Ohio River Valley Growth and Development

Transcription

1 Ohio River Valley Growth and Development Options, Risks & Opportunities February 22,

2 WorleyParsons Group Advisian Major Projects Services Integrated Solutions We provide strategic and business-level consulting, integrated with deep technical expertise, across the entire asset lifecycle with a truly global footprint, and the ability to localise solutions. We offer our customers specialization in the delivery of large complex projects. It reflects our customers organizations by supporting large and complex projects wherever they are in the world. We provide services to local customers, utilizing the knowledge and capability throughout our global organization. From concept selection, frontend studies, small and large project delivery, and portfolio management in greenfield and brownfield environments. We provide our customers with global best practice solutions to optimize the performance of their operating assets, including brownfield project portfolio delivery, business improvement, operations and maintenance support, shutdowns and outages. FY2016 Revenue: AUD 6 Billion Advisian / 2

3 Global reach and local perspective 106 offices 42 countries 22,800 people Advisian / 3

4 Our heritage is in the energy, resources and infrastructure sectors Energy Hydrocarbons Power Resources Minerals & Metals Chemicals Infrastructure Advisian / 4

5 The U.S. is in place to be the most competitive global manufacturer of chemicals as a result of hydraulic fracturing and natural gas and the wave of investments is far from over. The American Chemistry Council (ACC), June 2017 Advisian / 5

6 Independent market drivers North America Financial investors/private equity will exert increasing control and create new market opportunities. Petrochemical developments taking advantage of low-cost/abundant feedstock will continue to be robust. Midstream: major investment in pipelines, gas processing, storage and LNG in US, Canada and Mexico. Permania in the US will dominate upstream spending. Canada becoming a more regional market with IOCs reducing presence. Infrastructure investment and structural changes will create port, rail and power opportunities. Advisian / 6

7 Capital spend size and growth forecast by sector in North America Sector US Capex (US Bn, 2017) US Growth CAGR Canada Capex (US Bn, 2017) Canada Growth CAGR Upstream % % 2 Downstream 15 Flat 2 Flat 3 Petrochemicals % 9 3-4% 4 Power 86 Flat 8 Flat 5 Mining 10 Flat % Advisian / 7

8 Forecast US chemical market capital spending >US60Bn in 2021 at CAGR 7.5% US Chemical Market Capital Spend Forecast US Production Forecasts for Chemicals All >0% Yr-on-Yr 70,000 60, ,000 40,000 30,000 20, Organic Plastic resins Synthetic rubber Specialty/other Inorganic Agriculture Consumer Manmade fibers 10, All chemical groups anticipate growth in production Source: American Chemistry Council Advisian / 8

9 Petrochemical market forecast CAGR 3% - 3.5% in North America Petrochemical Manufacturing Revenue to 2021 Respective Distribution of Production: US & Canada M USD 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 US is ~10x size of Canada % 42.3% 19.2% US Market: CAGR +3.1% <5% US market each Canada: CAGR +3.6% 46.6% 12.1% Source: IBIS World Advisian / 9

10 Petrochemical market forecast (Cont d) % Split of Market by Producers Others: 36% Others: 54% Source: IBIS World Advisian / 10

11 Regional value chain Intersection of Energy and Downstream value chains PRODUCTION MIDSTREAM PETROCHEMICALS DERIVATIVES LOGISTICS Stabilization around 60 USD/BBL and increased drilling activity Key pipeline projects connecting shale basins to markets. Main ethylene production and enablers include infrastructure & utilities. Specialty chemical production with access to feedstock and GDP + growth Rail, port and road distribution of intermediate or final products. Advisian / 11

12 Regional value chain (Cont d) Intersection of Energy and Downstream value chains PRODUCTION MIDSTREAM PETROCHEMICALS DERIVATIVES LOGISTICS Focus: Stability in E&P and selected growth Focus: Low-cost feedstock delivery Focus: Next wave expansion projects Focus: Expansion of diversified products Focus: Constraints, bottlenecks, resilience Expended Last 12 months 3 : 460B Last 18 months 2 : 173B Last 18 months 1 : 25.5B Last 18 months 1 : 25.5B Last 18 months: 4.9B 3 rd Party Enabled Last 15 months 2 : 54B Last 18 months 2 : 8.5B Last 18 months 1 : 0.5B Last 18 months 1 : 0.5B Last 18 months: 0 Why? Attractive short/ mid-term returns Attractive as annuity based Focus on procurement & ownership of supply chain Specialty Chemicals Investors in high growth Limited 3 rd party investment in key infrastructure Source: IHS Markit, Rystad, Reuters, Preqin Advisian / 12

13 Indicative composition of capital projects 25% Capital Outlay 50% Utilities & Power Plants 25% Process Plant (40-55%) Process units ISBL requirements Utilities & Power Plants (20-35%) Water supply, water treatment Power generation (CHP) and transmission Feedstock pipeline(s) Steam generation Infrastructure (20-25%) Roads Buildings Marine facilities, maintenance and storage Rail connection, maintenance and storage Process Plant With $70B $80B (USD p.a.) capital spending in North American Downstream and Petrochemicals over next 5 years ( B TIC), Infrastructure $150B - $200B will be spent on new utilities and infrastructure. Advisian / 13

14 NGL production in Eastern US is expected to double in next 35 years (40% of total US production) Outlook for NGL Production in Eastern US Processing & Fractionation Capacity in Appalachian Region BCF/day Rapid expansion in NGL production from Top: major processing capacity sites (over 50m cu.ft./day) Bottom: major fractionator sites (over 50,000 bpd) The US produces 25% of the world s NGLs; 25% of US supply comes from the Eastern US. In PA, OH and WV, production of NGLs has grown almost 10-fold over the past 4 years. More than 70% of this NGL is ethane and propane. PA currently exports 100% of its ethane. New investments will increase US PE production to over 54 billion pounds by Source: Petrochemical Update, EIA Advisian / 14

15 Regional development projects: Anchors and Enablers Ethylene Processing Plants Petrochemical Storage Above: Shell s $6 billion project with capacity of 1.6 mtpa in Beaver County, PA (under construction). Startup is scheduled for Above: $10 billion Appalachian storage hub would handle 100m barrels of NGL with 3,000 miles of pipelines across four states. Additional projects under consideration include: PTT Global Chemicals: 1 mtpa in Ohio (under review) Braskem: 1.1 mtpa plant in WV (stalled) Additional projects under consideration include: Energy Storage Ventures LLC (ESV): bulk NGL storage in Salina bedded salt caverns Source: Pittsburgh Post-Gazette, West Virginia Executive Magazine, Petrochemical Update Advisian / 15

16 Geographic and supply advantages are threatened by midstream, labor and land risks STRENGTHS 70% of North America PE customers within 700-mile range of Pittsburgh. Feedstock transport cost advantage vs. USGC Up to 400,000 b/d of ethane availability for PE feedstock in the region enough for 5-6 crackers. WEAKNESSES Lack of pipelines restricts what is sold. Remaining 150,000 b/d is downgraded and sold to homes. Siting: Difficult to find 200 hundred acres of flat land; 800 to 1,000+ acres required for PC complex. Relatively higher plant construction costs compared to the US Gulf Coast. NGL storage hub access. OPPORTUNITIES Processing near the source can avoid pipeline transport cost to Gulf Coast ($0.15 to $0.24/gallon). Expanded access to foreign markets due to lower cost and excess volume of US production. New tax law offers accelerated depreciation schedules for investments in new plants/equipment. Streamlining of regulations and potential options for a regional view for synergies. THREATS Relatively more stringent state and federal regulation of oil and gas production. Aging workforce with declining participation among prime age men due to opioid epidemic. High labor costs and lack of skilled craft labor due to competition with Gulf Coast and other projects. Source: Petrochemical Update, EIA Advisian / 16

17 What investments will be made?

18 Investment dynamics are changing Market availability Regulatory relief Access to capital Tax reform International markets 160 changes enacted to date Appetite for spending Costs to business down Domestic growth Streamlining of processes Options for deployment Incentives to construct up Advisian / 18

19 The development roadmap Final Investment Decision Private Sector Identify Select Deliver Operate 6-12 months months months years Public Sector Conceptualize/ Strategy Prove Feasibility & Concept Procure/Definition & Development Construct Operate Owner Requirements / Regional Requirements Policy; Strategy; Business Planning; Site Identification & Selection Business Case, Feasibility Study, Project Definition, Options Analysis Finance, Project Finance & PPP (Inception) Project Design Procurement Planning Transaction Management Where are risks? Where can collaboration be leveraged? Project Oversight Finance & Commercial (Optimization) Operational Planning Operation & Maintenance Advisian / 19

20 Take life cycle perspective on decisions Internal success factors Capital Costs Sustaining Capital Power, Fuel, Chemical Consumption Operation and Maintenance Capacity and Reliability Revenues External success factors and risks Health and Safety Social License and Development Regulatory Trends and Changes Environmental and Climate Change Commodity cycles Divestment / Closure LOST VALUE FORCED CHANGES

21 Digital risks are also emerging Disconnect of digital and physical asset Lack of accurate information System and information silos Lack of reuse of data Lack of collaboration Inefficient practices Engineering primarily focused on discipline deliverables Inefficient operational practices Resources and safety practices not aligned Sub-optimal business outcomes Poor return on capital invested Operation inefficiency and safety issues Poor employee engagement

22 Navigating to FID and NPV 1 Market access Establish a differentiated position, optimize product slates, understand feedstock supply and security, identify and access target markets Strategy Clarify strategic objectives to make an informed decision; Understand key issues and vulnerabilities, technologies employed, operating efficiencies and reliabilities, logistics and supply chain Siting Find the best available site to meet project objectives and streamline permitting. Financing Get practical advice on funding options and opportunities, development of partnering approach, also business model development.. 4 Advisian / 22

23 What region or project to invest in? Illustrative Location Comparison Enablers Location (Supply / Demand) Regulatory Construction Access Feedstock Access / Availability Community Sentiment Infrastructure & Utilities Access to Workforce Regional Storage Hub Logistics services IT services Transportation services Healthcare services Partnerships / Academia HR services Important Importance to investors Very important =0 (Poor) =4 (Excellent) Advisian / 23

24 The development roadmap: risks vs. collaboration Final Investment Decision Private Sector Identify Select Deliver Operate Public Sector Conceptualize/ Strategy Prove Feasibility & Concept Procure/Definition & Development Construct Operate Policy; Strategy; Business Planning; Site Identification & Selection Owner Requirements / Regional Requirements Business Case, Feasibility Study, Project Definition, Options Analysis Project Design Procurement Planning Transaction Management Project Oversight Finance & Commercial (Optimization) Finance, Project Finance & PPP (Inception) Ops Planning Operations & Maintenance Risks Site location/selection Feedstock access Midstream/storage Development finance Construction access Community & social license Labor resources Project finance /NPV Schedule/cost Community Labor relations Delivery certainty Operational efficiency New skills Logistics & supply chain Sustaining capital Collaboration Regional coordination/planning Ensuring options: feedstock, storage Enablers for development: regs. tax Common infra development Early contractor engagement Alternate finance/delivery models Stakeholder mgt. Digital plant Training design Digital industry Utilities/infra-sharing Academia partnerships

25 Benefits of a collaborative approach Enable focus on core business Reduce capital to achieve FID Enhance access to advanced technologies and expertise Mitigation of risks Fit-for-purpose commercial structure Whole of asset lifecycle view Patrick Mullen, Managing Director Global Water Development Partners A Blackstone Portfolio Company Over the lifecycle, the project capital construction cost is only a percentage of the overall cost impact of new infrastructure typically, capital only makes up 30% to 50% of project costs; the rest are related to financing and O&M costs. Most projects never get priced for the entire life of the project. Advisian / 25

26 Market dynamics and reforms are spurring new investment but creating competition Speed to market is key but not at the expense of longer term benefits Leverage asset life cycle value during planning to reduce risks and drive innovation Key risks (e.g., siting, storage etc.) need to be mitigated to unlock full value chain Non-traditional partners can emerge but proponents need to take broader view

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