During the first half of 2014, there was hope that the hydrocarbon processing industries (HPI) — which includes crude oil refining, gas processing and petrochemicals — would grow nicely after its recovery from the financial crisis of 2008. This had reduced the number of active projects from 5,473 in 2009 to 3,435 in 2013, reflecting the decline in oil demand and leading to a more cautious approach throughout the HPI.

But the industry was hit by another crisis and that is the precipitous fall in crude prices as in June 2014 from about $110 (Dh403.70) a barrel to less than $30 in January 2016 before recovering to about $54 in anticipation of a reduction in production in accordance with the agreement between Opec and non-Opec producers.

According to the well informed Hydrocarbon Processing magazine in its December issue, the number of project announcements fell from 285 in 2015 to 185 in 2016. The number of announcements for both years is 470 — the impact of the oil price decline is quite obvious but it is not even across all regions.

In Asia-Pacific, 140 projects were announced, mostly in China and India, to cater to growing domestic demand and the need to produce higher specification products. Then came the US where 130 projects were announced mostly to take advantage of the greater availability of natural gas for processing, petrochemicals or for LNG and its exports.

Another indicator of slowdown

In Europe the growth comes mostly from 75 new projects in Eastern Europe and the CIS in their attempt to modernise facilities. The Middle East, the most affected region by the fall in crude oil prices, announced 65 projects to catch up with growing domestic demand and export opportunities. In all of Africa, Latin America and the Caribbean, only 60 projects were announced.

There is another indicator to the slowdown. In 2014, the magazine estimated expenditure in HPI to be close to $300 billion as compared to $230 billion in 2013. Its estimate for 2017 is only $321 billion despite the increase in the cost of equipment, material and engineering services.

This expenditure reflects slowdown in building new grass roots refineries while completing upgrades and retrofits and “expansions to meet new sulphur and emission regulation”. The expansion of ethanol and biofuel blending is expected to continue and will eat into potential refinery expansion.

While there is surplus refining capacity worldwide, there are 700 active refining projects, with 40 per cent under construction. In petrochemicals, the surge of the past few years was mostly to satisfy domestic demand and to integrate with the refining and gas processing industries, especially in the Asia-Pacific, Middle East and US regions.

Yet “the outlook for the industry is not as bullish as it was 18 to 24 months ago”.

Hindrance to new investments

Natural gas, the fastest growing fossil fuel and petrochemical feedstock is growing in both supply and demand spheres, which calls for increased investment in gas processing, feedstock preparation, LNG and regasification facilities. But like crude oil, gas prices have virtually halved in recent years and this may become a hindrance to new investments especially that there is now surplus capacity in LNG.

The magazine states that the total estimated cost of active HPI projects is close to $1.6 trillion. Some of these are still in the planning stage or under front-end engineering and design. Some of them may be subject to delays or deferment or even outright cancellation.

But for all these projects to be completed satisfactorily, crude oil and natural gas prices will hopefully stabilise at a convenient level.

The oil and natural gas will remain the major energy and feedstock sources for the foreseeable future. Our region as a major producer of both should seize the opportunity to continue modernising facilities and build new ones to satisfy growing domestic demand and maintain export markets.

But provided that modern product specifications are adhered to. Increasing capacity should not be the only objective. Environmental protection, staff training, operational excellence, energy conservation, productivity and profitability improvement should be among the aims of governments and HPI companies.

Avoiding unnecessary competition and duplication of projects should call for some form of coordination and perhaps it is time to invigorate joint ventures which involve two countries or more. This may help in the integration of other sectors and bring about many desirable consequences of labour mobility and economic growth.

I hope I am not dreaming.

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