In just a few months, the COVID-19 pandemic, economic turmoil, and plunging oil and gas prices have cast a wide shadow over project development across the globe. As of mid-June, Industrial Info Resources had identified more than 10,000 projects with a combined worth of more than $1 trillion across all major industry groups that have felt the effects. The impact can include schedule slippages, projects being placed on hold and even cancellations.
In light of these upheavals, Industrial Info conducted a series of mid-year webinars that featured updated industry outlooks. Below is a rundown:
COVID-19 Pushes Out Power Projects, but Few Cancellations
While some North American power projects have been pushed out or placed on hold because of the coronavirus, Industrial Info has seen very few outright cancellations, although spending this year in the Power Industry is expected to be lower than originally forecast.
Britt Burt, Industrial Info’s vice president of research for the Power Industry, said the
largest effect that the pandemic has had on the industry has been a significant decline in demand since March, when several states began issuing stay-at-home orders. Commercial and industrial power demand declined by about 4.7%, which was accompanied by a residential demand drop of about 0.8%, thanks to mild weather. In late January, U.S. power demand was at a peak of about 12.3 million megawatt-hours, which dropped down to about 9.8 million megawatt-hours in early March, bottoming out in April at about 8.5 million megawatt-hours. Burt said that beginning next year, he expected demand growth to continue at its rate of about 1% per year.
In addition to lower power demand, power generators are facing other causes of economic uncertainty, as many were not cutting off the power to customers with unpaid bills. This uncertainty has led to some project push-out. Delayed projects in North America include nearly $8 billion in new plant construction and more than $3.1 billion in expansions and additions.
The lowered 2020 capital spending seen to date are primarily in wind (2.7% decline), natural gas (23% decline) and solar (19% reduction). Solar, in particular, is facing supply chain disruptions and some labor shortages because of the virus; however, activity is expected to pick up again next year.
The trend in retirements of older energy sources is expected to continue in the future, primarily from coal, which saw about 94 gigawatts (GW) retired from 2010 through 2019 and is expected to see another 60 GW of retirements through 2030. This is expected to be replaced, in large part, by renewable energy, as well as some new natural gas-fired generation.
U.S., Canadian Oil & Gas Industry Plots Post-COVID Path, Ground Still Shaky
The industry has been upended by collapsing prices and widespread lockdowns related to the pandemic. Industrial Info expects top-line spending for capital and maintenance projects in the U.S. and Canadian Oil & Gas Industry to come in at about $72 billion for 2020, down from about $102 billion in 2019.
At the beginning of the year, crude oil demand was forecast to increase by 1 million barrels per day (BBL/d) in 2020, but has since been revised down to about 92.6 million BBL/d, an 8.1 million-barrel drop from 2019, according to the U.S. Energy Information Administration (EIA). U.S. crude oil production also has been revised down to about 11.7 million BBL/d in 2020, a drop of 500,000 BBL/d from 2019; the EIA expects production to drop another 800,000 BBL/d in 2021.
Chris Paschall, Industrial Info’s vice president of research for the Oil & Gas and Petroleum Refining industries, noted the EIA expects demand to return to normal levels by the end of 2021. In particular, he said demand could begin to exceed supply from third-quarter 2020 onward, reflecting an optimistic forecast as the economies start to re-open and Americans hit the road again. Although the EIA expects inventory builds will be at near-record highs in the first half of 2020, global inventory draws beginning in the third quarter will deplete inventories by 1.9 million BBL/d in 2021.
“We could see a recovery, but it’s going to be a wait-and-see as markets re-open around the world,” Paschall said. As has been the case for well over a decade, the Permian Basin is expected to account for the bulk of U.S. crude oil production, estimated at 4.37 million BBL/d for 2020. That’s more than double what is expected to come from the Bakken and Eagle Ford shale plays put together, which is 2.34 million BBL/d.
The refining sector saw gasoline consumption drop to a low of about 5 million BBL/d in the second week of March, less than a year after it hit a record high of 9.9 million BBL/d in June 2019. Since then, demand for gasoline has grown as states re-open their economies; the EIA expects domestic gasoline consumption will grow from an average 7 million BBL/d in the second quarter to about 8.7 million BBL/d for the second half of 2020.
“Refiners already are starting to see improving margins,” Paschall said.
For the full year, the EIA forecasted U.S. gasoline consumption will average 8.3 million BBL/d, an 11% decrease compared with 2019, while jet fuel and distillate fuel oil consumption will fall 25% and 10%, respectively, “so we did see a compression across the board.”
Grassroot refining projects are among the least likely to move forward at the moment, Paschall said, given that the heaviest investments are hard to justify with the current low demand. “Petrochemicals [projects], in the near future, will capture the highest total investment value.”
U.S. Natural Gas Sectors - Plenty of Capacity in Downturn’s Wake
For different natural gas sectors, the U.S. currently has plenty of capacity, resulting in a slowdown in spending for the remainder of this year. However, things should pick up again in 2021.
Shane Mullins, Industrial Info’s vice president of product development, said that while natural gas demand was down this year, there’s plenty of demand on the way to keep production growing out to 2025. In the U.S. Power sector, there is approximately 8 gigawatts of gas-fired power under construction. Petrochemical demand will require another 2 billion cubic feet per day (Bcf/d) of natural gas by 2025. But exports remain the real demand driver. Mullins said, “By 2025, gas exports will have gone from nothing in 2015 to about 20 Bcf/d when you combine LNG [liquefied natural gas] and pipeline exports.” About 3.5 Bcf/d of demand from LNG plants is set to come online this year, and new projects will be completed in the future.
Gas flows to U.S. LNG plants have come down in recent months as planned cargoes have been cancelled. Mullins said that storage tanks across Europe are very full right now, although Asian demand is expected to pick back up. “Lower levels of LNG exports are likely going to continue through the summer as buyers have cancelled cargoes for June delivery and possibly more cargoes in July. Although LNG exports will be down in the third quarter, exports are expected to rise up back over 8 Bcf by the end of the next year.”
Global LNG demand is expected to be in the 550 million-to-600-million-ton-per-annum range by 2030. Mullins expects at least two U.S. LNG projects to be approved next year, with some possible delays in 2022 and another two in 2023.
U.S., Canadian Manufacturers Adjust to ‘New Reality’ Amid COVID-19
“What we’re facing now is a new reality,” said David Pickering, Industrial Info’s vice president of research for the Industrial Manufacturing Industry. “Companies are going to have to decide, in each phase of their projects, how they want to recover from what they lost during the first five months of the year due to COVID-19.”
Many companies will opt to slow the planning and engineering phases of their active projects to re-evaluate and perform any necessary redesigns, Pickering said. Will they need to operate differently from what was originally planned? Are new safety measures needed? Or new processes or procedures? Are additional projects needed?
“All in all, the [Industrial Manufacturing] Industry has managed to survive [the COVID-19 pandemic] quite well,” Pickering said. “We did lose about $30 billion in total project spending in the U.S. and Canada,” but “it looks like we’re going to bounce back rather well from that.”
Survival Now the Name of the Game for Metals & Minerals Industry
“Metals and minerals firms are in survival mode, and cash conservation is on everybody’s mind” as a result of the market conditions wrought by the pandemic, said Joseph Govreau, Industrial Info’s vice president of research for the Metals & Minerals Industry.
Industrial Info has identified more than $30 billion in metals and minerals projects in North America that have been impacted by COVID-19, accounting for 27% of the value of all the industry projects being tracked, Govreau said. Most of the projects have been delayed, while a few have been placed on hold or cancelled.
“Demand has taken a hit, as primary end-user markets, such as the automotive, aerospace and construction sectors, have slowed considerably, not to mention the negative impact being felt from low oil prices and reduced consumer spending,” Govreau said.
On the plus side, he said, the plant shutterings seem to have peaked, and the industry is slowly reopening and ramping up production according to each country’s COVID-19 guidelines and safety precautions.
Chemical Processing Industry Faces Short-term Demand Destruction, but Long-term Demand Intact, So Far
The global Chemical Processing Industry (CPI) faces a “very significant destruction of demand in the near term” due to the pandemic, Trey Hamblet, Industrial Info’s global head of chemical processing research, said. But the expected impact on project spending is less pronounced in the medium term and long-term, he said: there has been a “deterioration” in the outlook for medium-term project spending around the world, but the outlook for long-term projects “is intact, with no deterioration, so far.”
Hamblet said many CPI projects under construction are experiencing some delays, which will push back the anticipated completion dates. “Projects currently under construction will come online, but they may be delayed. We have not seen projects cancelled where dirt has been turned or steel has been put in the ground.”
Hamblet also said in May the impact of maintenance projects by COVID-19 in the U.S. and Canada has been minimal, “in that most turnarounds got pushed but only by an average of 90 days in most cases; very few were pushed out six months or more. This means that the total maintenance spend for the year will likely remain quite close to what it was at the start of the year.”