Believe it or not, the hydrocarbon processing industries (HPI), which includes petrochemicals, petroleum refining and gas processing, continues to be affected by the financial crisis of 2008. But an upturn may be in the offing.

The impact of the crisis manifested itself in the slow pace of recovery, the decline in oil demand over two years and modest growth for other energy sources. According to the ‘Hydrocarbon Processing’ magazine in its market data for 2014, these factors reduced the number of active projects worldwide, from 5,473 in 2009 to 3,435 in 2013, reflecting a more cautious approach throughout the HPI.

The drop varies by region, but the steepest is in Europe and driven by economic conditions and surplus capacity in some sectors, especially in refining. This factor alone is not sufficient to show the activities in HPI, as projects small and big are treated equally here and the trend is for big and complex projects.

At the same time, world economic growth is forecast to increase from 2.9 per cent in 2013 to 3.6 per cent in 2014, and there are signs that growth in the industrial countries is picking up to support the relentless upturn in developing countries, especially in China, India and the Middle East.

World oil demand increased by almost 4 million barrels a day between 2009 and the forecast for 2014, driven by demand gains in the developing countries and even some recovery in the industrial countries.

The continued role of fossil fuels in energy supply, increased production of oil and gas from unconventional resources, decline of nuclear power and the continued dominance of crude oil in the energy mix all point to a upturn for HPI as evidenced by the expected expenditure this year. ‘Hydrocarbon Processing’ estimates expenditure at close to $300 billion in 2014 as compared to $230 billion in 2013.

High project cost

Capital expenditure is expected to be close to $78 billion in 2014 against $58 billion in 2013. The high cost of engineering projects is reflected here, where costs of such projects have doubled since 2000. This is due to the rising cost of steel products, the complexity of the new projects and the risk associated with some active regions.

The greater expenditure is actually in operations and maintenance of HPI, where operations cost is forecast at $119 billion and maintenance cost at almost $83 billion. The combined cost is a steep rise from that of 2013’s $172 billion.

Sectoral expenditure in HPI are expected to show the same trend where the highest is in petrochemicals at $137 billion followed by refining at $104 billion and finally gas processing and LNG at $38 billion.

While oil demand growth in the industrial countries is flat to modest, refining projects are still planned to improve quality, efficiency and yields of light products in addition to replacing old or obsolete units. In the developing countries however, large and complex plants are built, especially in China, India and the Middle East. These refineries are built on the expectation of improved product specification and the worsening of crude oil quality with respect to gravity and sulphur content.

Natural gas remains the fuel of choice and the increase in its supply from shale gas and other sources is driving its use and processing needs. Gas prices are much lower than their oil equivalent prices and, therefore, a new look at gas-to-liquid projects may be forthcoming, especially in the US due to the improved economics of such projects.

LNG projects in Africa and Australia are expanding while no new projects are planned in the Middle East. Even the US may become LNG exporter due to its increased production from shale gas.

Availability of shale gas

The petrochemical industry is to expand in the US due to the increased availability of natural gas from shale and its low price compared to liquid feedstock. In contrast, naphtha-based industries in Europe are under pressure from lower demand and reduced profitability and more reliance on imports from Asia and the Middle East where petrochemicals capacity is increasing.

It is now clear that oil and natural gas will remain the major energy and feedstock sources for the foreseeable future. If economic conditions continue to improve the HPI can look forward to further growth. 
“HPI companies will invest in technologies to support their mission goals, such as improving plants economics, increasing energy efficiency, boosting yields of desired products, eliminating unwanted by-products or waste and increasing sustainability” as stated by ‘Hydrocarbon Processing’, in addition to increasing capacity to cater for higher demand yet to come.


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