AIChE SPTC discusses post COVID US and world Capex project landscape

By – Sumedha Sharma, Technical Editor, Hydrocarbon Processing

The Petroleum refining technology session of the 12th AIChE SPTC opened with a very informational presentation by Lee Nichols, Editor-in-chief/Associate Publisher, Hydrocarbon Processing and Gas Processing & LNG magazines. His presentation, “U.S Capex: A post-COVID world,” discussed the changing energy and petrochemical demands and global project landscape in a post COVID-19 context and compared the U.S. scenario with the rest of the world.

The COVID -19 Domino Effect - Mr. Nichols pointed out that the hiatus in public life, working from home, and travel restrictions triggered by COVID have significantly impacted the global energy and petrochemical industry. The EIA forecasts that oil demand in 2020 is likely to be approximately 8 million barrels per day lower than that in 2019. Although fuel consumption is forecast to rise in the post pandemic period, a complete recovery to 2019 status is not expected soon. The drop in oil demand, oversupply, and crashing oil prices, have cumulatively contributed to budget cuts, project delays, suspensions, and capital expenditure lay-offs. Both the refining and petrochemical industries have responded proactively by reducing capital and operating expenses, delaying, or suspending projects to sustain through the global economic downturn.

The petrochemical sector however has a robust demand forecast – it is expected to not only recover but also experience production growth in key commodity plastic sectors by the year 2050. Similarly, stalled, delayed, or re-evaluated capex projects are also expected to be completed as global GDP recovers.

Global Projects Overview - Mr. Nichols discussed the current global capital expenditure landscape by citing Boxscore Database which tracks current active downstream projects investments at about $1.8 trillion in around 1,400 projects across the globe. He further analyzed market share of the projects by region and activity levels. About 37% of these capital announcements are from Asia, 17% from the U.S, 15% the Middle East, and 11% spread over Eastern Europe, Russia, and CIS. In terms of activity level - a large portion of projects, around 33%, are in planning/proposed stage, while about 65% are in pre-construction and construction stage. New project announcements in 2020 have seen a 35% decline over 2019 which is attributed to the COVID ‘Domino effect.’ Asia continues to dominate in new project market share at 43%, followed by Middle East at 15% Middle East, U.S. 13%, Europe, CIS, and Russia collectively at 10%.

U.S. Capex and Market Analysis – Mr. Nichols concentrated the last part of his presentation on U.S fuel demand and capital expenditure landscape. U.S fuel demand and refinery utilizations dropped significantly in the second quarter and refiners reacted to plummeting jet fuel demands by shifting operation to diesel specific mode instead of gasoline/jet fuel mode. Low demand and overcapacity have also affected petrochemical and LNG industry and several projects are either suspended, partially shutdown, or operating at reduced capacity.

Capital projects, on the other hand, continue to progress. Boxscore Database records 230 active capital projects in the U.S., mostly localized in the Gulf Coast, and over 75% concentrated in petrochemical and LNG sectors. Major development is also underway in the U.S. midstream sector with natural gas and shale crude pipelines being built to facilitate transport for processing and boost exports. Natural gas pipelines developed at the rate of approximately 5 billion cubic feet per day of capacity, in the first half of this year. However, more than 8 billion cubic feet per day of natural gas pipeline capacity has also been canceled during the COVID downturn.  

In downstream refining sector, majority of capital projects focus on clean fuels, biofuels, and renewables conversion. The total project investment is around $12-$13 billion and includes facilities to process shale oil into high quality, ultra-low sulfur fuels.

The petrochemical projects in U.S. have focused on building ethylene and other derivatives production capacity and such other capital-intensive petrochemical capacity that will go online in the near term. ​Many of these projects have been delayed due to COVID-19 and decline in demand. Moreover, the drop in oil prices has eroded most of the country’s feedstock cost advantage leading companies to re-evaluate, suspend or defer capital-intensive projects.  

In the LNG sector, U.S. had 26 active projects representing 400 MMtpy of LNG export capacity costing over $260 billion. Due to the pandemic hit poor global demand, several of these may suffer delay or financing problems. However, many LNG trains have been completed, and several projects progress at varying rates. Projections indicate that approximately 77 MMtpy of new LNG export capacity will be operational by 2022. This can put U.S. potentially ahead of other large exporters, Qatar and Australia; thus turning around from being the largest importer to largest LNG exporter.

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