The industry consensus is the second wave of investment in downstream projects is coming. However, questions about this second wave remain, such as how a "lower for longer" oil price will impact the scope and size of downstream investments for the next 5-10 years, and how big this second wave will be. A recent panel of owners gathered to address these questions and offer insight into how they're successfully delivering megaprojects on time and on budget.
"We are putting our money where our mouth is," said Manav Lahoti, business director of U.S. olefins for The Dow Chemical Company. "Dow has made investment announcements, and a second wave is coming. We don't think it's going to be as a large as the first one. When you look at our first set of projects, we spent $6 billion-$8 billion in the U.S. We are still optimistic about the U.S.'s feedstock position. But some of the challenges we have are productivity, labor, and skillsets. With the second wave, we think it needs to be smaller for us, and the economics are different. We're investing in incremental projects that don't take as much capital and the returns are better. The second wave also allows us to leverage some of the skills and learnings from the first wave, so we think the productivity on the second wave will be better."
In June, Dow announced four new derivative investments currently underway at Dow's manufacturing sites in Texas and Louisiana as part of the company's $6 billion expansion on the U.S. Gulf Coast.
"Besides Dow's construction activities, it is also investing a significant amount of money to develop an integration center in Midland, Michigan," Lahoti said.
These owners also explained the initiatives they've discovered to help invest in and develop the next generation of the downstream workforce. Developing project manager leadership skills and the overall skillsets of supervisory staff is a significant issue owners are facing.
"When I put my team together to build liquefaction plants, I made sure it was very well experienced in this work," said Ed Lehotsky, senior vice president -- engineering and construction for Cheniere Energy. "My current team has over 1,700 years of experience in the oil and gas industry, with 900 of those years being in LNG. We are able to solve problems quickly, and we work well with our contractor because I think it respects our experience. Experience is key, but I think it's going to be a challenge going forward with a second wave. All of that experience is retiring soon at not only the leadership level but also the craft level."
According to Lahoti, Dow is requesting engineering and construction companies work on developing middle management and project leadership.
"Productivity and leadership work together," Lahoti said. "If you don't have the right people on your project, the project is not going to develop. This is something we've learned during our sequence of projects. We developed skills that could be transferred over to the big projects. But we didn't have enough skilled project managers and leaders from the engineering and construction contractors. These are the kinds of skills these companies need to develop as we start to work on the second or third wave."
When it comes to lessons learned on megaprojects, Henk Pauw, general manager -- Liwa Plastics Industrial Complex for Orpic, emphasized the importance of spending more time on front-end engineering. The Liwa Plastics Industries Complex Pauw manages is a transformational project that will support the development of a downstream plastics industry in Oman.
"We completed our front-end engineering design in 12 months because we wanted to get the value out of the project," Pauw said. "We suffered in definition of the project. Also, don't be too optimistic in your delivery. We have a lot of projects that are big, but they're going to be six months behind as a result of being too aggressive with the schedule."
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