Capex continues to dominate oil and gas

Edited by the Engineeringtalk editorial team Feb 6, 2004

The worldwide market for plant-level expenditures in the oil and gas industry, which totalled more than $196 billion in 2003, will reach almost $218 billion by the end of 2008, says a new study.

The worldwide market for plant-level expenditures in the oil and gas industry, which totalled more than $196 billion in 2003, will reach almost $218 billion by the end of 2008, expanding at a CAGR exceeding 2%, according to a new study by the ARC Advisory Group.

"Oil and gas companies spend enormously on exploration every year to ensure steady supply of crude oil and natural gas for the future", according to Senior Analysts Dave Clayton and Ravi Murthy, authors of ARC's "Oil and gas industry plant-level expenditures worldwide outlook".

They continue: "Although there are several factors driving up operation and maintenance costs in the refining industry, the bulk of the money spent is still in the exploration and production phase".

Oil and gas companies must invest heavily in exploration and production to hit upon new sources of crude reserves.

As current reserves are used, companies must dig deeper to reach new supplies and the cost associated with obtaining new wells continually increases.

The refining industry also depends heavily on capital expenditures to control the large, continuous processes used to produce refined oil and gas from crude.

Major oil companies, however, have become more cautious about the pace of their capital spending and capital markets are scrutinising oil and gas capex more thoroughly than during the previous cyclical upturn.

Based on recent consolidations, restructuring, and cost cutting programs, the oil and gas industry is expected to be more adaptable to fluctuations in upstream spending.

Compliance with the numerous environmental regulations impacting the oil and gas industry is further fuelling an increase in capex worldwide.

Emission control regulations, such as maximum achievable control technology (MACT) II, are driving refineries to invest in significant upgrades to their process equipment in an effort to reduce the emission of hazardous air pollutants such as sulphur.

The Environmental Protection Agency (EPA) is also trying to regulate routine maintenance, repair, and replacement activities in North American refineries, which may force additional capital expenditures on equipment replacement and repair.

Even in developing countries, environmental regulations are forcing additional capex for processing equipment.

Due to the large number of valves used in the oil and gas industry, and their importance in meeting emission-control regulations, valves continue to be a leading processing equipment expenditure for oil and gas companies.

Increasing investments in digital valve positioners to provide remote monitoring and self-diagnostic capabilities is a key factor in meeting emission-control regulations.

Refineries are also placing an increasing emphasis on replacing improperly sized valves to lower valve emissions.

Mandated air pollution reductions are putting pressure on refineries to perform better analyses, which requires additional analytical equipment investments and best practices.

Proper analysis of feedstocks, fuels, gases, and petrochemicals is vital for oil and gas companies.

New analytical equipment is providing oil and gas companies improved air pollution control as well as significant cost saving opportunities.