Thanks for listening to the EKT Interactive Oil and Gas Podcast Network.
What Does 2018 Hold for The Downstream?
In this episode of Drill Down, we give you an executive summary of recent Hydrocarbon Processing (HPI) webcast for the downstream industry forecast. We welcome back Joe Perino to the podcast as we discuss the HPI outlook for downstream investments over the next 20 years.
We highlight Hydrocarbon Processing (HPI) industry in three sectors:
- Refining
- Petrochemicals and
- Gas processing and the LNG industry
Topics and Time Stamps:
[00:25] Three publications we recommend
[01:20] Summary the HPI Downstream Outlook Webinar
[03:05] Joe Perino discusses Refining & Petrochemical outlook
[07:45] Marty Stetzer discusses LNG outlook
[12:00] Final wrap up – Trends looking favorable
Relevant Links:
Drill Down Oil and Gas Podcast: Downstream, Refining and Trends
Big Data and Analytics in Refining
Related Episodes:
Sound Off – Changing US Refining Landscape
Oil 101 – Introduction to Downstream
About the Experts
Marty Stetzer
In parallel with his 25-year energy career, Marty has over 15 years experience in providing custom digital training programs to a variety of oil and gas technical audiences – like EKT Interactive Oil 101.
Marty has been a consultant to U.S. and international oil and gas
companies since 1986, including 13 years with PriceWaterhouseCoopers.
He has 18 years management experience with Schlumberger, Superior Oil-Mobil, Wilson Industries and Exxon.
Marty has worked with numerous national and international oil and gas company managements to help improve business performance across upstream, midstream and downstream operations.
Like many of the team, Marty is active in the Society of Petroleum Engineers and often presents at industry forums.
Joe Perino
Joe brings over 40 years of experience in upstream, midstream and downstream. He has worked in engineering, maintenance, sales, marketing and business development, and technical, IT and management consulting.
Joe started his career with Diamond Shamrock as a process engineer, then spend 20 years with process automation and supply chain technology suppliers Emerson, Honeywell and i2, before joining the consulting ranks with IBM, Logica North America, KBC Advanced Technologies, and Schlumberger Business Consulting.
Joe was involved early on with the Digital Oilfield concept and has consulted on production efficiency and effectiveness improvements for KOC, Pemex, Petrobras, Sonangol and Statoil, and was a member of the Shell Smart Fields and Chevron iFields teams while at Schlumberger.
Today he focuses on using technology to improve the business as Digital Oilfield (DO) has evolved into technology-enabled Operational Excellence and now sees IoT, Big Data and Analytics as the next step in the evolution in DO. He works with several firms as a content contributor, in business development and as a podcaster on EKT Interactive, Inc. Joe holds an B.S. in Chemical Engineering from the University of Notre Dame and an M.S. in Finance from the University of Houston. He has also completed executive education at Northwestern’s Kellogg School of Management and Harvard Business School. He is active in the AIChE, ISA, COS, NOIA, OESI, SPE and Oil Council.
Links:
HPI Downstream Outlook Webinar
3 Publications Oil and Gas Industry Execs Count On
Sponsors:
EKT Interactive Oil and Gas Podcast Network
Oil 101 – A Free Online Introduction to the Oil and Gas Industry
Transcript:
Marty:
Hi everyone! Hope the 2018 is starting off well for you. Welcome to the drill down with Marty Stetzer. This podcast as part of our EKTi Oil and Gas Learning Network, and brought to you by oil 101. Our free introduction to oil and gas.
We often recommend that our community listeners follow three major publications to stay in touch with the industry opportunities and challenges. They are Hydrocarbon Processing or HPI, world oil, and the Oil and Gas Journal. Each publication has a different focus and each one is doing it annual outlook for 2018. As the first in a series today, we’re presenting a 13 minute executive summary of a recent one hour HPI webcast on the positive future outlook for downstream investments. Today I’m joined by Joe Perrin, a longtime friend and industry veteran. You’ve heard Joe’s sound off series on our Website we’re happy to have his help today as we present the global opportunities in the downstream over the next 20 years.
Marty: Joe welcome back.
Joe: Thanks, Marty, It’s really good to be here.
Marty:
Here’s a quick summary of where we’re headed. In December 2017 webcast, two HPI editors presented the State of the global downstream processing industry and the major trends moving into 2018 and beyond. They covered construction and investment in three sectors: refining, petrochemicals, and gas processing and the LNG industry.
HPI has a respected survey that now tracks almost two trillion dollars and seventeen hundred downstream projects through 2030. These numbers represent projects that are either announced or in some phase of the project planning, engineering, or construction cycle.
In summary, Asia Pacific dominates the global trend in total active projects led by projects in China and India. Then the Close’s contenders are the Middle East followed by the United States. In 2018, HPI sees downstream spending at approximately 361 billion dollars. About 46 percent in petrochemicals, 36 percent in refining, and the balance in gas processing and LNG. In the near term capital spending should increase over 2017 with major refining projects in Asia and the Middle East. There is also a massive petrochemical projects spending in Asia and the Middle East and the U.S.. as you’ll hear from Joe. Gas processing and LNG investments are planned for the U.S., Canada, Australia, and gutter.
Let me turn it over to Joe to cover the refining and petrochemical presentation made by Lee Nichols, an editor and associate publisher of HPI.
Joe!
Joe:
Thanks again, Marty! In refining. Some background is first needed.
Depending on the forecast. Below oil demand is expected to increase from 95 million barrels per day of 2015 to somewhere between 99 and 102 to 103 million barrels a day by 2021 or 2022. Within that same timeframe HPI is tracking about seven to eight million barrels a day of new refining capacity that should begin operation.
Now over the past year..well that is 2017, some 70 new refining projects were announced. The majority of these projects about 60 will be located in the Asia Pacific and Middle East regions. There is an increase also in the integration of refining with petrochemical operations, especially in grassroots projects. There are also numerous investments to increase energy efficiency, crude oil processing flexibility, sulfur reduction, and a number of other initiatives basically making refining a more complex. China is continuing to build their refining capacity. Some will be the largest in the world. We’re also seeing a big new trend in China and that is integration of refining and petrochemical operations. I should add also that the major refiners in China are squeezing out these small teapot refiners who have been disrupting the market with non-specs quality products.
Now for petrochemicals, HP I see strong growth in the petrochemical sector to the rest of the decade. In 2017, 50 percent of the announced downstream projects were petrochemicals. HPI now attracts more than 300 and 30 new petrochemical projects announced over the past three years. And they represent well over 100 billion dollars in total capital expenditures in Asia Pacific, the U.S., and the Middle East. Those three regions combined equal about 70 percent of the total active petrochemical projects, roughly 325 projects. There is some concern about overcapacity in the U.S.. However, the growing demand in Asia-Pacific will be met by billions of dollars of new petrochemical capacity one way or the other. About half of the Asia-Pacific petrochemical products are in China. To satisfy demand, China will add nearly 15 million tons a year of ethylene capacity by 2025. The majority of the plants will also produce polyethylene.
There’s also a big surge in demand for polypropylene. To satisfy the polypropylene demand, China has also invested heavily in the construction of unconventional processing units like: coal-to-olefins, methanol-to-olefins, and propane dehydrogenation plants.
The U.S. petrochemical industry is in the midst of one of the largest expansions ever to occur in North America. There will be an incredible amount of ethylene and ethylene derivatives capacity. Most of that product will flow to Central and South America. Continuing the trend that refining has of exporting refined products to Central and South America due to their limited refining capacity. The total announced capital investments have eclipsed $135 billion; in products like capacity expansions, upgrades, plant restarts, and greenfield facilities. A very large percentage of that U.S. investment will be made by foreign firms such as Saudi Armco partnering with Exxon, here in the Gulf Coast. The leader of the Middle East for both refining and petrochemicals will continue to be of course Saudi Arabia. They intend to nearly triple their production of petrochemicals from about 12 million tons per year corruptly 34 million tonnes a year by 2030.
Marty:
Thanks for that summary, Joe.
Now, into the LNG story. It was presented by Adrian Bloom, an executive editor of HPI and the editor of gas processing magazine. According to HP data, current global LNG production capacity is just under 340 million metric tons per year by contrast 2016 LNG demand was measured at only 265 million metric tons. This obviously shows a large oversupply imbalance.
Adrian then covered each major supply point that was considering expansions. Some of the expansions that are on record are equivalent to a new LNG train coming on stream every two or three months over the four year period from 2016 to 2020. For example, in 2017, the U.S. alone announced over 40 LNG export terminal projects. This accounts for an investment of about $200 billion dollars. By 2020, HPI expects about 72 million tons per year of LNG capacity to begin operation in the U.S.
A January 21st, 2018 fuel fix article cited that the U.S. could become a net exporter of natural gas in 2018. This would be for the first time since 1957. Now due to an increased sale of LNG and natural gas to Mexico. Additionally, the U.S. is already shipping LNG to at least 20 foreign markets. This is thanks to the booming U.S. natural gas production unleashed by the so-called shale revolution.
Canada has also announced over two dozen LNG export terminal projects at a cost of more than $170 billion dollars. However only a fraction of that amount could be built. There have been project delays due to stringent government regulations, a lot of public opposition, infrastructure constraints, and the current global glut in LNG supply.
Australia is currently the world’s second largest exporter of LNG after gutter; thanks to the startup of three new large export projects in Queensland. Australia could overtake Gater as the world’s largest exporter of LNG by 2019. However, in July 2017, Australia established a law that allowed the government to limit LNG exports if the domestic power market is not adequately supplied. That law will remain in effect through 2022. If the Export Limitation is ever triggered, it could potentially put an estimated $50 billion dollars of LNG investments at risk.
Finally, Gutter is also planning Brownfield LNG expansions that could shut down Australia’s ambition to become the number one LNG supplier. Gutter produces about 86 million metric tons per year of LNG today, but the planned expansions could take its output to 100 million metric tons. New types of projects are being considered to take advantage of the stranded gas reserves offshore Australia and elsewhere such as small scale, floating, LNG vessels, and small scale development of onshore LNG terminals. These would be built from modular components and they offer a much quicker time to market.
So there you have it.
Thanks to HPI Annual Investment survey there is a very positive outlook for capital investment and related job opportunities in refining petrochemicals and LNG.
We’re really happy to have Joe’s input and help as we presented this executive summary.
Joe, anything to add before we wrap up?
Joe:
Yes, Marty as you pointed out earlier things are looking up for the HPI. We have relatively low natural gas prices here in North America, which is fueling petrochemical investment and LNG plant construction. We have a relatively healthy oil price now in the low 60s. We have surging petrochemical investment not only in the Middle East and in Asia Pacific but we see it right here in our own backyard in the Gulf Coast from the likes of Phillips 66, LyondellBasell, and Exxonmobil. But not only here but for the first time up north in your old hometown of Pittsford where Shell is building in ethylene cracker. So things have indeed changed and things are looking up certainly in the near term.
Marty:
If you would like the link to the actual HPI webcast, just drop me a note.
We were also let you know when our 2018 upstream outlook from world oil is scheduled.
To learn more about the breadth of the oil and gas industry, be sure to check out our new and improved oil 101 modules at www.EKTinteractive.com.
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