WATCHING THE WORLD PACIFIC RIM PROCESSING

With Roger Vielvoye from London Companies planning major investments in refining and petrochemical capacity are facing a nasty hangover from the Middle East war. Prices being quoted for large projects are rising sharply as contractors anticipate a surge of business from reconstruction of the war-torn oil production and processing facilities in Kuwait. First effects of this shift in the marketplace are being felt in the Pacific Rim, where refining and petrochemical plant construction is still on

Aug. 12, 1991

3 min read

Companies planning major investments in refining and petrochemical capacity are facing a nasty hangover from the Middle East war.

Prices being quoted for large projects are rising sharply as contractors anticipate a surge of business from reconstruction of the war-torn oil production and processing facilities in Kuwait.

First effects of this shift in the marketplace are being felt in the Pacific Rim, where refining and petrochemical plant construction is still on an upswing to meet prodigious economic growth rates in the area.

Long lead time items such as generators, compressors, and other rotating equipment were reported to be rising by as much as 1O%/month early this summer.

MALAYSIAN EXAMPLES

In Malaysia, uncertainties in evaluating the economics of new projects in this sort of atmosphere was one of the reasons given by Caltex for withdrawing from a proposed 100,000 b/d grassroots refinery in Malacca.

Malaysia's state owned Petroliam National Bhd. is undeterred by the Caltex decision. It says it will push ahead with the project, possibly seeking a new foreign partner to take over the Caltex holding.

The Malaccan project, an export refinery based on imported feedstock, is still very much in the embryo phase. But another Malaysian project that is on the point of winning the final go-ahead from shareholders also has suffered from the upturn in construction costs.

Shell Refining Co. (F.O.M.) Bhd. will have to spend $518 million (U.S.) for a major upgrading program at its 90,000 b/d Port Dickson refinery on the western coast of the Malaysian Peninsula. That is about $50 million more than the projected budget before the Middle East crisis sparked the expectations of contractors and manufacturers.

In reality, higher prices are based on the industry's perception of the Kuwaiti effect. Expectations of big rebuilding contracts are high. But so far bankable contracts have not materialized, and a number of contractors are short of work.

A PLEASANT SURPRISE

One petrochemical manufacturer has benefitted from this situation. Ethylene Glycols (Singapore) Pte. Ltd., a joint venture by Shell Eastern Petroleum (Pte.) Ltd., a group of Japanese companies, and the Singapore government, said it was pleasantly surprised by the winning bid for a small expansion of its operations at the Singapore petrochemical complex at Pulau Ayer Merbau.

At $34.7 million the project will be more than 10% cheaper than originally estimated. And that, says the company, is not because of overbudgeting in the first place.

The main contract was won by Chiyoda Singapore (Pte.) Ltd., although two European contractors were extremely keen to win the business.

Contractors, it seems, are prepared to quote highly competitive prices for small jobs that will keep business ticking over until the expected surge in activity from Kuwait kicks in.