Oil & Gas Industry Sees Planned Project Spending Topping $1.79 Trillion
The pipeline of planned capital and refining maintenance project activity within the Oil & Gas Industry being tracked globally by Industrial Info"s oil & gas industry analysis points at more than 10,821 projects valued at over $1.79 trillion. The latest data on the trends and drivers shaping the outlook were presented in Industrial Info's Asia Pacific Market Outlook webinar, which was conducted on March 6 by Shaheen Chohan, vice president of global analytics, Chris Paschall, head of global refining research, and Gordon Gorrie, head of global O&G research.
The U.S. and Canada continue to top the spending outlook, with $570 billion worth of production, storage and pipeline project opportunities still in the planning or engineering stages. Not all of this spending activity will move ahead as planned, with some projects being put on hold or cancelled. However, a continuously improving economic outlook across most markets, and a better demand profile, is resulting in more positivity coming back into the sector.
"Demand for the oil and gas market has continued to improve with increasing levels of rebalancing seen in the crude markets. Not all producers may like the current price levels, but there is more stability and less uncertainty, and this will help support improved capital investments. Although current crude price levels, whilst trending upwards, still continue to put stress on some of those higher-cost upstream grassroot crude projects such as offshore and Canadian Oil Sands -- the big play at the moment is on the gas side of the sector," Chohan said.
However, Paschall said the overall volume of projects coming to a construction start has tapered off somewhat, and overall project realization rates have fallen.
"We have certainly seen a drop in what is currently under construction this year compared to the same period last year," Paschall continued. "We are currently tracking a little over 2,500 projects that are under construction, worth a total investment value of $433 billion, compared to $473 billion for the same period last year, which equates to about an 8% decrease. This is a result of lower commodity prices being around for a lot longer."
Key U.S refinery projects that IIR is currently tracking include:
• $100 million naphtha hydrotreater unit addition at Marathon's Galveston Bay Refinery
• Galveston Bay Refinery $1.5 billion South Texas Asset Repositioning (STAR) project. The project includes the expansion of a crude unit, a hydrocracker unit expansion and construction of offsite utilities to support these projects.
• Valero’s Texas City Refinery $150 million replacement of four aging coke drums within the delayed coker. Now in the early planning stage, the project would kick off construction in second-quarter of 2021.
• 450 million Exxon Mobil Beaumont Refinery Expansion including the construction of a 40,000 BBL/d hydrotreater unit with Bechtel providing the engineering and construction.
• Andeavor’s 15,000 BBL/d hydrotreater addition at its refinery in Mandan, North Dakota which Burns & McDonnell is providing the engineering and construction.
Collectively, Asia Pacific accounts for $652 billion of project opportunities still in the planning or engineering stage, with Australia's gas-related spending currently topping $51 billion of planned spending to kick off in 2018 out to 2020.
However, the Australian market is in a state of transition according to Paschall.
"There is a shift in the types of projects we are seeing now. In 2012 through 2017, most of the investments moving forward were geared towards grassroot spending, building out the LNG [liquefied natural gas] export market, which captured 81% of the spending," Paschall said. "Now looking into the near term over the next 36 months, the grassroot spending continues to see less share of the allocation and we are tracking a shift in the composition and focus of projects towards more plant expansions and other in-plant spending dollars, now that the LNG plants have been built, backfilling natural gas as fields are depleted, plus the buildout of domestic pipelines. Taking a peek into the future longer term, we could see several LNG trains added to an existing plant, to meet the growing needs of natural gas industry."
Industrial Info's research teams are tracking more than 1,250 active oil and gas projects worth more than $208 billion across Southeast Asia. More than $103 billion of the $118 billion still being planned for a construction start in 2018-2020 is associated with natural gas. This includes natural gas and natural gas liquids (NGL) production, gas processing and treatment, pipelines and compressor and metering stations, and storage infrastructure, with over $36 billion associated with LNG.
In the U.S, Energy Transfer's Mariner East 2 (ME2) and 2X projects will include two parallel 346-mile pipelines to transport 273,000 barrels per day (BBL/d) of NGL from the Marcellus and Utica shales to the company's terminal in Marcus Hook, Pennsylvania. Mariner East 2 is expected to be completed first. Long said, "We continue to make progress on the construction of ME2, with 98% of mainline construction complete and 93% of HDDs completed or underway. At this time, we expect to place ME2 into service in the third quarter of 2018. Construction on ME2X also continues, and we expect the pipe to be online in mid-2019.
As with other midstream operators in the Permian Basin, output growth is causing a strain on available processing and takeaway capacity. "Due to continued strong demand in the Permian, we are nearing capacity in both the Delaware and Midland basins. As a result of this demand, Energy Transfer is building a second 200 million-cubic-foot-per-day cryogenic processing processing plant near our existing Arrowhead plant, and this plant is expected to be in service in the fourth quarter of this year." Construction on the $150 million plant began late last year and will bring total Arrowhead capacity to 400 million cubic feet per day.
Magellan Midstream is at work on a $30 million pump station for the Houston-to-Hearne line in Houston, as well as a $60 million crude oil and condensate terminal and a $30 million pump station for the Wink-to-Crane line in Wink. Magellan said in the press release that it is "evaluating optimization of the Delaware Basin [Wink-to-Crane] project through a joint venture or undivided joint interest arrangement with a third party.
Magellan has announced several tank additions planned at terminals across the U.S. South. This includes a $20 million in additions at the East Houston Refined Products Terminal in Houston, Texas, which is expected to add 620,000 barrels of capacity; $15 million in additions at the Doraville 2 Gasoline & Diesel Terminal in Atlanta, Georgia, which is expected to add 160,000 barrels of capacity; and $5 million in additions at the Macon Gasoline, Diesel & Ethanol Terminal in Macon, Georgia, which is expected to add 100,000 barrels of capacity.
One of the most widely anticipated pipeline projects in the region is Enbridge Incorporated's (NYSE:ENB) (Calgary, Alberta) $1.35 billion segment of the Line 3 Crude Oil Pipeline replacement project in Minnesota. The full, $7 billion program seeks to replace about 1,200 miles of the existing Line 3, which runs from Hardisty, Alberta, to Superior, Wisconsin, with new pipeline and associated facilities; the Minnesota segment will be lengthened from 285 miles to 338 miles, with a capacity for 830,000 barrels per day (BBL/d) of light crude, heavy crude and synthetic crude oil.
Enbridge is at work on $480 million in pump station projects related to the Line 3 program in Minnesota:
• $60 million pump station in Backus, Minnesota
• $60 million pump station near Cromwell, Minnesota
• $60 million in pump station additions in Clearbrook, Minnesota
• $60 million in pump station additions in Plummer, Minnesota
• $60 million in pump station additions in Viking, Minnesota
• $60 million in pump station additions in Donaldson, Minnesota
• $60 million in pump station additions in Palisade, Minnesota
• $60 million in pump station additions in Park Rapids
Natural gas demand drivers remain strong and Industrial Info is tracking daily project activity that shows two trends playing out. The first is the major buildout of LNG regasification capacity and supporting transmission infrastructure, which is both competing with or complementing regional or localized upstream natural gas production and processing investments, and trans-border pipeline and associated compressor station buildout.
Sempra LNG & Midstream, a subsidiary of Sempra Energy (NYSE:SRE) (San Diego, California), recently awarded TechnipFMC (London, England) and Kiewit Corporation (Omaha, Nebraska) contracts to provide engineering, procurement and construction (EPC) services for a major liquefaction project in Mexico.
According to Gorrie, "different markets are adopting different supply strategies; it's about diversifying your supply risk and building greater levels of optionality into how you fulfil your long-term energy needs." Industrial Info is tracking $114 billion worth of investments globally across nearly 400 active LNG regasification projects.
"On the demand side, we are tracking almost 1,400 natural gas-fired, new-build [grassroot and unit addition] power generation projects globally valued at $564 billion," Gorrie continued. He added that not all of those projects will be fed by LNG, but Industrial Info's data shows that there are 185 active new import projects valued at $80 billion, which is associated with 32 new, first-time buyer countries of LNG.
NextEra is currently working on combined cycle power/natgas projects such as the Okeechobee Clean Energy Center in Okeechobee, Florida. Construction on the 1,750-megawatt (MW) combined-cycle power plant kicked off in early 2017, with Zachry Industrial Services Group (San Antonio, Texas) providing engineering, procurement and construction (EPC) and Iberville Insulations LLC (Baton Rouge, Louisiana) acting as a subcontractor. Ketchum said the $1.2 billion project remains on time and on budget. Construction is expected to wrap up in summer 2019.
Nextera is also was progressing with another combined-cycle project, the Dania Beach Clean Energy Center in Fort Lauderdale, Florida, for which the Florida Public Service Commission recently granted the determination of need. The 1,200-MW plant will replace an older plant on the site, helping reduce air emissions by 70%. Construction is expected to kick off next year, with completion planned for 2022.
In conclusion, the oil & gas industry overview for oil & gas investments continues to look promising on the back of strong pan-regional demand fundamentals.
"The bulk of regional project activity will be channeled toward natural gas. Crude spending is still moving forward, but the composition and shape of that spending [is] with a focus on smaller, in-plant capital projects geared toward production efficiencies and margin," Chohan said.
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