INTERVIEW: Ripple effects of US shale wave just beginning, say Fluor execs

By Ben DuBose
Online Editor

HOUSTON -- Earlier this week, I had the chance to catch up with Peter Oosterveer, president of the energy and chemicals (E&C) segment for Fluor, along with E&C vice president Matthew McSorley.

The pair spoke to me at the St. Regis Houston, where Fluor held its annual November media day.

Interview topics included company business as well as industry topics such as shale gas, crude oil prices and their downstream and contractor effects.

Highlights of their observations are as follows:

1.) Global industry markets are “behaving the way we expect” in 2011, according to Oosterveer, even though some contractors have expressed uncertainty over second-half performance. Specifically, Fluor has not seen any of its major clients with large-scale delays, even amid the credit crisis in Europe and political instability in North Africa. For the company’s success, Oosterveer credited Fluor’s wide geographical spread of projects, which make it not overly dependent on any one region. Fluor’s optimism comes amid struggles from some industry competitors. For example, Shaw Group recently said it may sell its struggling E&C business.

2.) The ripple effects of the shale gas wave are just beginning in the US. Right now, the contractor impact is somewhat constrained to smaller, “mom and pop”-type shops, the executives said. However, that will change as production is scaled up. Numerous gas processing, gas-to-liquids and petrochemical projects are presently in the study phase, Oosterveer said, and may start construction soon. “Clients are getting more serious,” he noted.

3.) At least 2-3 new crackers are likely in the US by the end of the decade. At present, Fluor is tracking “7 or 8” potential new ethylene crackers, according to Oosterveer. Those include mothballed crackers. Of those crackers being studied, he predicted two or three will actually be built, likely by the end of the decade. More additional capacity would likely come via debottlenecking projects, Oosterveer added.

4.) Middle East producers aren’t concerned over losing market share to US shale – yet. “Our clients aren’t that concerned,” Oosterveer said. He pointed out that the Middle East has no shortage of available gas. The only issue is for regulators to make more reserves available, which could happen if pressure is applied by the US.

5.) Crude values are unlikely to dip much below $100/bbl. “I can’t see crude going down,” Oosterveer said. “We agree with those that are bullish on oil.” The executives concurred that natural gas liquids would remain the economical feedstock of choice.

6.) European shale gas lags behind US due to regulatory hurdles. Europe is beginning to see some gas-related projects, such as underground gas storage. However, on the whole, the region is seeing flat-to-declining activity, Oosterveer said. One reason is that potential shale gas reserves are not as developed as in the US. “In the US, you have a drive for energy independence, and it’s a little more entrepreneurial, so to speak. Europe needs the same.”

Oosterveer cited numerous government hurdles as obstacles for shale gas development. He said the European shale gas industry was unlikely to take off in the next year based on present dynamics, but easily could at some point within the next decade.

7.) Australia offers opportunities in LNG. Fluor is involved in LNG projects such as Santos and Woodside, and many more could be possible in coming years. The country’s mining industry is also strong, Oosterveer said. Making matters better, the competitive battle for contractors on bids is not as intense as it is in certain other parts of the world.

8.) Canada puts emphasis on British Columbia as US watches closely. Within Canada, producers are increasingly targeting British Columbia for oil sands and other energy-related plays, McSorley said. Moreover, the US population continues to show “intent and passion” for using Canadian oil. As such, the ultimate fate of the Keystone XL pipeline – which would transport oil extracted from Canadian oil sands to refineries in Oklahoma and along the US Gulf – will be a “critical turning point” for the future of the US, McSorley said. A final decision is expected by the end of 2011.

9.) On the whole, global project operators seek local services. “We’re certainly seeing a drive for more localized businesses,” Oosterveer said, noting that recurring themes included local content, proven capability and logistics expertise. The executives said that could benefit companies such as Fluor, who have had international offices for many years. However, the face of those offices might need to change. For example, hiring domestic workers in one particular country could give that office more of a “local” feel than someone from another part of the world. Those types of changes are likely in coming years.

For more details on Fluor, check out their company website by clicking here.

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