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Market Shift and Upturn

Did you see the Oil & Gas Market Shift and Upturn?

pseThe volume of Oil & Gas and Petrochemical engineering, procurement and construction (EPC) contracts awarded in 2018 is about to double compared with 2017.

This trend should continue until 2021 at least, but did you see it as illustrated on the graph below?

This barre graph is extracted from the Oil & Gas and Petrochemical projects pursuit tool tracing continuously the 1000 most active projects in the world Upstream, Midstream and Downstream.

Capex Barre GraphIt represents the capital expenditure (Capex) of these projects with an integrated model to split these Capex from the front end engineering and design (FEED) phase to the project completion.

Comparing the period 2015 – 2017 with the period 2018 – 2021 we can observe how much the market is currently doubling.

For the following period of 2022 – 2030 the barre graph only reflects the rolling vision we have of the projects as of today and not the market, the numbers will be updated continuously with new projects to come on this period.

Market Shift from IOCs to NOCs and Independents

If everybody could notice some market improvement in 2018, the perception may still be far from the numbers mentioned above.

There are four main reasons explaining the difference between the perception and the reality of the numbers:

1) Response time

Depending where the companies stand in the Oil & Gas and Petrochemical supply chain, it may take one or two years between the EPC contract sanction and the actual orders to be booked by these companies.

2) Market Shift

Most of the companies continues to work “as usual” focusing on the international oil companies (IOCs).

Unfortunately, the market upturn mentioned above is not related to the IOCs but to the national oil companies (NOCs) and the Independent companies (Independents) as illustrated by the picture below.

Capex_per_Operator_Profile_IOC_NOC_IndependentThis picture shows how the $2.7 trillion of Capex to be spent on the 1000 projects we are tracing in are split between the IOCs, NOCs and Independents.

From this picture, you can see the respective weight of each category of operators:

 – IOCs 21%

 – NOCs 49%

 – Independents 30%

Since the barrel price crashed in 2014, the IOCs manage “cautiously” their investments, in the meantime, the NOCs and the Independents have taken the opportunities to develop alternative approaches with much smaller projects at lower risks and running on fast-track.

As a result, the NOCs and Independents have turned the market up in 2018 and represent nearly 80% of the market.

3) Number of Players Effect

If the NOCs and the Independents are taking over the IOCs to double the market, it is of course due to an increase of the respective capital expenditure of these companies but more importantly to a number effect of the players in each category.

To make it simple, when there are only 10 IOCs (BP, Chevron, ExxonMobil, …), the NOCs represent about 100 companies, some very big like Petrobras or Saudi Aramco, and the Independents include about 300 companies, some with good size such as Anadarko, Marathon or Kinder Morgan, and most of them popping up for only one project.

Since 2012, we estimate that the number of active NOCs and Independents has doubled propelling the Capex in total but diluting it in hard-to-see mid-size projects running on fast-track.

Same volume effect appears at the engineering companies and contractors’ level which has also doubled on the same period, thus contributing to dilute numbers.

4) New Business Model, Shorter Timeline

After some decades of complex tendering processes to close lump sum turn key (LSTK) EPC contracts, most of the Independents, now benchmarked by NOCs, have opted for a different scheme to save time and cost.

They select an engineering company for the FEED work and assuming the operator and the engineering company would agree on the project cost and timing, the engineering company is getting the EPC contract with provisions to get all the required approvals and financing.

This scheme enables the operators to save time, costs and to reduce the risks of uncertainty between the company which performed the FEED and the one executing the EPC contract when different.

This new business model speeds up the final investment decision (FID) on projects to run along a shorter timeline.

The aggregation of these fast-track projects contributes to fuel 2018 numbers and should continue in 2019-21.

No Longer Business as Usual – More Agility Required

In conclusion these numbers reflect how much the Oil & Gas and Petrochemical market has drastically changed in few years.

The players have changed, the nature of the projects is different, the processes of decisions follow new rules, and moreover the dilution of the market beyond the IOCs to the NOCs and Independents require from the sales organization more agility and more granularity in market analysis.

ADIPEC offers the perfect timing to evaluate the companies which have already integrated these changes and the others still expecting the market to comeback to what it was.



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2 Comments to “Market Shift and Upturn”

  1. Nous nous rencontrerons probablement des demain sur ADIPEC
    Bien cordialement

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