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Petrochemical Update recently surveyed senior-level executives from key downstream companies including LyondellBasell, P66, Covestro, Air Liquide and many more for our annual procurement spending survey. This exclusive poll features engineering and construction executives spending priorities for the next 12 -18 months.
INTRODUCTION
Oil price recovery, growing demand and increased feedstock supply are driving additional oil and gas capital projects globally, and downstream owners are spending more on equipment, maintenance improvements, technology and services, a recent survey has found.
Nearly 70% of downstream capital procurement budgets will be increasing, especially in areas of digital transformation and technology, according to a Petrochemical Update Poll.
The Petrochemical Update Poll was given to U.S. executives of major downstream companies in August 2018. Those interviewed have jobs as Presidents, Chief Strategy Officers, Executive Vice Presidents, Project Managers and Project Engineers, Operations Directors, Maintenance & Reliability Managers, Capital Procurement Managers and Leads, Directors of Technology, Engineers and Maintenance Techs.
Most of those polled work in engineering and construction or reliability and maintenance fields. At least 10% of those polled manage budgets over $1 bn, another 10% manage budgets up to $500 million and another 10% manage budgets up to $100 million. At least 15% of those polled manage budgets up to $25 million and nearly 30% manage budgets up to $30 million.
Petrochemical Update spoke with these industry leaders about some of the most pressing concerns procurement teams have and what their budget priorities are.
MARKET OUTLOOK
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.
Most of the projects that have been under construction since 2016 are cracker-plus projects and the ‘plus’ usually is plastic, polyethylene or polypropylene.
BUYER PROFILE
There are specific areas of focus in 2018/2019 capital budgets including new construction, expansion, equipment purchase, mechanical integrity, midstream and downstream assets, sustaining and maintaining existing assets, and alternative energy. Hardware, catalytic conversion, compressors, high pressure vessels and equipment are high on purchasing lists.
Major trends in capital procurement involve lean category management. Lean management has driven success in many business functions, and now executives are looking at how lean management can help procurement leaders
More owners are now turning to lean operations for managing major projects including shutdowns and turnarounds.
Advanced sustainment and lean operation methods, which focus on reduced waste and greater communication, are used by owners like Suncor, Shell, and ExxonMobil to get through turnarounds and projects.
Documented improvements have been seen in schedule accuracy and attainment by more than 15%, work order quality by more than 20%, and reducing contractor needs by more than 15%, according to Argo Consulting.
Advanced sustainment methods focus on building people skills and interactions, while the lean operations focus is on improving the process, Argo said.
MARKETING STRATEGY
While long-term relationships have formed the basis of many major capex projects, companies are looking to innovate and step out and try new suppliers. Core supplier lists are reviewed on an ongoing basis, with most reviews taking place annually, according to the survey.
The best way to find external partners is through networking events and conferences/tradeshows, according to the purchasing professionals interviewed for this poll.
Those with buying power find that presentations, face-to-face meetings and product demonstrations are the most compelling form of solution provider engagement.
Once the interest is there, contracts are mainly won because of bid results and relationship. However, more companies are being innovative now and looking at internal and external data to choose suppliers. Subscription services, local market intelligence, distribution partners and in-house data all form the analysis procurement professionals are using to choose key suppliers and vendors for mega capital projects.
The most appealing quality buyers look for in trying to identify and do business with new suppliers is safety. They are also highly interested in project execution history; including a quality reference list on past projects, and success in budgeting and timing on past projects. Reliability, innovation and delivery times are also key priorities for these buyers looking for new suppliers.
CHIEF CONCERNS
Trade War
A key concern among owners is the global trade shakeup. Some buyers are already adding 10% to capital procurement costs because of the import tariffs on steel and other key raw materials.
The U.S. risks losing thousands of jobs and billions of dollars in chemical investments by not excluding $2.2 billion worth of chemicals and plastic products from its second list of tariffs against China, the American Chemistry Council (ACC) said.
The trade war comes at a time when the low-cost production of chemicals in the U.S. has attracted more than $194 billion in new chemical industry investment and sparked a U.S. manufacturing renaissance that could be undermined by the imposition of U.S. tariffs and retaliation by U.S. trading partners, the ACC said.
The U.S. will impose $16 bn in tariffs on Chinese products on August 23, 2018, the second round of $50 bn in tariffs in addition to steel and aluminum tariffs imposed in March. China said it would impose $16 bn in retaliatory tariffs on the same date, including $2.2 billion in chemicals and plastics.
54 of the 114 products on China’s List 2 are chemicals, plastics, and plastics products, and would impact $5.4 billion in U.S. exports to China, the ACC said.
Natural Disaster
While the effects of Hurricane Harvey are no longer impacting most capital spending budgets, learnings on areas such as storage, raw materials, supply chain and safety from the challenges caused by Hurricane Harvey should spur strategic decisions, analysts said.
Allocations, force majeures, evacuations, explosions and fires at Texas chemical plants inundated by Hurricane Harvey’s floodwaters should be a wake-up call to the industry about improving safety and supply chain management, Ramanan Krishnamoorti, Chief Energy Officer at the University of Houston said.
“The industry must consider how to look at multiple barriers of defense when putting high capex manufacturing dollars in a hurricane and flooding prone environment,” Krishnamoorti said.
Krishnamoorti said these barriers include using information technology, rethinking the supply chain, improving front and back end engineering and improving storage options.
According to the Federal Emergency Management Administration (FEMA), the storm, which tore through Texas and Louisiana on August 25, 2017 is responsible for the worst flooding in U.S. history, and is the costliest natural disaster in U.S. history.
The major problems from Hurricane Harvey to the petrochemical supply chain was the restart of complex continuous processing systems, compounded by the fact that many Texas plants are suppliers for one another. Almost everywhere, the problems were with storage and transportation.
Manufacturing has recovered quickly after major storms including Hurricanes Ike and Rita, now owners need to focus on front and back end engineering as second wave construction plans are laid, Krishnamoorti said.
CONCLUSION
Continued natural gas drilling and exploration in the U.S. means lower, more abundant natural gas and oil prices for the next several years. The surge in U.S supply and exports of key feedstocks crude, propane and ethane drove the first wave of downstream capital investment and resulted in an unprecedented petrochemical construction boom.
Lessons on key areas such as technology, data and workforce management are spurring strategic decisions as the U.S. begins a second construction boom.
With bigger outlooks amid an uncertain global trade environment, and pressure to build more facilities and update aging plants, project managers must look to innovation and technology to stay on schedule, on budget and improve productivity.
To achieve this, teams must shift the culture away from an outlook of ‘this is how we have always done things’ to one where new innovations, process and technologies are embraced organization wide.
Buyers are keenly aware of this and looking at their core suppliers on an ongoing basis and making changes to meet these new goals. The best way to find these new external partners is through conferences and tradeshows.
New opportunities to gain market share are emerging as transformative developments reshape the industry.
WANT TO LEARN MORE
Renowned as the most significant global meeting place for Downstream professionals, Downstream 2019 is where major executives will meet to learn, network and do business.
Over 5000 Downstream professionals who work in the areas of Engineering & Construction, Reliability & Maintenance, Shutdowns & Turnarounds and Supply Chain & Logistics will convene to address core challenges, understand the latest technologies that are disrupting their industries, meet and form partnerships with new and existing suppliers and hear from the world’s foremost experts and practitioners in their fields.
If you work in or supply services to the Petrochemical, Chemical, Refining or LNG industries make sure you’re in Houston June 11-12 for Downstream 2019!
To get the full speaker line-up, agenda and an overview of the 5000+ attendees, just pre-order the full event brochure here now.
