US shale benefits: North America to spend $27bn on refining projects

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North America to spend $27bn on refining projects


North America to spend $27bn on refining projects

Posted on Oct 16, 2019



Diversification into new revenue streams such as petrochemicals and export markets as refiners seek additional profit margins is keeping the short-term outlook for refining project spending healthy, according to an analysis by Industrial Information Resources (Industrial Info).



The North America refining project outlook has been healthy for some time and this trend looks set to continue in the near term.

Current active capex project pipeline projects at planning and engineering stage are estimated at $35 billion in North America, Industrial Info said.

Looking ahead, there will be some softening, but growth overall continues. 

North America Refining Projects Outlook

Looking ahead, North America could have up to $27.7 billion in refining projects with a kickoff start date of 2021 to 2022, Industrial Info said in its Global Refining Project Outlook presentation.

While grassroots spending represents 46% of the total projected spend, the project probability for these types remains low, Chris Paschall, Vice President of Research, Global Oil and Gas and Petroleum Refining said.

Of these, there are eight grassroots projects totaling $12.7 billion. One of these has already started site prep but still looking to secure final funds, Paschall said.

Crude diet flexibility to reduce feedstock costs is driving plant expansion activity, he said.

While spending to meet the ultra-low sulphur mandate has slowed down, compliance with the IMO 2020 regulation is spurring investments in coker and cat project announcements. 

Some projects related to IMO 2020 continue to be in construction or are even in the planning stage.

Nearly $7.5 billion of the projected $27.7 billion total would be for unit additions. These are projects adding brand new crude and auxiliary units at existing plants.

$2.5 billion would be plant expansions. This includes projects expanding capacity at both crude and auxiliary unit, plus the balance of the plant.

Other in-plant capex projects not adding any new capacity will total $2.5 billion as well.

Maintenance and turnaround projects are expected to total around 381 projects and valued at $2.5 billion as well. The maintenance forecast increases in 2020 over one year ago levels.

Reasons for investment

North America will continue to upgrade and improve existing infrastructure as it has the highest number of refineries of any region.

Midwest refiners’ margins are the healthiest of other regions because of the light, sweet crude processed in the U.S. which is cheaper than other types of crude, as well as higher prices earned for refined products.

West Texas Intermediate (WTI) oil has continued to outpace margins in other regions. In addition, U.S. refining margins remain high supported by tight product markets as a result of extended turnaround activity and unplanned outages earlier this year.

Singapore margins have recovered as a result of outages in the region but remain the worst performing of the global hubs. European cracking margins remain firm due to lower activity in the region.

Meanwhile in the U.S., there continues to be support for additional projects because gasoline and diesel demand remains stable and the export market is strong where a lot of U.S. Gulf Coast refiners are shipping into Latin America and some into Europe, Paschall said.

Demand outlook

Looking out farther toward 2030 to 2040, Industrial Info still sees refined product growing but in different areas. Gasoline demand will continue to increase in the short term with more autos on the road globally, but it starts to slow down around 2035 much slower rate.

Diesel demand continues to rise. More diesel vehicles will be on the road making this refined product a growth engine for the next 20 years.

Residual fuel oil demand will start to reverse. This is largely attributed to power plants switching to run on natural gas instead of bunker oil because of cost.

For now, U.S. gasoline demand set a record in July 2019; at 9.928 million bbl/day, which was the highest since 1991, Paschall noted.

Meanwhile, the U.S. continues to produce a lot of oil and exports about 3 million bbl/day and about 5 million bbl/day day of refined products. Exports into Latin America are expected to remain healthy.

Global refining projects outlook

North America is ranked fourth in terms of projected refining project spending behind various areas of Asia and Africa.

Western Asia has the highest ranking spend outlook at $78.2 billion which is attributed to growth in the Middle East. South Asia has the second highest spend outlook with $76.2 billion and Africa is the third highest with $75.8 billion in projects.

Grassroots spending remains dominant in the spending outlook, but Industrial Info expects this will slow down as worldwide global growth forecast projection drops.

More efficient vehicle fleets will continue to have an impact on gasoline demand in the future but will be offset by growth in the petrochemical and diesel markets.

Globally there are currently 653 projects under construction with a total investment value of more than $100 billion. This is down from more than 700 last year as project realization declines have been seen in Asia and Russia.

Projects continue to be announced but probability of all going through is unlikely as the supply-demand situation is becoming unbalanced.

Crude oil stocks rose by 7.4 mb/day May to 1,141 mb/day, the highest level since November 2017.

Global refining rates decreased by 0.7 mb/day in the second quarter of 2019 compared with a year earlier, the largest annual decline in over 10 years.

“I think the market will have a tough time absorbing a lot of this capacity that comes onto the market so I think a lot of these announced projects may have lower probability especially as you look further into the future. Even if some get started, there may be problems securing funding for completing these multi-billion-dollar projects,” Paschall said.

“Trying to get banks or even finance themselves could be challenging in this market. At the end of the day, we don’t need it (excess supply). Demand will not be robust enough to absorb all this (announced capacity),” Paschall said.

Industrial Info estimates there are more than 3,000 active projects at the planning or engineering stage for a kickoff of 2020-2021. These projects are valued at $274 billion.


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ExxonMobil scouting for potential cracker site in Beaver County


ExxonMobil Corp. has been quietly scouting Beaver County for a suitable location to build a petrochemical plant that could pursue the same kinds of plastics manufacturing as Royal Dutch Shell's ethane cracker now under construction, multiple sources have told the Pittsburgh Business Times.

ExxonMobil (NYSE: XOM), one of the world's largest companies, is well-known as an oil producer, but it, like Royal Dutch Shell (NYSE: RDS.A) and other multinational oil and gas companies, also has a petrochemical division to convert fossil fuel byproducts like ethane and propane to plastics. Sources said that ExxonMobil has been looking at Appalachia for a potential petrochemical plant for the past three or four years, spurred by Shell's construction in Beaver County as well as other potential crackers by PTT Global Chemical in Belmont County, Ohio, and Braskem near Parkersburg, West Virginia.

Sources told the Business Times that while ExxonMobil seemed to have cooled on the plans since then, recently plans started heating up again. Brokers representing the company were in Beaver County last week, talking about a potential petrochemical plant to serve its customers.

One source familiar with ExxonMobil's search, a major land owner in the Beaver County area, said a broker offered the basic parameters of its site requirements in the region. Another source told the Business Times that at least one site in Beaver County had been visited.

ExxonMobil, one source said, seeks in the range of 240 acres along the river — land that's flat or can be made flat, with river access, with the need for environmental remediation of a site acceptable. The source indicated that ExxonMobil was working to narrow its options down to three sites — it's unclear whether all three sites are in Beaver County — and that it hopes to secure a site in the region by the end of the year.

It's likely that ExxonMobil would be looking at building a petrochemical plant along the lines of the Shell polyethylene facility in Potter Township. But a source said ExxonMobil may not use ethane as feedstock for its plant. There's also no guarantee that western Pennsylvania is the only potential location for Exxon; there are other sites in West Virginia and Ohio that also could host a petrochemical facility, including the Parkersburg site that Braskem recently pulled out of in West Virginia.




ExxonMobil didn't respond to a direct question on whether it had been looking in Beaver County.

"ExxonMobile continuously evaluates its global portfolio of businesses, depending upon fit with its overall strategic business objectives," an ExxonMobil spokeswoman emailed. "We have a range of existing and new petrochemical investments along the U.S. Gulf Coast. These are covered by ExxonMobile's Growing the Gulf initiative."

ExxonMobil in 2018 opened a 1.5 million-ton-a-year ethane cracker in Baytown, Texas, that is similar in size and scope to the ethane cracker that Shell Chemical Co. is building in Potter Township, Beaver County. And in June 2019, ExxonMobil and Saudi petrochemical company SABIC announced plans to build an even bigger ethane cracker in San Patricio County, Texas.

There's no guarantee that ExxonMobil will eventually build a petrochemical plant in Beaver County or elsewhere in Appalachia. But a multinational company taking another look at building a cracker here would be a big shot in the arm to a burgeoning petrochemical industry that got a home run with Shell's decision but hasn't yet gotten the follow-on investment that had been expected in the wake of the first cracker.

Shell's decision in June 2016 to go ahead in Beaver County led industry and economic development officials to market Appalachia in general and southwestern Pennsylvania in particular as prime for investment in the chemical industry. Local and state development officials have spent a lot of time trying to market a sometimes-wary petrochemical industry at the benefits of following Shell's lead. A 2017 IHS Markit study, commissioned by the Wolf administration and the TeamPA Foundation, estimated there's enough natural gas liquids to source four more plastics manufacturing plants in the region.


And the Trump administration has supported such plans, including considering a loan application by Appalachian Development Group to put a large-scale natural gas liquids storage facility and trading hub in either West Virginia, Ohio or Pennsylvania. That storage hub would be crucial to plans to build any more crackers because, while the ethane and propane are available, there needs to be a place to put it before use. Shell is using a long pipeline system for just-in-time manufacturing, with only three days of supply on hand when its cracker gets up and running early next decade. But most other crackers would need a storage system for the vast amount of raw material needed to feed a petrochemical plant.

Energy Secretary Rick Perry told the Business Times in August that there should be a strong petrochemical industry in Appalachia not only for economic development, but also protection from natural disasters along the hurricane-prone Gulf Coast where the major petrochemical plants are built.

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