ACC: Industry focuses on managing the shale gale

22:50 PM | June 16, 2014 | —Robert Westervelt

Gallogly: Early E&C strains are showing.
Rohr: Project staging is critical.

Navigating the growing pains that accompany the unprecedented US capital build was a primary theme at ACC’s annual meeting at Colorado Springs, CO, on 2–4 June.

Strains are already showing on early US Gulf Coast expansion projects, producers say. Producers are also turning attention to challenges associated with getting material to market once production comes online.

“We are in the middle of a variety of expansion projects,” says Jim Gallogly, LyondellBasell Industries CEO and current chair of ACC’s executive committee. “The strategy was to begin very, very early, and we are glad we did. At this point in time, we see labor costs increasing and productivity decreasing—and this is at an early stage when permits are just being issued for the larger projects.”

Heavier strains are expected as those greenfield projects ramp up over the next two years. “My view is that this will become more acute and you will see increasing costs and delays in the coming years,” Gallogly says.

Celanese chairman and CEO Mark Rohr says his company moved early on its planned methanol plant, but the pace has been slower than expected because of an extended permitting process. Celanese is building an $800-million methanol plant at Clear Lake, TX, in a joint venture with Mitsui & Co. The plant will have a capacity of 1.3 million m.t./year and is expected to begin operations in mid-2015. “We are not quite as far ahead of this as we would like to be. Now that we are into [construction], it is a challenge,” Rohr says. “The efficiency is not quite what you would expect. Staging is starting to become very critical, which I think is related to shortages in basic engineering. I don’t think it will be a huge challenge for the early projects, but I think it will become more of a problem as you head to the construction peaks probably coming at the end of 2015 and into 2016.”

Producers are also starting to focus more attention on issues beyond engineering and construction and how material will get to market. “There will be significant new production, and we need the ability to move it [domestically] and offshore to market,” Gallogly says. Companies are at the early stages or evaluating how to manage or mitigate potential logistics and infrastructure bottlenecks.

“We are all talking about labor and [engineering, procurement, and construction], but there are many, many other things we need to run our businesses,” Rohr says. All companies that have growth plans are going to be drawing on the same pool of resources. “I think we’re going to see some unintended consequences that will make the overall challenge of running a business more challenging. The secondary obligations that involve everything else you need to do will take on more importance.” Logistics is one area Rohr cites as a concern.

The growth surge will have to be managed during what Gallgogly calls a “shift change” for an an aging industry workforce. A significant portion of the US industry workforce will retire over the next decade. Those employees will have to be replaced while industry also tries to increase overall staffing levels to help manage for expected growth.

Gallogly expresses confidence that feedstock supplies and cost advantages are sustainable. Current prices and a forward curve that remain arount $4.50/million Btu are strong enough to encourage upstream development while also being cost competitive. “I think the $4.50/million Btu price range is good for gas and will encourage the upstream activity that is needed,” Gallogly says.

Producers say current conditions remain solid. “We saw growth in every region but Brazil in the first quarter,” Rohr says. “We continue to see growth for our products around the globe. The world economy is not moving forward very rapidly, but we see sustainable growth and there are some promising trends in the US.”

Weather did impact the the first quarter some, but markets are reasonably strong, Gallogly says. “Europe is somewhat better than expected, and Asia still remains a bit of a question mark.”

“It is not very strong growth, but it is solid,” says Pierre Brondeau, chairman and CEO of FMC and current ACC chairman. “Weather impacted early 2014 results, but industry overall is doing reasonably well.”