Global oil and gas construction spending outlook shifts to US
Oil price recovery, growing demand and increased feedstock supply are driving additional oil and gas capital projects globally, but the U.S. is now capturing the largest share of global energy industry investment, according to data released this week.
Industrial Information Resources (Industrial Info) is tracking 2,750 active oil and gas projects globally representing $433 billion under construction currently.
There are more than 2,500 capital and maintenance projects active in the U.S. now, representing $393 billion in investment.
Looking ahead, there are more than 10,000 projects globally in the planning and engineering phase representing a potential $1.7 trillion in investment, Industrial Info said.
Assuming a 49% realization rate, Industrial Info is predicting almost $880 billion in probable global oil and gas project spending over the next few years under current market conditions.
In North America, there are 1,388 oil and gas capital projects in the planning and engineering phase for a total of $557 billion.
Of those, 920 capital projects worth $241 billion would be in the U.S. and 333 capital projects worth $160 billion are planned for Canada.
Natural gas focus
Planned spending for natural gas-based projects continues to be the focus.
Industrial Info’s 24-month outlook for U.S. capital projects is for $138 billion toward gas and natural gas liquids (NGL) projects, and $32 billion toward oil related projects.
Drivers for U.S. investment are increased feedstock production expectations from 2018 to 2023. This includes natural gas production, which could see an increase from 75 to 95 Bcf/day, NGL production, which could climb from 3 to 6 million bbl/day; and crude oil production which could increase from 10 to 13 million bbl/day; according to Industrial Info.
As NGL growth accelerates in the U.S., the feedstock advantage will likely fuel additional investment decisions for mega projects along the Gulf Coast and Northeast, Phillips 66 executives said.
“US NGL production continues to grow. We think this is set to accelerate given the drilling activity that we see,” Phillips 66 CEO Greg Garland said in an earnings call.
Abundant and cheap supply of U.S. NGLs, a group of hydrocarbons that includes ethane, propane, butane, isobutane, and pentane, from shale formations drove the first wave of petrochemical investments and created one of the biggest spending booms in history.
The greatest opportunity for petrochemical investment continues to be in cracker production, which uses NGLs such as ethane as a feedstock to create ethylene and polyethylene (PE), products that are traded globally and priced off crude oil.
Cracker and derivative projects
Even as several new ethylene crackers and derivative units have begun operations in 2017 and the first half of 2018, construction of several new projects is planned to begin this year.
Additional projects are expected to break ground in 2019 and 2020, with most of this new capacity coming online around 2023.
US Ethylene Projects
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A new 1.5 million tonne/year ethylene unit started up in March 2018 at the Chevron Phillips Chemical Cedar Bayou complex in Baytown, Texas.
DowDuPont started up its new ethylene and plastics plants in Freeport, Texas in September 2017, making it the first to debut a major ethylene project along the Texas Gulf Coast.
The plant will produce some 1.5 million tonnes/year ethylene, and plans are in place to increase that capacity to 2 million tonnes/year, making it the world's largest ethylene production plant.
Formosa Petrochemical has selected Louisiana for a $9.4 billion chemical manufacturing complex. Construction is expected to begin as soon as 2019 in an anticipated 10-year building and development process in two phases.
The company has purchased a 2,400-acre site along the west bank of the Mississippi River, downriver from the Sunshine Bridge, next to the Mosaic and AmSty chemical plants.
Saudi Arabia’s petrochemical major SABIC expects construction of its planned U.S. joint venture cracker project with ExxonMobil to begin during the second quarter of 2018.
The 1.8 million tonne ethane cracker is planned for construction in San Patricio County, Texas. The facility will also include a monoethylene glycol unit and two PE units.
Construction of the project, announced in 2016, is pending completion of the environmental permitting process. The plant is expected to be operational in the 2021-2022 timeframe.
The cost of the project is estimated at about $7.3 billion. Engineering, procurement and construction (EPC) contracts have been signed with Chiyoda Kiewit Joint Venture and CTCI McDermott, SABIC said in a filing to the Saudi Stock Exchange.
Meanwhile, ExxonMobil has begun detailed engineering studies on a project to expand its U.S. Gulf polypropylene (PP) capacity by up to 450,000 tonnes/year.
ExxonMobil's announced PP investment is one of 13 new facilities planned to grow the company's chemical manufacturing capacity in North America and Asia Pacific by about 40% by 2025.
“We’ve got the best portfolio of high-quality, high-return investment opportunities that we’ve seen in two decades,” Darren W. Woods, chairman and chief executive officer, said at the company’s annual meeting of investment analysts at the New York Stock Exchange.
ExxonMobil expects a mid-year start-up for its new 1.5m tonne/year ethane cracker at its complex in Baytown, Texas, the company said during its Q1 earnings call in April.
ExxonMobil announced the mechanical completion of the cracker and the start of commissioning activities in February.
The cracker was previously scheduled to start up in late 2017 to feed its new PE units. However, the project was delayed following Hurricane Harvey in August 2017.
ExxonMobil recently started up its two PE lines at its plastics plant in Mont Belvieu, Texas. Each line has a PE capacity of 650,000 tonnes/year.
ExxonMobil is not the only owner turning its focus to PP resins.
Braskem is developing a 450,000 tonne/year PP plant in La Porte, Texas, with a scheduled 2020 start.
The $675 million PP line, called Delta, is its sixth US PP plant and its first to be built from the ground up.
U.S. Phillips 66 is considering a second ethane cracker in the U.S. for its joint venture Chevron Phillips Chemical (CP Chem), a joint venture with Chevron. A decision is not likely until 2019, Phillips 66 executives said.
“We like the demand profile we see for global petrochemicals. I think it's going to be a pace that will support a new wave of cracker investments,” Garland said during an investor presentation held by Credit Suisse in the first half of 2018.
The Gulf Coast is not the only growth hub in the U.S. The petrochemical manufacturing boom has spread to the northeast region, where shale production in the Marcellus shale in Western Pennsylvania and Ohio is surging.
Shell Chemical Appalachia announced in June 2016 a $6 billion investment to build a new ethane cracker in Beaver County, Pennsylvania on the site of a former zinc smelter.
The Shell ethane cracker will not supply demand overseas, but demand domestically, since it is located within 700 miles of several North American polyethylene customers.
By Heather Doyle