More Projects Awarded on First Half-2022 than in Entire 2021
More projects were awarded on the first six months of 2022 than the entire 2021 due to the robust demand on Oil & Gas and Petrochemicals.
In that respect, the Ukraine war increased even more the tensions between the production and the consumption while all the economies were trying to revive from the Covid crisis.
This trend has even been amplified by the emerging projects for decarbonation as illustrated by the barre graph below.
This barre graph shows how the investments in Oil & Gas and Petrochemicals stabilized during the two years of Covid crisis in 2020 and 2021, only compensated by the projects in Energy Transition.
While the investments were stabilizing, the demand in energy and hydrocarbon products restarted abruptly on first half-2022, creating severe tensions in the supply chains on prices and delivery times.
Ukraine War Impact on Projects – Threats and Opportunities
The Russian strike in Ukraine erupted in an energy market already under tensions.
The demand for Oil & Gas and Petrochemicals had already turned back to 2019 levels after two years of under investments in these sectors.
At that time, the European Community (Europe) was importing 155 billion cubic meter per year (cm/y) of natural gas from Russia through several pipelines. To make things even more politically complex, approximately 40% of this amount are crossing Ukraine.
In this context, the first consequence of this Ukraine war and related sanctions was to freeze investments in Russian projects. The same applies to Russian companies operating overseas. So far, only Chinese operators continue to invest jointly with Russian partners.
According to the projects database www.projectsmartexplorer.com, more than $100 billion of projects have been stopped or cancelled because of their Russian link.
In opposite way, this war opened opportunities for several hundreds $ billion of projects all over the world to compensate the Russian natural gas supply.
The picture below represents the production and potential export capacities of the key natural gas producer per country.
It shows how USA and Russia gas production, in blue, dominate the market. Anyway, both countries differ drastically regarding their consumption, in grey. In 2020, USA is consuming most of its production, while 30% of the Russian production is exported.
Then, among the other major producers the exporting capacities are limited, if any, in the short term.
For now, only USA have the capacity to ramp up production capacity from its gigantic shale gas reservoirs.
The 155 billion cm/y of gas piped from Russia to Europe represent the equivalent of 115 million tonnes per year (t/y) of liquefied natural gas (LNG).
This LNG will be shipped mostly from USA, Norway and Middle-East.
LNG Projects at the Top on the Decade
Building up 115 million t/y LNG capacity for exportation, transportation and regasification will not happen overnight. They represent the equivalent of :
– 15 LNG Export Terminals
– 500 LNG Carriers in respect with the required transportation times from USA, Middle-East or Asia to Europe
– 10 to 20 LNG Import Terminals in Europe
All together, they weight more than $500 billion capital expenditure over the next five years as indicated in the chart below.
This chart reflects the ambition of the operators to proceed with their respective LNG projects. The aggregation of these investments shows a significant step change in 2022 and the next following years compared with previous years.
Most likely, some of these projects will be postponed or delayed for various reasons. Anyway, they will generate robust opportunities for the next decade.
Decarbonation Takes over Renewables
LNG and Energy Transition are the two winners of the energy crisis resulting from the Ukraine war. But in Energy Transition we observe two categories of projects:
– Renewable refers mostly to wind and solar with associated investments
– Decarbonation covers a broader variety of processes including Electrification, Hydrogen, Carbon Capture Usage and Storage (CCUS), Renewable Natural Gas (RNG), efuels, eAmmonia, eMethanol, Sustainable Aviation Fuels (SAF), Waste-to-Energy, Waste-to-Chemicals, Waste-to-Hydrogen and more…
On first half-2022, Decarbonation projects emerged as never before. They took over Renewables projects as indicated in the two pictures below.
On the left, the barre graph represents the capital expenditure (Capex) year per year in Renewable projects. On the right, the graph refers to Decarbonation projects.
These two graphs point out some major differences:
– Investments in Renewables started more than ten years ago. Instead, Decarbonation appeared significant just one year ago.
– The Renewable projects life cycle tends to be much longer because of their technical, financial and social complexity
– Instead, the Decarbonation projects came up lately but show exponential growth. They benefit from shorter life cycles with results immediately measurable and social good acceptance.
– As a result, the Capex in Decarbonation projects exceeded Capex in Renewables on first Half-2022.
More Projects Awarded on First Half-2022 than in 12-Month 2021
As a consequence of the Ukraine war and the Energy Transition policy, the first Half-2022 saw more projects awarded in term of Capital Expenditure for execution than the entire year 2021.
This trend should continue on second Half-2022 since it benefits from a deep energy crisis.
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