Hydrocarbon processing industry eyes growth

It is just over three and a half years since the financial and economic crisis hit the world, starting in the United States. But analysts will probably continue to talk about that crisis for many more years to come.

Although the crisis is somehow contained by governments' intervention all over the world, the recovery is slow and fragile, and the fear of a new recession is still there. The sovereign debt crisis in Europe is one manifestation of such fears.

The hydrocarbon processing industry (HPI) was affected by the crisis just as any other economic activity. Oil demand fell over the next two years, compared to what it was in 2007, and energy growth in general was less than what was previously expected.

This situation led to the delay, slowdown or even cancellation of many HPI projects, though some rethinking is under way, judging by the expected expenditure.

In a recent survey by the industry journal Hydrocarbon Processing Magazine, spending in the HPI in 2012 is expected to be just over $222 billion (Dh815.26 billion), which is only 1.1 per cent over that of 2011.

Such expectation is driven by the pace of economic recovery, the energy growth in the developing countries (which is expected to be 93 per cent of world growth), the continued role of fossil fuels in energy supply, the increased production of oil and gas from unconventional resources, the decline of nuclear power in the wake of the Fukushima disaster, and the continued dominance of crude oil in the energy mix.

Spending to rise

Renewable energy sources will grow fast but their contribution is still modest.

Spending in the petrochemical and chemical industry is expected to be the highest at $108 billion followed by spending in refineries at $87 billion and gas processing at $23 billion. However, capital expenditure in HPI is only $56 billion, maintenance $66 billion and operating expenditure close to $100 billion, reflecting the importance of this category and the need for management to be alert.

Although spending is expected to increase, the number of construction projects in 2011, as detailed in the survey, was 4,329 compared to 5,732 in 2010 and 5,104 in 2008. The refining and petrochemical projects are at the core of the total, followed by gas processing.

Needless to say, the greatest number of projects is in Asia Pacific, where 1,277 are reported, reflecting the continued economic growth, especially in China and India as well as other countries.

Domestic consumption

Europe reported 956 projects, reflecting the need to catch up with ever-changing product specification and environmental legislation.

In the Middle East, 872 projects are reported active, reflecting the need to satisfy domestic consumption and to export surpluses, and to make use of the close sources of crude oil, gas and other feedstock.

A few years prior to 2008, many refining projects were initiated such that there was fear of over-capacity. The crisis might have affected that notion, as the delay or cancellation of some projects materialised.

However, capacity will continue to be built in China, and five million barrels a day of refining capacity is expected to be built in Asia Pacific over the next three years. The Middle East countries are also planning substantial capacity increases, especially in Saudi Arabia, Iraq, Qatar, Kuwait and Iran.

Biofuels have affected refinery growth negatively. There is now overproduction of these components, where overall worldwide capacity is now close to 2.4 million barrels a day and many plants are underutil-ised except in Europe where governments have mandated the use of biofuels to the extent of 20 per cent of requirements by 2020.

Natural gas

There is awareness that biofuels production is eating into the food supply and raising its prices. India banned the import or manufacture of biofuels if they originate from edible oils.

In spite of all this, natural gas consumption continued its growth, where in 2010 it was 3,169 billion cubic metres compared to 2,947 billion in 2007.

The outlook for the HPI is indeed optimistic, barring a new recession that may cast doubt again on the prospects of the industry.

The writer is former head of the Energy Studies Department in Opec Secretariat in Vienna.