Refinery and Petrochemical Plant Construction Costs Falling

According to IHS Cambridge Energy Research Associates, the cost of building new refineries and petrochemical plants fell 9 percent between the third quarter of 2008 and the second quarter of 2009, after several years of steady and significant increases. According to IHS, the cost decline we've seen so far is mostly due to the reduced cost of commodities. Costs are expected to fall further due to factors such as reduced workload with the major contractors. My view is that this is a mixed blessing. Clearly for the contractors, the fact that order books are weaker is bad news. For manufacturers, inflation in this area has been running at very high rates, making capital investment very expensive and has led to a need for scope reductions in projects in order to meet budgets. The end of this bubble should make things easier at a time when spending is being cut due to the impacts of recession

Site Closure

photo : el Economista

Following my last post on site closure, today La Seda de Barclona announced that is to close five plants and lay off 300 staff as part of a restructuring plan that will allow it to focus on polyethylene terephthalate (PET) production.

240 of the job losses will be due to the closure of the 500,000 tonne/year upstream purified terephthalic acid (PTA) site at Wilton, in the UK. The Wilton plant has been shut down for several months already.

Site Closure

There have been many announcements of site closures in Europe in recent months. Given the new petrochemicals capacity coming on line in the Middle East, there are undoubtedly more to come in the coming months and years.

Site closure is a strategic decision, based on the long term economics of a business. The business aims will have been defined as part of the decision process.

However, Site Closure is unlike any other project; as well as being complex, with EHS, technical and regulatory challenges, it is also highly emotionally charged, with many of the people involved in the process being directly affected by the consequences. Having been in the middle of this process several times myself, I can state from experience that it is very different from other types of project.

A well-managed site closure process will achieve all of the aims of the impacted business, it will ensure a positive transition for the impacted employees and will satisfy all regulatory requirements. All of this whilst controlling costs and taking advantage of a number of financial opportunities which can arise.

The flip side is that poorly managed site closure can have a number of serious consequences, impacting both the profitability and the reputation of the parent company.

For example, the process can become unnecessarily protracted, leading to significant extra cost. Staff morale can decline sharply in the period between announcement and closure, leading to increased risk, unreliable production and hence customer dissatisfaction.

Key staff can be lost early in the process if thought has not been given to their future in the organisation. Legacy issues such as land contamination can lead to problems with regulators or landlords. The resale value of assets is not realised and property value (lease or freehold) is not optimised.

With the 'typical' cost of a site closure in the order of $10-15 M, the difference between a successful outcome and a poorly managed outcome can be very significant.

H1N1 Swine Flu - Is Industry Prepared?

According to a recent report by the Ernst and Young Item Club, a London based think-tank, swine flu could devastate the UK economy.

Apparently swine flu could cause Britain's economy to shrink by 7.5% this year and dash hopes of recovery next year. According to Peter Spencer, chief economic advisor to the Ernst & Young Item Club "If the worst-case scenarios of the threat of swine flu are fully realised, gross domestic product could fall by as much as an additional 3% this year and another 1.7% in 2010”.

If this is true for the UK, then the same could apply to all major economies.

It is now widely acknowledged that the virus cannot be contained so management strategies are necessary.

From discussions with my contacts, it seems that across the industry, levels of preparation vary significantly, ranging from no preparation at all, to providing a handful of anti-bacterial sprays to having a full business continuity plan in place.

Regarding the latter, best practice is to carry out a thorough risk assessment based on the various possible scenarios for the spread of the infection. Plans need to be in place for dealing with employees, for operational planning in case of widespread absence and for possible supply chain disruption.

Whilst this is a considerable exercise and will take time and effort to perform well, it is much easier to implement such a plan if it has been well thought through in advance.

Operating Problems Hitting Chemical Producers

There have been a number of recent press reports of operating problems at major chemical installations. In Europe, crackers have been in the headlines in recent days, with outages at a number of sites. In Saudi Arabia, on-going technical problems are reported to have impacted the recently commissioned Petro Rabigh facility. Technical problem solving is an issue for many organisations. In particular, new facilities do not necessarily have the experience and the skilled personnel with a capability in troubleshooting. Where multiple problems exist, it is important to prioritise the issues, rather than trying to tackle all at once and then use a rigorous and highly systematic approach to diagnose and resolve those problems. If organisations have insufficient in-house capability, external support should be sought, otherwise minor problems have a habit of growing into much bigger issues.

Serious Explosion at French Petrochemical Plant

Numerous sources report that two people died and several others were injured in an explosion at Total's Carling Site in Eastern France. Reports suggest that the incident occurred during a start-up of the cracker, which had been shut down following bad weather in the area. No further details are available at this time.

Record Numbers to Study Chemical Engineering in UK

Despite my previous post flagging job losses in the US Chemical sector, it is interesting to report that applications to UK Chemical Engineering courses have reached an all time high. Figures show that 10,068 applications have been made this year; a year-on-year increase of 18%. Numbers have doubled since 2001. I'm interested to know the trend in other countries. Comments from a US based colleague suggest that this in not the case there. Certainly the UK Institution of Chemical Engineers has played its part with a very effective campaign called Whynotchemeng. Undoubtedly Chemical Engineering is a degree that provides a very good platform for a wide range of careers both within and outside the chemical industry. Whatever the reason for the surge, this has to be good news for an industry which has voiced major concerns over the availability of skills for the future.

Recession Hits Jobs in US Chemical Industry

New figures from the US Department of Labor show that the number of job losses in the chemical industry has increased steadily in 2009. The figures show that the industry now employs 41,000 fewer workers than at the same time last year, a decrease of 5% Whilst employment numbers in the chemical industry have been falling for several years, this is believed to be due to productivity improvements. The latest falls are very much thought to be recession related, with most of the cutbacks in production positions. I don't consider these figures to be a surprise. Almost all organisations are having to deal with the effects of recession and cost savings are essential to survival. What is vital, however, is to use a robust management of change process when deciding where to make cuts - otherwise safety, productivity and your reputation could suffer as a result of poor decisions