December 2016

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Viewpoint: A new value proposition for a licensor and EPC contractor

The drop in oil prices has changed the overall dynamics of the hydrocarbon processing industry (HPI), as well as reduced prices for petrochemical products. Approximately $150 B of oil and gas projects have been canceled or put on hold.

Folgiero, P., Maire Tecnimont

The drop in oil prices has changed the overall dynamics of the hydrocarbon processing industry (HPI), as well as reduced prices for petrochemical products. Approximately $150 B of oil and gas projects have been canceled or put on hold. The present economic environment is characterized by slower demand growth, complexity due to China’s economic realignment, and decline in the oil-to-gas price spread ratio, which has generated a renaissance of naphtha-based crackers based in Europe and North America. These factors must be analyzed in a broader frame, which should include certain structural changes, such as the evolution of the supply chain—progressively targeted as a strategic tool to spawn greater value—and regulatory developments, which are likely to have a significant impact over the medium term.

With the HPI experiencing a phase of discontinuity, investors are obliged to follow a strategy focused on maintaining their profitability and market share. To achieve these goals, investments in petrochemical units have been, and still are, a market reality. These investments support the increase in demand for chemicals, the diversification of production and the integration of oil refineries with petrochemical units. This integration allows these facilities to take advantage of all light/heavy streams generated by every barrel of oil or cubic meter of treated gas.

The principle of, “Build it, and the buyer will come,” is no longer applicable. The availability of low-cost feedstock is not enough to guarantee return on investment. The need to satisfy specific regional demands, as opposed to the complexity of a worldwide distribution chain, has grown in importance. In other words, globalization has taken a small step back.

As a result of this scenario, licensors and EPC contractors must deliver their own new value propositions based on their worldwide regional networks and robust relationships with future-oriented investors. Market diversification and product innovation are the main drivers to be managed in the “new generation” of chemical EPC contractors. Therefore, technology and best-in-class engineering services are key factors. The market has already been utilizing strategies that flatten capital costs, such as leveraging global engineering centers of excellence or adopting modular construction, among other solutions.

In this respect, it is imperative to leverage a distinct, technology-driven business, as well as to embrace early involvement in clients’ investment initiatives. From providing technical expertise to assisting with financing schemes, these methods will allow a company to contribute to overall project development.

For example, Maire Tecnimont Group, through its recent investment in Siluria Technologies, is developing potential in the olefins business through the oxidative coupling of methane (OCM). This technology is contributing to the group’s industrialization process with the advent of nanomaterial synthesis applied to catalyst development. With this collaboration, Maire Tecnimont can capitalize on its core strengths in EPC project execution worldwide by combining it with a new technology development platform. These advances will cater to producers’ need for high-value, capital-efficient, highly flexible solutions.

The group is also concentrating on the commercialization of internally produced technologies that are concerned with gas treatment, sulfur recovery and hydrogen generation.

The group is experiencing expansion in regions such as Asia, the Commonwealth of Independent States (CIS) and the Americas. The group continues to enhance its execution capabilities in larger and more complex “integrated projects.” This approach is imperative to accommodate market demand for multidisciplinary efforts, “de-risk” the execution phase, and assist clients in brownfield revamping initiatives, which call for sophisticated process engineering and construction expertise.

The focus on downstream market developments has propelled the group to acquire the execution of a record portfolio of projects. The greatest effort will now be to deliver results with maximum operational and financial discipline. HP

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