Chemical companies continue to build new plants. Between 2005 and 2015, global investment in the chemical industry increased by nearly a factor of three and currently stands at more than USD 200 billion. Most of these plants are based on conventional design and construction, but the engineering departments at chemical companies and EPC contractors are about to make major changes to the engineering process.
For example, the Sadara mega-project, which was completed in Jubail in Saudi Arabia in the autumn of 2017, marks an additional milestone in the global chemical boom. By making a USD 20 billion investment, the project partners Saudi Aramco and Dow Chemicals have positioned themselves to exploit the increasing demand for chemicals. According to market research estimates, the annual increase in demand for chemical products over the next 20 years will be in the 4% – 4.5
The launch of spectacular projects is not limited to the Middle East. The shale gas boom in the US has generated demand for new petrochemical projects. Four new ethane crackers were completed in 2017 alone. Four additional crackers are currently under construction and scheduled to begin operating in 2019. A second wave of investment is already underway. The feasibility of building five more crackers is currently being assessed. The American Chemical Council estimates that annual capital spending by US chemical companies will increase from USD 40 billion in 2016 to USD 58.6 billion in 2021. In February, the Council listed 294 current projects with a total value of USD 179 billion.
Capital expenditure on production expansion and new plants and equipment increased in the European chemical industry as well last year. According to estimates published by the European chemical trade association Cefic, capital spending in the global chemical industry increased more than threefold between 2005 and 2015. Excluding the Middle East for which no data is available, capital spending in the chemical-producing countries rose to 170 billion euros in 2015. Capital spending by German chemical producers was roughly 16 billion euros in 2017.
Structural change in chemical plant construction
Structural change in the industry has been underway for several years. As projects continue to increase in size, greater risk has to be accepted. In addition, investors and plant operators prefer to do business with global partners who take total responsibility for everything from feasibility studies to commissioning, and often the financing as well. European plant construction companies, and German firms in particular, are now too small to take on that role.
Restrictive financing conditions and a reluctance to offer alternative financing services are often the reason why German companies fail to acquire EPC projects. Despite increased capital spending in the chemical industry, the trend towards larger-scale plants reduces the number of medium-scale projects. As a result, German EPCs are looking not only for ways to differentiate themselves, but also for new business models. For example, the engineering companies want to attract customers with their technology and by adding operational services to their portfolios. They are doing this in response to growing market demand. The engineering and services company Bilfinger estimates that by 2020 there will be more than 11,000 chemical and pharmaceutical plants in Europe, North America and the Middle East that are more than ten years old and will require modernization. The service business provides an opportunity to increase turnover, and that is one factor which makes it attractive to EPCs.
New forms of project management
A new approach to project management is needed. The traditional methodology was to define and describe all of the project goals in detail. In contrast, digitalization projects get underway before all of the functionality of the product has been specified. Project management needs a significant degree of agility.
Evonik is a case in point which shows the advantages of taking a critical look at the established approach to project execution. The new project execution methodology helped the company to reduce capital spending by 15% on plant construction projects. The difference is as follows. Traditionally, the emphasis in project management has been on the execution phase. With the new approach, project definition takes place at an earlier stage, and greater attention is paid to the project risks. The scope of the project is based on the minimal business needs and not on the optional enhancements.
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