Market Surge
The market is surging on Q2 2021, thus confirming of our previous forecast at the end of 2020.
Along that year, the Covid and the mass communication about energy transition affected heavily projects investment decisions. So, that 2021 started in great uncertainty. But the demand was there. Therefore, we could observe a well loaded funnel of projects for sanction in 2021 and 2022. From this perspective, Q1 and Q2 saw a great number of projects awarded for execution in confirmation of our forecast.
This forecast comes from the projects database www.projectsmartexplorer.com. It provides us with very early notice of the projects at pre-front end engineering and design (pre-FEED). This tool also gives us a very detailed view on the projects at front end engineering and design (FEED). Then, it alerts us about projects moving into engineering, procurement and construction (EPC) phase.
Then, from this database we can extract the picture below. It compares the projects EPC contracts awarded in 2020 and first half 2021.
From these figures we can see that the first half 2021 registered 192 EPC contracts awarded. They were 219 for the full year 2020.
In addition, the $286 billion of capital expenditure (Capex) decided on the first half 2021 is getting close to the entire year 2020. It was $292 billion on these twelve months.
Therefore, we can anticipate how much the Oil & Gas and Petrochemical market is surging in 2021 to exceed by far 2020.
In fact, these good news results from different factors.
National and Independent Companies Anticipate Global Demand
The National and Independent companies anticipated the global demand and contributed to the market surge.
The Oil & Gas and Petrochemical market is driven by three categories of operators:
– The international oil companies (IOCs) or the seven major companies
– The national oil companies (NOCs) or State-owned companies
– The independent companies or private investors mostly based in USA, UK and Asia.
From the picture below, we can compare the respective market shares of these operators since 2019.
In 2019, the three categories were pretty well balanced. But in 2020 the IOCs reacted in opposite way from the NOCs and Independents.
While the NOCs and Independents increased their Capex by 7% and 25% respectively, the IOCs cut their investment by 60%. As a result, the NOCs and Independents took over the market in 2020 from 67% to 85% market shares in term of EPC contracts awarded.
From the first picture above, we can measure how much this phenomena took a leap on first half 2021. On that period, the NOCs and Independents increased again their market share from 85% to 90% in term of EPC contracts awarded.
This market shift from the IOCs to the others has a big impact on the market for the contractors and all the vendors.
The Global Demand is here to Stay
In the first paragraph we saw how the market is surging. Along the second one, we analyzed how some operators anticipated it better than others in 2020 and on first half 2021.
On the top of that, the investments in energy transition are boosting this global demand. Electrical mobility, solar and wind technologies are themselves carbon intensive.
Therefore, the global demand for hydrocarbon is here to stay for some decades as we can see on the barre graph below.
This graph represents the Capex year per year in Oil & Gas and Petrochemical projects. The calculation is based on thousands projects identified one by one. The year corresponds to the year of the EPC contract award for each project.
Compared with previous years, 2021-2022-2023 are showing significant growth. They reflect the boost of the global demand.
On the following years, the decline on the graph is not due to the market, but to the visibility we have on projects to come in the future. The further we look, the less visibility we have. Most of the projects to come on 2025 and beyond are just not yet known.
Companies adapt their Business Model
In parallel, the contractors are fully booked, they have little capacities to absorb such increase in so short time. Therefore, the operators adapt their business model to secure engineering capacities. In 40% of the cases, they do not tender the EPC contract anymore. They convert the FEED contract into EPC in waiting for the final investment decision (FID).
As a consequence, most of the Western engineering companies are focusing on this new business model where FEED is King. They leave the conventional business of EPC tenders to Asia contractors.
Thus, the same applies to vendors and sub-contractors, FEED is King.
This new business model where FEED is King creates new opportunities. You can find them in www.projectsmartexplorer.com.
In the meantime, you can find more information on our webinar about Oil & Gas and Petrochem Market Outlook Q2 2021 available online.
