Middle East projects keep engineering & construction firms confident

Overview: Building on strengths

31 July 2009 00:00  [Source: ICB]

Major E&C firms remain confident, backed by several large upcoming Middle East petrochemical projects as well as photovoltaics

WHILE THE global recession has put the brakes on several petroleum and ­chemical-related engineering and ­construction (E&C) projects in Western Europe and North America, E&C firms with a global perspective remain upbeat. There are still great opportunities, they say, in the Middle East.

"Large chemical producers are all looking at the Middle East because of the access to cheaper feedstocks," says Ivor Harrington, senior vice president for chemicals for US-based Fluor. Company revenues in 2008 were $22.3bn (€15.8bn).

Because North American and European markets are so challenged right now, many projects in those regions are either down or delayed. "But the company's largest opportunities are still in petrochemicals, and especially in Saudi Arabia," where Fluor has had a presence for more than 60 years, notes Harrington. "Companies like SABIC and Saudi Aramco still have huge projects going on."

Despite having a large refinery project in Kuwait cancelled, this year Fluor has signed several attractive deals. These include: a $443m refinery in Portugal, a 250,000 tonne/year Saudi acrylic ­monomer ­facility, a $268m cryogenic plant for Pemex in Veracruz, Mexico, and a $1.5bn ­engineering, procurement and construction (EPC) contract to develop Canadian oil sands.

"The CEOs of E&C companies ­operating in mature markets where the ­construction sector is severely depressed would do well to keep looking overseas," says Jonathan Hook, global E&C leader for the UK branch of global consultancy PricewaterhouseCoopers. The firm released a report in March called Future Proof Plans: E&C Industry Summary.

PIPELINE FEVER
The OPEC 2009 World Oil Outlook report projects that about $2.3 trillion will be invested to build and expand upstream facilities up to 2030.

The report also estimates that around $780bn will be invested from 2008 to 2030 to increase refinery processing capacity - and this does not include the related infrastructure investments beyond the refinery gate, such as those required to build port facilities, storage or pipelines.

McDermott International certainly still considers it "an active environment" for petrochemical E&C projects, says John Fees, CEO of the US-based E&C and specialty manufacturing and services provider. Early this year, the company won "a fairly substantial job" with Saudi Aramco for the Karan Offshore Platforms and Subsea Pipelines project in Khursaniyah, Saudi Arabia. Scheduled for completion by 2011, the facility will process 1bn standard cubic feet/day of natural gas.

McDermott had sales of $6.6bn in 2008, up from $5.6bn in 2007, and $4.1bn in 2006. The company had a project backlog of $10bn at the end of the first quarter. McDermott also builds reactors for the US government, its biggest customer, "a fairly robust government service business," says Fees, with over $1bn in work for the US Navy in nuclear power systems. The company has also built nearly 40% of the coal-fired utilities in US.

GROWING MARKETS
Asia, specifically China, is also providing growth with some "big programs," says Fluor's Harrington, as are Russia and Eastern Europe, although to a lesser extent.

The age of the mega-project is hardly over, according to Fluor. "Some of the sizes of these projects are unbelievable," says Harrington. "We used to think of a mega-project as one that cost $1bn, but (the cost of these is now around) $3bn to $10bn per project, and they are still out there."

Especially with large-scale installations, clients have been cautious, sometimes delaying operations. But the bookings have not ceased, either.

US-based E&C giant Foster Wheeler continues "to see plentiful prospects and clients with the desire to invest," said chairman and CEO Ray Milchovich during a June conference call.

Total company sales were $6.85bn in 2008, $5.1bn in 2007 and $3.5bn in 2006, with Foster Wheeler's Global E&C Group generally accounting for about 60% of revenues (versus the company's Global Power Group). The company's E&C backlog stands at almost $17bn.

Recent awards to Foster Wheeler's E&C group include the 15m tonnes/year grassroots petroleum refinery to be built in Paradip, India, for Indian Oil Corp. Milchovich calls this "our largest-ever booking."

There, Foster Wheeler will be responsible for the 15 key refinery units, including crude distillation units, reforming, alkylation and butane isomerization units, plus offsites, utilities and infrastructure.

Other large jobs Foster Wheeler is engaged in include Saudi Aramco's Karan project, "one of the largest petrochemical plants ever to have been built," said Milchovich. The company has so far only booked the front-end engineering and design (FEED), "even though we think we're very well positioned for the EPC, and our belief continues to be that the EPC will proceed."

The firm has also booked a coking pillar project for UK-based BP at its Whiting refinery in Indiana, US, and a framework contract with Sasol that covers feasibility studies, FEED work, and design services for all of the sectors in which the South African energy and chemical company is active.

Foster Wheeler is in charge of a refinery upgrade project for Colombia's state-operated energy firm Ecopetrol, and is involved with UK-based energy and chemical company Shell's colossal 750,000 tonne/year monoethylene glycol (MEG) project in Singapore, one of the largest in the world.

Additionally, Foster Wheeler has received a basic engineering contract to develop offshore export facilities in Iraq.

The potential opening of Iraq oil fields to foreign oil companies is "another positive sign of more work," says Fluor's Harrington. "The Middle East still has a tremendous amount of opportunity for us."

SOLAR ENGINEERING
In addition to petrochemicals, Fluor is being contracted to construct more polysilicon plants, "mainly in the Middle East," as well, says Harrington, with some in China and Russia. "These are all large projects, quite sizeable, and with proven companies."

Polysilicon is the key raw material in the manufacture of photovoltaic cells, used for solar energy applications.

Polysilicon assignments accounted for 35% of Fluor's $5bn chemicals backlog at the end of 2008. Company sales in 2008 were $22.3bn, an increase of 33.5% over 2007's revenues.

Meanwhile, McDermott shipped its first thermal solar collector to US-based solar energy company eSolar this year, currently being erected in Southern California. "We consider that to be a viable market for us in terms of being able to turn sun into steam and produce megawatts out of that an ongoing basis," says Fees.

LOOKING IN AND OUT
Tough times often bring introspection. Foster Wheeler's Milchovich admits: "We're pretty narrow in terms of what we offer. So what we're trying to do is we're trying to fill the geographic holes. And we're also trying to broaden the product line technically in related product lines because we don't support the philosophy that to diversify, you go out and get something you know nothing about."

McDermott's Fees also sees opportunities in potential regulation. While there are no commercial-scale technologies currently available for CO2 capture and sequestration (CCS), "I don't consider that to be a technical difficulty," he says. "I consider it to be a process engineering problem - not dissimilar from how we have done process engineering on the past for flue gas desulfurization or other things."

"Excellent opportunities exist for those companies that can develop a proactive strategy to capitalize on the opportunities climate change creates," says Hook.

McDermott spent roughly $10m in the first quarter of 2009 on research towards the development of a scale demonstration for CCS.

While he thinks it is "inconceivable" for the economy to remain in the dumps for much longer, Foster Wheeler's Milchovich admits that it may not be a smooth ride out.

"We're going to see quarter-to-quarter volatility, we're going to see some ups and downs, and we're going to have people [wringing] their hands over that, but we're not wringing our hands," he says. "We're bullish about this business."

Find out more on planned projects in the Middle East

Save 30% on a subscription to ICIS Chemical Business

By: Ivan Lerner
+1 713 525 2653

< previous article(VIDEO - ICIS news Europe Lunchtime Bulletin 18 January 2010)

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