Chemical companies are filling up plant order books: Between 2005 and 2015, global investment in the sector increased by nearly a factor of three and currently stands at more than $ 200 billion. Most of these plants are based on conventional design and construction, but the engineering departments at chemical companies and EPC contractors are about to make major changes to the engineering process.
Growth creates a size imperative: The Sadara mega-project, which was completed in Jubail, Saudi Arabia, in autumn 2017, marks an additional milestone in the global chemical boom. With their $ 20 billion investment, the project partners Saudi Aramco and Dow Chemicals have positioned themselves to exploit the increasing demand for chemicals. Market researchers estimate that the annual increase in demand for chemical products over the next 20 years will be in the 4 –4.5 % range.
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In response, chemical companies continue to invest and to some extent the size of the investments is also increasing. The oil company Saudi Aramco and plastics manufacturer Sabic intend to build an oil-to-chemical complex for $ 20 billion.
Together with French energy company Total, the Saudi industry leader is planning to spend $ 5 billion on construction of an ethylene-propylene plant. Adnoc, the Abu Dhabi state oil company, has announced plans to increase its petrochemical production capacity by a factor of three to 11.4 million tons until 2025.
US Shale Gas Drives the Demand for New Crackers
However, the launch of spectacular projects is not limited to the Middle East: The US shale gas boom generates demands for new petrochemical projects. Four new ethane crackers were completed in 2017. Four additional crackers are currently under construction and scheduled to begin operating in 2019. A second wave of investment is already underway.
The feasibility of building five more crackers is currently being assessed. The American Chemical Council estimates that annual capital spending by US chemical companies will increase from $ 40 billion in 2016 to $ 58.6 billion in 2021. In February, the Council listed 294 current projects with a total value of $ 179 billion.
Capital expenditure increased in Europe as well: According to estimates by the European chemical trade association Cefic, capital spending in the global chemical industry increased more than threefold between the years 2005 and 2015. Excluding the Middle East for which no data is available, capital spending in the chemical-producing countries rose to € 170 billion in 2015. Capital spending by German chemical producers was roughly € 16 billion in 2017.
Structural Change in Chemical Plant Construction
Raw material demand to support existing and new production capacity produces a follow-on effect, as further investment is needed in the oil and gas sector. The International Energy Agency (IEA) estimates that by the year 2040, petrochemicals will replace the fuel sector as the main force driving global demand for crude oil. Daily demand in the chemical industry will reach 15.7 million barrels, 47 % higher than in the year 2015.
That is basically good news for the chemical plant engineering and construction industry. However, a structural change in the industry has been underway for several years: As projects continue to increase in size, greater risk has to be accepted.
In addition, investors and plant operators prefer to do business with global partners who take total responsibility for everything from feasibility studies to commissioning, and often the financing as well. European plant construction companies, and German firms in particular, are now often considered to be too small to take on that role.
GROAB, the database for the international plant engineering and construction sector – focuses on international projects which are currently in the planning GROAB.net
For several years, European companies have been lamenting the increased competitive pressure. A current study carried out by the German Engineering Federation VDMA indicates that competition will become even tougher in world markets. Especially EPCs based in China, Western Europe and the US are regarded as major competitors in the market for large projects. Depending on the technology and area of specialization, companies have felt the effects of lower oil prices as customers canceled or delayed capital spending projects.
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