Petrochemical romance

16 December 2011

As rising oil prices outpace the gradually recovering demand for petrochemicals, companies in the sector are courting hire firms in an effort to get more bang for their buck. Kevin Walsh reports.

Described as a ‘hub of capacity growth’ for oil refineries in OPEC’s 2010 long-term strategy document, the economic resilience of the Asia-Pacific region during the financial crisis helped the global petrochemical industry recover much more quickly than expected.

Development of these countries’ petrochemical industries over the past two decades in a bid to achieve self-sufficiency has grown their petrochemical exports, along with their economies, while cutting the number of available export markets for the more developed petrochemical producing countries.

Such has been the pace of new installation construction and existing capacity expansion in emerging markets, that in 2010 Western Europe, Japan and the US—countries which prior to 1980 dominated more than 80% of the global industry—collectively accounted for just 37% of the world market.

OPEC has said that well-developed markets in Western Europe and the USA are likely to experience low utilisation and depressed profitability in the medium term, and with slow recovery of demand for petrochemical products in these areas, few new installations are being built.

However for another well-developed region, the Middle East, reduced consumption in other economies has not stopped a strong performance. Saudi Arabia’s petrochemical exports, for instance, rose by 83% year on year in June 2011 to $1.39bn.

Nations in the region have been investing heavily in the expansion of existing facilities to increase production capacity, and hire firms have been quick to pounce on the strong growth prospects in the region’s industry. On the back of this slew of regional expansion projects, ALE has effectively relocated its heavy crane division to the UAE in the hope of capitalising on opportunities it expects to stretch into the next five years.

Such projects include development of the Habshan V gas processing plant and stage two of the Ruwais Refinery Expansion, scheduled to end in 2016.

ALE’s director for the heavy crane division, Paul Sands, says that even with an existing joint venture with Saudi firm Al Suwaidi Equipment and Transport, the amount of potential in the region made the decision to relocate easy.

“We decided to effectively relocate the heavy crane division into the Middle East from the first of April this year. People such as myself have come over, along with other key people to our business to set up, run and operate the heavy cranes of ALE, and that includes a management role on some of the SK cranes as well.

“It needs the full-time presence, management and equipment here. The secret of our business is utilisation, and if you don’t have utilisation you have got to have good rates, and the rates are not that brilliant globally. Sands estimates leasing rates globally could be down by as much as 25–30% compared to pre-2007 levels.

“So for us, if we’re trying to achieve utilisation we need the equipment in one place, and we need a place whereby we know we’re going to get work for the next three, four or five years, with little cost in moving that equipment,” adds Sands.

Currently, ALE’s SK190 4,300t ultra heavy lift crane is also in Ruwais, with the second SK190 to be built already destined for Kuwait. This deals with another key aspect of serving the petrochemical sector for crane rental companies, mobilisation.

When performing installations on existing refineries, where crane companies have to work side by side with numerous other trades, if there is an accident or malfunction with the crane that cannot be fixed on site, the hire firm needs to be able to take the crane off site and replace it with an equally capable model post-haste. The alternative of halting the project for a few days while repairs are carried out is an unacceptable one, as is often demonstrated by the stringent requirements of these companies’ tender processes.

Describing his experience of tendering for petrochemical work, US rental company TNT Crane and Rigging’s president and CEO Michael Appling Jr says, “We’ve actually won bids where we’ve said that if the crane gets damaged and they stay down for more than 24 hours, then we’ll pay for it. We’re confident that we’ll either swap the crane out or fix it.

“We make that promise, and often when they start thinking about the total cost approach, they realise that the next guy may be cheaper on an hourly rate basis, but if they use TNT they know that their turnaround is not going to get extended by three or five days, which is a lot of money and cannot be made up on an hourly rate on cranes.

“If they have certainty that the cranes are not going to cause delay in the shutdown, from a total cost and value approach that can separate TNT in many situations.”

Where possible, any unavoidable crane repair or maintenance work is carried out on site by the operator or a small team of mobile mechanics to eliminate the time and cost of transporting the crane to the nearest service centre. And clients often request newer cranes specifically to avoid maintenance issues.

International hire firm Sarens is familiar enough with these practices, as director Hendrik Sarens explains. “A lot of clients put a limit on the number of years the crane is in service. They can say they want the cranes not to be older than five years, for example. But this is different from client to client. Some of them have no conditions with regard to the age of the crane, but have certain requirements in the contract that mean that you can only fulfil them with newer types of crane.”

Newer long boom versions of existing crane types or improvements such as refined collision detection systems for booms mean that when requested by the client, sometimes the only sensible move is to use a new state-of-the-art crane.

Sarens says: “The 1,000t or 1,500t capacity crane has become a very popular crane for handling in petrochemical refineries. When the stuff being lifted is much bigger and heavier and needs to be lifted at a larger radius, clients will have to go to the very big capacity cranes, such as the 120,000tm crane [SGC-120], as most of the time the crane cannot be at the feet of the installation.

“When a shutdown also requires a change of reactor or a generator or another big piece of equipment then a strut boom crane will be installed alongside the plant to handle this big equipment.”

TNT‘s involvement with the petrochemical industry is at the lower end of the crane capacity scale, concentrating its efforts on winning maintenance work on existing facilities. It runs smaller crawler cranes and all terrains, as well as around 12 to 14 rough-terrain cranes for their ability to penetrate deep into the tightest sites.

This seems to be working well for the firm, which has expanded organically and through acquisitions quickly over the last two years, especially as Appling too has seen opportunities from new build installations in the US slowly evaporate during the downturn.

“The work that we’re doing is primarily on the maintenance side and there are starting to be some smaller construction projects, usually within existing units. I’ve not seen a whole lot of infrastructure happening around refineries and petrochemical plants either, but we’re just in the nascent early stages of some new construction on petrochemical and refineries, probably more so on the petrochemical side.

Referencing the increasing number of gas extraction projects based around the Marcellus Shale, Appling believes the US industry is starting to balance out.

“I don’t know how much new capacity will come on line with the refineries, but the shale gas boom in the United States has really evened the playing field for the petrochemical industry as far as their feedstock costs, and that is what’s rejuvenating some new capital and investment programmes on the petrochemical side in the US.”

As the financial crisis developed, plummeting oil prices from a record high of $145.16 per barrel in mid-2008 to $30.28 within six months somewhat ameliorated the poor economics for petrochemical firms via lower feedstock prices.

But with oil prices once again pushing the $100 a barrel mark, the rapid recovery for petrochemicals since the downturn is now stalling as the cloud of a double-dip recession forms over the world economy.

The economics of the situation are not ideal for petrochemical producers, but one potential game changer is heavy investment in cokers for plants geared up to refine heavy sour crude oil. Nearly 30% of the heavy crude oil refined at a facility without a coker ends up as ‘residual’ sludge that is often sold to companies that produce tar and asphalt for roofing and paving.

Cokers provide the means to further the distillation process by breaking down most of the sludge to produce more valuable petrol, diesel and oils. Typically petrochemical companies prefer to use light sweet crude oil in their refineries as it yields a higher proportion of useful fuel products, but this type of crude is far more expensive than heavy crude.

However, as 80% of the residual sludge from the refining process can also be converted into useful chemicals using a coker, this suddenly makes cheaper heavy crude a more desirable prospect.

Ed Sullivan is the chief economist of the Portland Cement Association, and is widely regarded as one of the first economists to predict the current global financial crisis.

Highlighting the effect that increased investment in cokers is having on the industry at a press conference earlier this year he said, “What we will see over the next few years is new cokers at oil refineries. Those effectively take a barrel of oil and squeeze more light crude out of it. Light crude at higher margins. If you’ve got a barrel of oil and you’ve got a certain amount of sludge in it, you are getting that much more of a higher margin of fuel out of every barrel.”

Already crane firms have capitalised on this. ALE has already used its SK 190 crane on it’s first US job, replacing coker drums and other hydrocracker unit components at a refinery in Port Arthur, Texas, owned by US energy firm Valero.

Mammoet Europe regional director, Sander Splinter confirms that Mammoet is seeing more and more of this across Europe, providing big opportunities for big cranes: “It’s a pretty mature market and we don’t expect any new builds in the western part of Europe, maybe in the Eastern part there will be some. But I do see a lot of revamping and upgrade programmes in Western Europe.

“It’s not only coker units, it’s also hydrocrackers. Because they are making new light refractions of the gas oil and Benzenes, that’s a piece of revamping that also has to do with getting light refractions of oil to produce more high quality fuels. So developments petrochemical-wise are in Western Europe. But the largest volumes are still produced in the Far East.”

However much greater demand for ultra heavy lift cranes from the petrochemical industry is helping rental firms now, Appling believes the manufacturers have to be careful not to overegg the pudding, as delays or cancellations of nuclear projects in the US and other developed markets could mean they suddenly find that they have overbuilt.

“The market has always been tight on the ultra heavy lift cranes and there’s larger and larger refineries being built around the world. That is becoming more and more a global industry.

“We had a shutdown that was delayed a month, early in 2011, because the ultra heavy lift crane that was going to work on a coker was coming from Asia, so I think the market is stepping up to meet that demand.

“But I could see a situation where they’re back to getting overbuilt, and somewhat grossly overbuilt, because there are so many companies that build the really large cranes and there were a lot of people focused on purchasing those for the nuclear industry.

“It just does not appear that there will be much of anything in development on the nuclear, and I don’t know about worldwide, but I know in the States I would not say that that’s going to be a large source of capacity growth for power generation going forward.”

Sarens CC2800-1 installing pipe rack modules at a petrochemical plant in Sasolburg, South Africa Sarens CC2800-1 installing pipe rack modules at a petrochemical plant in Sasolburg, South Africa
A Terex RT100 owned by Kuwaiti hire firm Integrated Logistics A Terex RT100 owned by Kuwaiti hire firm Integrated Logistics
A Liebherr LTC1045 owned by BP Europe and used at their Lingen refinery A Liebherr LTC1045 owned by BP Europe and used at their Lingen refinery
ALE at work on a coker job for Valero in Port Arthur, Texas ALE at work on a coker job for Valero in Port Arthur, Texas