I'm participating in a webcast with some of my Standard & Poor's colleagues later this week. As I was preparing slides for it, I wanted to highlight some of the large-scale capital projects that have been delayed because of the combination of lower prices, weaker refining margins and the credit crunch.
I figured I had enough for the slide when I got to five. To find five, I had to go back all of...one week.
The Platts archives from last week alone yielded up five examples. They were:
--A likely but not yet firm delay by Thailand 's largest refiner, Thaioil, on a residue upgrading project.
--Delays by SaudiAramco of joint venture refining projects with ConocoPhillips and Total.
--The indefinite delay of VeraSun's ethanol plant in Janesville, Minnesota, just another in a long line of delayed ethanol projects.
--Rowan Cos. announcing it might slow construction on two jackup rigs to free up cash for potential acquisitions of more premium rigs, given its stated intent to stay within cash flow in the year ahead. (That one is actually more of a realignment of priorities than a delay, but it's possible all of those goals might have been pursued in less difficult times).
--And Azerbaijan's state-owned oil company Socar may have to postpone a number of oil field development projects because of the low price of crude oil, a company official was quoted as saying.
The one that still rattles the most was a one-year delay in a Valero hydrocracker project at Port Arthur, Texas, announced in the prior week. Hydrocrackers produce distillates, diesel in particular, and the spread between crude and diesel in the US, reflected as a percentage, is even higher now than it was last spring, when $5 retail diesel was so much in the news. This continuing relative strength has been masked in the consumer market by the overall decline in prices.
But the market still remains very short diesel, so a delay of a project to make more of it, albeit just a one-year pause, may be the most vivid sign of all of how crunched this industry is now.
At a panel I moderated in New York last week sponsored by the Wharton School, a distinguished panel of experts were fairly clear in their outlook: the current price collapse has hit companies hard, some firms need to cut back spending just to stay solvent, but nobody thinks investment for the future is not needed. Yet a shocking pullback in that investment is clearly the agenda for the day, setting up the market for yet another price spike somewhere down the road.
P.S. -- Maybe things aren't really that bad. Platts reported today that Fluor CEO Alan Boeckmann said during a quarterly earnings calls last week that company sees "a very healthy prospect list across the upstream, downstream and petrochemicals," including an almost $23 billion backlog in its oil and gas segment." He said that the company has had "no material cancellations to date" and while a few projects have been slowed, it has been "only temporarily."
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