From New York-based Sterne Agee analysts on petrochemica investment outlook:
Engineering & Construction
Analysts: Michael S. Dudas, CFA (646) 376-5329 / Patrick Uotila, CPA (646) 376-5358
Project Pulse - U.S. Petrochemical Investment Outlook Surging Along with E&C Opportunities
Petrochemical and manufacturing conferences held this week continued to highlight the enormous potential of U.S. shale development and a long sustainable tail. IHS chemical estimates that $125 billion in petrochemical announcements have been announced related to U.S. shale with more remain likely to come. Supportive of CBI, FLR, JEC, KBR.
• The IHS (IHS) world petrochemical conference this week hosted several major petrochemical companies and each appeared more bullish than a year ago. IHS estimates last year suggested the U.S. petrochemical industry could add 85 million metric tons of new capacity by 2030 spending $120 billion. IHS 2014 estimates increased to 105 million metric tons by 2024. IHS pointed to a U.S. capital spending peak during 2016 of $14 billion, or 4x current levels. Project costs could increase around 4% per year through 2020. Importantly, we believe engineering & construction (E&C) suppliers can benefit from increasing margins and reasonable risk profiles. IHS cited a resurrection in U.S. manufacturing in energy-intensive industries including plastics, rubber resins, and metals manufacturing.
• Dow Chemical (DOW) believes that companies continue to place bets that the U.S. energy revolution is real and sustainable with activity outpacing projections. Dow expects six new steam crackers on line between 2017 and 2019 and estimates announced expansions of as many as 120 projects worth $100 billion of investment. Dow cautioned on risks noting a lack of skilled crafts and U.S. energy policy. In our view, E&C firms like FLR and CBI who have a strong ground presence and direct hire capabilities in the U.S. should have competitive bidding advantages. The American Petroleum Institute expects investments to occur in waves. The first wave involves investment by upstream in finding and producing new reserves, the second wave involves chemical and steel industries, the third wave should be downstream investment to use steam and power, and the fourth and final wave involves research and development facilities to support manufacturing.
• Marcellus investment plans could add to Gulf Coast development although lack of infrastructure remains an obstacle. Shell's (RDSB-LON) recent property purchases signal continued intent around its $3 billion proposed Pennsylvania cracker. Jacobs performed development studies for Shell during 2013 and we believe could be positioned well to expand scope on the project. Shell has not made a final investment decision yet on the proposed plant and recently noted a scale-back in its onshore U.S. ventures (albeit mostly acquisitions). In addition to Shell's plans, Brazil's Odebrecht (private) recently signed a supply agreement with Antero Resources (AR) to supply ethane to its proposed $4 billion cracker in West Virginia. During January, Odebrecht, one of Brazil's largest construction firms and Braskem's (BRKM5 BRL) partner on the chemical project, announced the purchase of land to be used for the proposed cracker. Odebrecht has yet to make a final investment decision and would need to build multiple pipelines in addition to building the complex. During 2013, Brazilian petrochemical firms like Braskem watched chemical exports fall significantly and imports jump significantly as a result of low U.S. natural gas prices helping support a U.S. investment thesis.
Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.
Rig Count Interactive Map by Baker Hughes, an energy services company.
Shale Sheet Fracking, a Youngstown Vindicator blog.
The Ohio Environmental Council, a statewide eco-group based in Columbus.
Earthjustice, a national eco-group.
People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.
Concerned Citizens of Medina County, a grass-roots group.
No Frack Ohio, a Columbus-based grass-roots group.
Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.
Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.
Allegheny Front, environmental public radio for Western Pennsylvania.