Process engineers have long endorsed the concept of integrating refineries and petrochemical plants within a single complex. For many years, international oil companies resisted this approach and continued to follow the traditional business model of maintaining refineries and petrochemical plants at separate locations. Now, as downstream facilities proliferate throughout the Middle East and Asia Pacific, integrated complexes are increasingly becoming the norm in these growing markets. As a major oil and gas engineering, construction, and services company, KBR is helping to make that happen.
More Integration
"We are expecting to see more of these types of facilities going forward," said John Quinn, KBR's President-Downstream. "So, for example, we see Aramco team with Sumitomo to put together the Rabigh project, which will integrate a refinery with petrochemicals production, and Dow with Aramco for the Ras Tanura project which will team new petrochemicals production with an existing refinery." KBR is the project management contractor for the Ras Tanura project. In addition, during the past year it has won major contract awards for various projects in Angola, Colombia, Egypt, and Saudi Arabia.
Having been involved in the refining and petrochemicals sectors for more than three decades, Quinn has seen his share of expansions and contractions in the oil and gas industry -- and their effects on KBR's backlog. He reports that his company has fared well during the current downturn.
"KBR has been fortunate so far in that none of our ongoing projects have been cancelled," said Quinn, who holds a bachelor's degree in chemical engineering and an MBA and has been with KBR since 1994. Although KBR's clients may have slowed down the pace of their projects or delayed bidding for engineering, procurement, and construction (EPC) work anticipating that pricing levels will go down, Quinn said that they have generally "maintained a forward momentum albeit at a slower pace." Internally, KBR has adjusted to this changing environment by increasing project staffing levels at a more modest rate.
Back to the Eighties
According to Quinn, where projects are located nowadays may be even more significant than how they are configured. "The most important change that we believe we are seeing is a shift in the production locations for refined products and petrochemicals," he said, noting that such facilities had traditionally been concentrated in North America, Europe, and Japan.
Starting in the 1980s, Saudi Arabia began building its own refining and petrochemical facilities. Concurrently, countries such as South Korea, Thailand, and Taiwan were just beginning to manufacture petrochemical intermediates using steam crackers to produce ethylene and the respective polymers polyethylene and polypropylene. Nearly three decades later, these countries boast world-class refining and petrochemical sectors that continue to grow in terms of scale and scope. The world's premier oil-producing region continues to make great strides in this area; Saudi Arabia, for instance, has embarked on an approximately $70 billion development plan to boost its refining capacity through a series of public-private partnerships.
"Today we are seeing unprecedented construction in the Middle East of new refineries and petrochemical facilities that go way down the chain to the high-value specialized end products," said Quinn. "This is happening despite the fact that the worldwide capacity is significantly in excess of demand."
Trumping Supply/Demand
In a situation where supply exceeds demand, which is now the case with the oil products market, conventional wisdom might dictate postponing or cancelling capital projects. According to Quinn, this supply/demand model is taking a proverbial backseat to two important factors in the Middle East: the need to grow domestic industries and provide employment as well as the desire to add value to oil and gas produced in these countries. "With lower-cost feedstocks, products can be delivered to the world at prices below the production costs of most of the rest of the world," he explained. "We foresee growing pressure on the oldest locations (such as North America and Europe) and a lasting structural change in where products are produced."
Quinn predicts that other countries rich in oil and gas but lacking the facilities to process will replicate the approach Saudi Arabia initiated roughly three decades ago. "We expect that areas such as the Caspian and Russia will commence to change their model from exporting oil and gas to one of starting to utilize some of their oil and gas to build industries in their own country," he said.
The ongoing growth in the Middle East, along with any similar activity in the Former Soviet Union, reveals a broader trend that should become more evident over the next two decades: refining and petrochemical processing will be more concentrated in countries with abundant oil and gas resources. "There will be much more involvement of national oil and chemical companies who own or have direct access to the resources," Quinn concluded.
