OIL/GAS/SHALE/REFINING

E-Alert

September 15, 2015

McIlvaine Company

This alert is being issued twice per month for suppliers in flow control and treatment who are coordinating market research with targeted pursuit of the larger and longer term orders.

PROJECTS

The following projects each will result in millions of dollars of orders for flow control and treatment products. Each project has been rated. The opportunity size is rated from 1-10 with 1 being small and 10 being very large. The timing for flow and treatment orders has been provided by year e.g., T 16 = timing of order is 2016.

Egypt Plans $300 Million Refinery Expansion in Gasoline Using UOP Technology (06, T 16)

Egypt’s Alexandria National Refining & Petrochemicals Company (ANRPC) will add a second UOP CCR Platforming process unit, including a modular CCR section, at the facility to produce high-quality reformate, which is used to produce high-octane, low-sulfur gasoline. (ANRPC) will use technology and equipment from Honeywell's UOP as part of a $300 million, multi-year project to expand an existing gasoline production facility.

Aquatech awarded Contract to Supply Thermal Desalination System for Orpic's Sohar Refinery Improvement Project in Oman (03, T15)

Aquatech, has been awarded a contract to design and supply a Multiple Effect Distillation (MED) seawater desalination system for Orpic's Sohar Refinery Improvement Project in Oman. Aquatech is supplying the system to a Petrofac – Daelim Joint Venture that has the full EPC contract for the whole refinery project. Expected to be commissioned in early 2016, the system supplied by Aquatech will comprise: 

• three Multiple Effect Distillation with Thermal Vapor Compression (MED-TVC) units, each with a net capacity of 5,352 m³/day
• three Fractional Electrodeionization (FEDI^®) demineralization units, each with a capacity of 3,360 m³/day of ultrapure water for boiler feed
• two re-mineralization dosing skids for the production of service water and potable water.

Amec Foster Wheeler to Work on Vietnam’s Dung Quat Refinery Expansion - (07, T16)

Amec Foster Wheeler was awarded a front-end engineering design (FEED) contract by PetroVietnam for their Dung Quat oil refinery expansion in Quang Ngai Province, Vietnam officials announced on August 28. The contract is part of the $1.8 billion expansion and upgrading plan, The two-year contract includes the optimization of the refinery configuration, coordination of licensors, and the design for new units as well as the revamp of existing units.

Mega-project expansion of Petroperu’s Talara Refinery - (O9, T15)

Nine new major process units will be installed. Only 5 percent of the present refinery equipment will be reused, and the existing crude distillation unit will be the only original unit remaining after the revamp. PMRT involves an investment of $3.5 billion over five years. The contracts for front end engineering and design (FEED) and engineering, procurement and construction (EPC) were awarded to Tecnicas Reunidas as a lump-sum, turnkey contract. Petroperu has signed a contract with the PMC Talara consortium — members include Inelectra Argentina SA, Idom Engineering and Consulting SA, and Nippon Koei Co. Ltd. — to oversee FEED/EPC services.

Existing units to be modernized are:

• Updating and expanding the crude distillation unit (CDU) to 95 Mbpd
• Retrofitting the vacuum distillation unit (VDU) from 27 Mbpd to 21 Mbpd
• Expanding the fluid catalytic cracking unit (FCCU) capacity to 25 Mbpd; this unit produces LPG, gasoline and diesel.

The new process units under construction are:

• A diesel hydrotreater to remove sulfur (S) and to improve the cetane content
• A cracked-naphtha hydrotreater to lower S content for catalytic reformer feed
• A naphtha hydrotreater
• A naphtha catalytic reformer to increase gasoline and naphtha yields
• An amine unit to remove S-containing products from waste gases that will be sent to the sulfuric acid plant
• An LPG treatment unit
• A second VDU with a capacity of 35 Mbpd to handle the higher refinery throughput, thus doubling VD capacity
• A delayed coking unit to process the slag coming from the VDUs and increase light and middle distillates production. This is only the second delayed coker unit installed in Latin America, after Venezuela, and it will increase yield of light and middle distillates.

Some orders already placed include pumps Petroleos del Peru SA (Petroperu), through a contractor, has let a contract to Flowserve Corp., Irving, TX, for the supply of pumping systems.

New $161 Million South African Crude Blending Terminal to Start-up in 2017 - (O1, T15)

Construction of the 2 billion rand ($161 million) fuel blending farm will begin in 2017. OiltankingMogs is a joint venture firm developing the terminal. The terminal is able to fill a VLCC tanker within 48 hours when fully operational.

Jacobs Receives EPCM Contract for Expansion of ExxonMobil’s Beaumont TX Refinery (O4, T16)

ExxonMobil will add flexibility to process light crudes at its Beaumont refinery, increasing production capacity by approximately 20,000 barrels per day Jacobs Engineering Group Inc. will provide engineering, procurement and construction management (EPCM) services. The project aims to expand crude oil throughput at ExxonMobil’s Beaumont refinery, increase production in the jet fuel unit, and optimize energy usage by enabling the crude unit to run different crude slates.

Technip, EGPC and ASORC Agreement for the Assiut Refinery - (O6, T16)

Technip Italy has an agreement with Egyptian General Petroleum Corporation (EGPC) and Assiut Oil Refining Company (ASORC) for the modernization project of the Assiut refinery Upper Egypt designed to refine the “bottom of the barrel”. The investment has an estimated total value of US$1.5 billion, and aims at maximizing diesel production. It will introduce the most modern refinery technologies in Upper Egypt and satisfies the growing local demand for petroleum products. Technip will now start activities for the project, and will take responsibility for the EPC phase of the project.

KNPC Awards Técnicas Reunidas an Engineering Contract for Al-Zour Refinery - (O9, T17)

Técnicas Reunidas has been selected by KNPC to execute the processing units project for the new refinery of Al-Zour, which will be the largest refinery in the Middle East.

The contract has been awarded to the international Joint Venture leaded by Técnicas Reunidas (Spain), Sinopec Engineering Group (China), Hanwha Engineering and Construction (South Korea) for an approximate value of $4.1 billion and a duration of 45 months. The project will be developed at Técnicas Reunidas offices in Madrid.

The new refinery, which means an overall investment of $13 billion aims to produce and supply ultra-low sulphur petroleum by-products to meet both the needs of the domestic market and international demand.

The scope of the contract of TR includes the engineering, supply, construction and commissioning of the following refining units:

• 3 crude distillation units (210,000 BPSD each),
• 3 atmospheric residue desulphuration units (110,000 BPSD each),
• 3 diesel hydrotreating units (62,000 BPSD each),
• 2 naphtha hyrdrotreating units (18,200 BPSD each),
• 2 kerosene hydrotreating units (53,000 BPSD each),
• a saturated gas unit (8,500 BPSD)
• a heavy oil cooling unit.

CB&I awarded Equipment for Afipsky Oil Refinery in Russia ( 02, T16)

CB&I has been awarded a contract in excess of $90 million by NefteGazIndustriya, LLC, through project developer MAVEG Industrieausruestungen GmbH, for the Afipsky Oil Refinery. The scope of work includes detailed engineering, procurement, fabrication and supply of a steam methane reformer for a large-scale hydrogen plant, hydrocracking heaters and Breech-Lock^® exchangers. CB&I previously announced two awards on the project—the technology license and FEED contract and detailed engineering and procurement services for multiple process units.

Technip, SACE and Midor Agreement for the Alexandria Refinery  ( O 6, T17)

Technip Italy S.p.A. and SACE are in agreement with Midor (Middle East Oil Refinery) for a project to modernize and expand the MIDOR refinery near Alexandria, Egypt. The investment has an estimated total value of US$1.4 billion and aims at improving the production quality of the plant, considered the most advanced of the African continent, by increasing its refining capacity from 100,000 to 160,000 barrels of crude oil per day. Technip will take responsibility for the EPC phase of the project.

CB&I awarded $100 Million Contract for Louisiana Refinery ( 02, T16)

CB&I announced on July 23 it has been awarded a contract valued in excess of $100 million for a Tier 3 clean fuels project. The scope of work at the refinery in Louisiana includes detailed engineering, procurement, module fabrication and site construction of a naptha hydrotreater and a revamp of an existing gasoline selective hydrotreater, which uses CB&I's CDHydro^®/CDHDS^® technology.

Kuwait embarks on $10 Billion Upgrade of 2 Refineries ( O8, T17)

Kuwait is modernizing its two largest refineries with a 4 billion-dinar ($13 billion) project to produce cleaner burning fuels. The plan envisions curbing the production of high-sulfur fuel oil at the Mina Al- Ahmadi and Mina Abdullah refineries, while adding about 20 major units at Mina Abdullah and 17 at the Al-Ahmadi refineries. Oil-dependent Kuwait plans to invest about $114 billion in more than 500 projects over the next five years. Kuwait National Petroleum Co. is the country’s sole refiner and a unit of state-owned Kuwait Petroleum Corp.

Petronas Selects Axens Technologies for Malaysia’s RAPID Project - (O 7, T16)

Petroliam Nasional Berhad (PETRONAS), has selected Axens as a technology provider for PETRONAS’ Refinery and Petrochemicals Integrated Development (RAPID) project located in Pengerang, Johor, Malaysia. RAPID is part of PETRONAS’ Pengerang Integrated Complex (PIC) development, which includes six major associated facilities namely the Pengerang Co-generation Plant, Re-gasification Terminal 2, Air Separation Unit, Raw Water Supply Project, Liquid Bulk Terminal as well as central and shared utilities and facilities.

RAPID is estimated to cost US$16 billion while the associated facilities will involve an investment of about US$11 billion. PIC is poised for its refinery start-up by early 2019.

Axens was initially selected in October 2010 for a Detailed Feasibility Study. The following technologies from Axens was selected for the RAPID project:

• Naphtha Hydrotreating (NHT), this process purifies naphtha removing dienes, olefins compounds, sulfur and nitrogen species with a feed capacity of 21,000 BPSD;
• Octanizing™ a continuous catalytic regenerative (CCR) reforming process for maximizing the production of reformate from heavy hydrotreated naphtha, with a feed capacity of this unit 14,000 BPSD;
• Prime-KTMa catalytic process achieving hydrotreatment of a kerosene cut, with smoke point improvement and deep desulfurization, its feed capacity is 30,000 BPSD;
• R2RTMa residue fluidized catalytic cracking (RFCC) process including a double regenerator which is able to crack residue feedstock or vacuum gas-oil into lighter hydrocarbons. The process also includes a propylene recovery section (PRU Section). The capacity of the RFCC unit is 140,000 BPSD of feedstock in two trains;
• Prime G+™ catalytic process aiming at desulphurizing FCC gasoline while minimizing the octane loss. It includes a selective hydrogenation reactor/splitter and hydrodesulphurization reactor/stabilizer. The feed capacity of this unit is 75,000 BPSD.

Lloyds Energy awards KBR Eurasian FLNG FEED Contract - (O7, T 17)

KBR Inc. has been awarded a near-shore floating LNG Front End Engineering Design (FEED) contract by Lloyds Energy Ltd. Under this contract, KBR will provide integrated topsides and hull engineering design services for a nominal 2.5 million TPA floating natural gas liquefaction plant (FLNG). Start-up of the project facilities is expected to take place in 2019.

Wood Group awarded FEED Contract from Woodside - (03, T 16)

Wood Group has secured a new contract to carry out front-end engineering and design (FEED) for the Woodside operated proposed Browse Floating Liquefied Natural Gas (FLNG) Development, offshore Western Australia. Wood Group Kenny (WGK) will perform all design engineering for the insulated production flowline system required for the asset’s offshore gas-condensate fields — Brecknock, Calliance and Torosac — located 300km from the Kimberly coast. The 12 month contract, which is valued at US$6 million and effective immediately, will be delivered from WGK’s Perth office.

Keppel contracts 3rd Floating Liquefaction Facility Conversion Worth $684 Million - (O7, T16)

Keppel Shipyard Limited (Keppel Shipyard), a wholly-owned subsidiary of Keppel Offshore & Marine Ltd (Keppel O&M), has signed a contract worth approximately US$684 million with Golar Gandria N.V., a subsidiary of Golar LNG Limited (Golar LNG), to perform the conversion of a Moss type Liquefied Natural Gas (LNG) carrier, the GANDRIA, into a Golar Floating Liquefaction (GoFLNG) facility.

Keppel Shipyard will once again engage Black & Veatch to provide design, procurement and commissioning support services for the topsides, as well as the liquefaction process utilizing its established PRICO^® technology. The GANDRIA is a 126,000 cubic meter Moss LNG carrier.

The PRICO^® process uses a single-mixed refrigerant loop for natural gas liquefaction. The process provides several key advantages, including:  a simplified refrigeration system that requires minimal equipment and a compact process that makes it ideal for offshore liquefaction, low capital and operating expenditure

Sempra Energy Unit awarded $108 Million Natural Gas Pipeline Contract in Mexico - (02, T15)

Sempra Energy subsidiary Gasoducto de Aguaprieta S. de R. L. de C.V., has been awarded a natural gas transportation contract in Chihuahua by the Comisión Federal de Electricidad (CFE).

The project will comprise a header facility with a capacity of 3 billion cubic feet per day (Bcfd) of natural gas and an approximately 14-mile pipeline with a capacity of 1,135 million cubic feet per day (Mcfd) of natural gas. The pipeline will provide natural gas to the Norte III Combined Cycle Power Generation Plant and will interconnect with Gasoductos de Chihuahua, Tarahumara and Samalayuca-Sásabe pipelines.

The estimated $108 million project is expected to begin operations during the first quarter 2017. The project is contracted by CFE under a 25-year capacity contract denominated in U.S. dollars.

These projects are covered in more detail and are integrated in a database which is part of Oil, Gas, Shale Refining. This semi-monthly report is available as part of this service or as a

stand-alone subscription.

ANALYSIS

The 10 largest oil and gas companies purchase nearly 60 percent of the flow control and treatment products (FC&T) for this industry segment.

The 10 largest purchasers account for nearly 60 percent of all flow control and treatment products purchased for drilling, extraction and treatment. The 12 largest refiners account for 50 percent of refining flow control and treatment purchases. This concentration is higher than in other industries.

Two Chinese companies are the largest producers in oil and gas. Sinopec has revenues of over $450 billion/yr.

Seventy-one OEM/EPCs spend $90 billion for flow control. This is an average of $1.2 billion per company. Eight OEM/EPC companies supplying refinery systems account for FTC purchases for $20 billion.

The greatest concentration is in the refining industry where just 8 OEM/EPCs account for 30 percent of the FCT purchased.

The largest oil and gas contractors are:

1.         Bechtel (USA)

2.         Technip (France)

3.         Aker Solutions (Norway)

4.         Chiyoda Corporation (Japan)

5.         SNC-Lavalin Group (Canada)

6.         J. Ray McDermott (USA)

7.         JGC Corporation (Japan)

8.         Hyundai Heavy Industries (South Korea)

9.         Foster Wheeler (USA)

10.       Daelim Industrial Company (South Korea)

Impact of Oil Price and Chinese Economic Downturns on the Oil and Gas Flow Treatment and Control Market

The market for flow control and treatment is impacted by many different factors. Some of these factors are constantly changing. Two of the biggest changes in the last month have been the economic slowdown in China and the lower prices for oil and gas.

FCT sales in 2015 will be $600 billion of which China will account for 17 percent. If Chinese economic growth continues at 7 percent over the next four years, there will be an expansion of the total FTC market by $120 billion. Under a zero annual economic growth in China the world FTC market would only grow by $50 billion/yr by 2019. This takes into account not only the lower purchases in China but reduced purchases by suppliers to China.

It now looks as if the economic growth for China in 2016 will be less than the anticipated 7 percent. Predictions range to as low as 2 percent. This could be followed by a return to 7 percent growth in succeeding years including 2019. However, the political and financial management of the economy is facing a confidence crisis which it must weather if it is to resume its previous growth levels. There are also questions about the reliability of some of the government statistics which are used to assess growth. It is therefore necessary to look beyond the easily available statistics and to continue to analyze the fundamentals. Even though the stock market has dropped dramatically in the third quarter of 2015 it still remains at high levels compared to previous years. Consumer demand is high and with reductions in interest rates, industrial expansion will be encouraged.

The drop in oil prices to under $40/barrel late in the third quarter 2015 has immediate impacts on the flow control market. Drilling activity has been reduced. A number of large projects have been delayed or canceled. However, the overall impact on the market is softened by the fact that the majority of FC&T are sold for applications unaffected by oil prices.

The FC&T market will grow by 16 percent from 2015 to 2019 at oil prices of $80/barrel during the period. At $40/barrel, the growth will only be 9 percent.

The impact of future oil prices on the market can be best predicted by estimating the impact on the individual segments.

Oil and gas can be divided into two segments. The aftermarket and routine purchases for small projects represent two-thirds of the total or 10 percent of the present total market. The longer term large project revenues represent only 1/3. If the price of oil were to continue to remain at $40/barrel through 2019, revenues in this segment would shrink over the period.

The chart shows percentages of the present 2015 market for the year 2019. At $40/barrel oil the long range product revenue from the oil and gas large project segment would shrink by 60 percent from 5 percent of the current market in 2015 to an amount in 2019 which is equivalent to 2 percent of the 2015 market. On the other hand, the oil and gas aftermarket and market for small projects would grow slightly during the four year period. In fact, the market for pipeline products will be positively impacted as low cost oil and gas needs to be moved to more places.

McIlvaine will continue to assess the likely changes in oil prices based on the following factors:

·                     The breakeven cost for a new well

o   Hydraulic fracturing breakeven point is $30 to $50/barrel equivalent based on improved management practices and the extraction of more product from existing wells.

o   Oil and tar sands projects break even at $65/barrel.

o   Subsea is more expensive.

·                     New technology developments

o   Bechtel experience with coal seam gas to LNG in Australia indicates lower break even costs than subsea extraction.

o   China coal to syngas and chemicals could be an alternative which is more than competitive at $40 oil. McIlvaine has recommended marrying the two stage (HCl/SO₂) scrubbing along with conventional hydrochloric acid leaching to extract rare earths and generate by product revenue.

·                     Demand

o   The slowdown in China could impact demand as could economic problems in Greece and other countries.

o   Demand is a function of industrial activity. There is little equipment needed to extract Saudi oil. On the other hand, over 2,000 companies rely on the Alberta oil sands market for their revenues. The greater the industrial activity the greater the oil demand.

·                     Supply

o   Saudi Arabia could choose to restrict production. In many ways the situation is analogous to the gold in Ft. Knox. You could sell it at any price and generate positive cash flow. However, it is a precious and finite resource which is important to future generations.

o   Market driven companies will typically be reactive rather than proactive and will only increase drilling after oil prices rise to a level to make drilling profitable.

·                     Political developments

o   Lifting the Iran embargo on oil exports.

o   Russian activities in the Ukraine and elsewhere.

o   Chinese efforts to manage the economy.

o   Uncertainties in North Korea, Greece and Venezuela.

·                     Regulatory initiatives

o   Export restrictions.

o   Climate change regulations.

o   Pollution control requirements for hydraulic fracturing.

·                     Traumatic events

o   Major oil spills.

o   Large meteorite impact, earthquake or major volcano eruption.

Some of these developments are more predictable than others. The low oil prices lead to lower extraction activity which eventually leads to shortages and higher prices. On the other hand, wars, oil spills and earthquakes cannot be easily predicted. As a result, there will be the need for continuous changes in the forecasts to take into account the surprises.

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