50% from 15 MMtpy in 2010. Chinese LNG imports reached 15 MMtpy in 2012 and are expected to double by 2015. To prepare, China has planned over a dozen new import terminals for completion by 2020. However, plans could change should China successfully develop its domestic shale gas reserves.

Although India and China are the dominant players in the region in terms of total active projects, many large capital expenditure projects exist throughout the region. Australia is investing over $160 B in LNG terminal construction and an additional $85 B for FLNG facilities. The majority of these projects are scheduled to be operational by 2017, but high labor costs and cost overruns could threaten construction time lines.

To meet increasing demand for gasoline and diesel, Indonesia has planned almost $20 B in expansions, upgrades and greenfield facilities. However, many of these projects have been delayed due to low refining margins and a lack of government incentives to attract international partners. If completed, this new refining capacity will accomplish Indonesia’s goal of becoming self-sufficient in fuel supplies by 2019.

Indonesia is also expanding its LNG export capacity with the Donggi-Senoro LNG project and the Tangguh LNG Train 3
expansion project. Combined, these projects will add 6 MMtpy of LNG export capacity by 2019, at a cost of $15 B.

Singapore has a rich history as an oil trading hub, and it plans to become the region’s first LNG trading hub. Singapore LNG (SLNG) completed construction on its $1.7-B bidirectional LNG terminal at Jurong Island in mid-2013; construction on additional storage tanks is ongoing until 2017. Due to high demand, SLNG has proposed an expansion to the terminal. A final financial decision is expected to be made in the second quarter of 2014.

Malaysia is constructing its own bidirectional LNG terminal at Pengerang. The $1.3-B Pengerang Integrated Petroleum Complex will coincide with Indonesia’s largest-ever infrastructure project, the Refinery And Petrochemical Integrated Development (RAPID) project. The $20-B RAPID project will consist of a 300-Mbpd refinery and a 4.5-MMtpy petrochemical complex. Completion has been delayed to 2018. Additional Malaysian gas projects include a ninth LNG train at Bintulu and two FLNGs—PFLNG 1 and PFLNG 2.

Additional notable Asian projects include Vietnam’s $9-B Nghi Son refinery and petrochemical complex and the $25-B Binh Dinh refinery and petrochemical complex.

United States

The International Energy Agency reports that the US will become energy self-sufficient by 2035 due to rising shale energy production and improved transportation fuel efficiency.

Shale gas production has created an LNG export terminal building boom in the country. Due to recent market changes, many previously planned US LNG import terminals have either been canceled or will be converted or expanded into export terminals. US companies aim to construct over 200 MMtpy of LNG export capacity over the next several years. Almost two dozen LNG export facilities are awaiting approval from the US Department of Energy to export LNG to non-Free Trade Agreement (non-FTA) nations. Only a small amount of projects have received non-FTA approval. These include the Dominion Cove Point LNG, Freeport LNG, Lake Charles liquefaction and Sabine Pass liquefaction projects. If these projects and others are completed, the US is poised to become an LNG-exporting powerhouse by the end of the decade.

The US Energy Information Administration forecasts that US gas production will jump from 21.6 trillion cubic feet (Tcf) in 2010 to almost 36 Tcf in 2040. Rising shale gas output has established the US as the world’s leading gas producer and has almost tripled new gas processing project market share within the past four years. These new projects include the construction of cryogenic and gas processing plants; natural gas liquid (NGL) fractionators; and small, mid-level and mega-sized gas-to-liquids (GTL) plants.

Cheap ethane feedstocks are fueling additional project activity in the US petrochemical sector, including over $100 B of investments by the end of the decade. Over 10 MMtpy of new ethylene capacity has been announced, is planned or is under construction. Projects include multiple world-scale crackers with capacities of 1 MMtpy or greater, by companies such as Axiall, ExxonMobil, Chevron Phillips Chemical, Dow, Sasol and Shell. These facilities will be located primarily along the US Gulf Coast, in Louisiana and Texas. Shell is the exception, with a planned ethylene cracker in Monaco, Pennsylvania, in the heart of the Marcellus shale play.

Other notable ethylene cracker projects are a 500-Mtpy facility by Ingleside Ethylene and Formosa Plastics’ 800-Mtpy cracker in Point Comfort, Texas. Additionally, Braskem and Odebrecht have formed a JV to build a large petrochemical complex in West Virginia. The Ascent project includes the construction of a large ethylene cracker. If built, Braskem may scrap its expensive Comperj project in Brazil.

Canada

Forecasters predict that Canadian crude oil production will more than double to 6.7 MMbpd by 2030, up from 3.2 MMbpd in 2012. This growth is contingent on the construction of vital additional pipeline infrastructure. Almost all of Canada’s oil production is centered in Canada’s Alberta oil sands. Major, capital-intensive downstream projects include construction of bitumen refineries and upgraders, such as the $8.5-B Sturgeon refinery, to process heavy oil sands.

Due to the recent shale gas boom, the US no longer needs to import excess natural gas from Canada. To offset this financial hit, Canada has planned over 50 MMtpy of LNG export capacity. This includes over a dozen LNG terminals to be constructed, primarily on British Columbia’s Pacific Coast at Kitimat, Prince Rupert, Lelu Island and Grassy Point. Two additional LNG terminals have been proposed in Nova Scotia on Canada’s east coast. Almost all of the country’s LNG exports will target high natural gas demand in Asian markets.

Part 2

Hydrocarbon Processing’s global construction outlook, covering Africa, Europe, Latin America and the Middle East, continues in April 2014. HP



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03.17.2014

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