INSIGHT: Project delays; a blessing in disguise?

20 December 2005 16:23  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--The cancellation of one major project and postponement of the start-up of another announced this past week have highlighted the brake that tightness in the engineering and contractor (E&C) market is putting on chemicals.

The new is good and bad. Pushing out start-up dates on some of the world’s major projects may yet prove to extend the bull run for the petrochemicals industry at least by keeping supply/demand balances tight. At the same time, cancellations always bring into question the robustness of projects in the first place.

For the principal with steel on the ground, however, there is no doubt that project delays are a disaster. Costs mount by the day and often it does not take much to throw project economics out of the window.

The negative aspect has been highlighted in the Middle East with the almost doubling of expected costs for the planned Sumitomo Chemical/Saudi Aramco refinery revamp and petrochemicals project in Saudi Arabia. The estimated cost of this giant scheme has risen from $4.3bn (Euro3.6bn) to $8.5bn, according to the latest feasibility study.

A more concrete example of how tightness in the E&C market is hitting companies was given by South Africa’s Sasol in an investor update on 15 December. Sasol’s much vaunted Project Turbo is still not yet up and running. Start-up has been pushed out to either the middle of or later next year.

The polymer plants linked to the upgraded Secunda synthetic fuels plant have been hit by the negative impact on equipment delivery times of the tremendous surge in construction in the global energy and chemical industries. Sasol wanted the Turbo polymer plants to start coming on-stream alongside its synfuels catalytic cracker with low density polyethylene coming up first.

The delay is unfortunate given the current strength of polymer demand but that cannot really be said of the revelation by Celanese on 13 December of the apparent demise of its planned joint venture acetic acid project in Saudi Arabia with Tasnee Petrochemicals.

Celanese surprised many in the business when it announced this plan and the talk began then on impending overcapacity. Taking the project out of the acetyls picture – for a while at least – will help keep acetyls markets tight.

Comments from Celanese management this month, however, have put E&C tightness into perspective.

“Trying to get contractors to even bid on projects is a problem right now,” chief executive Dave Weidman said. Head of the company’s acetyls business, John O’Dwyer, added that there are just too many projects and too few engineers and contractors.

Consultants outlined this scenario a couple of months ago when they suggested that barely a single integrated cracker project in the Middle East or in Asia will be completed now without significant cost overruns. Indeed, currently it is simply not possible for all projects announced for 2008-09 start-up to be completed on time. Some will be deliberately postponed and some slipped quietly into the next decade.

Of additional and closely related concern is the fact that contractors and raw materials are being diverted away from the construction of chemical plants. Under these circumstances more project delays can be expected. And cancellations will also become more the order of the day.

By: Nigel Davis
+44 20 8652 3214

< previous article(ICIS Podcast: Chemical News Central 2 November 2009)

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly