18
December
2014
HYDROCARBON
ENGINEERING
misalignment or simple lack of the tools and processes required
to make the right decisions. Despite the difficulties, it is possible
to set up the right operating model by putting in place
appropriate systems, processes, incentives and value adjusting
mechanisms. It is a hard task, no doubt, but one that would
significantly contribute to value creation when developing a new
megasite.
Project execution
The capital investment in planned megaprojects in ASEAN
countries totals more than US$ 50 billion up until 2020. This is a
significant capital outlay that needs to be well managed. The size,
scale, complexity and technological requirements of these
megaprojects place significant demands on the project
management and execution capabilities. NOCs need to develop
these capabilities. This requires having in place a rigorous stage
gate and governance model for the overall megaproject with
appropriate checks and balances across the stage gates. Checks
and balance processes typically comprise of ‘value engineering’
and ‘value assurance review’ type processes that the NOC should
periodically conduct to ensure that the projects economics still
hold. NOCs also need to develop the right contracting strategy,
risk management approach and project management capabilities
to work effectively with the multiple PMC and EPC contractors.
Manufacturing excellence
Developing the right operational and commercial capabilities to
run the megasites is critical to ensure the long term
competitiveness of the site. Developing the manufacturing/
operations organisation (structure, people, capabilities) needs to
start very early on and well before the start up of actual
operations. This will ensure the operators are well trained by the
project execution teams/EPC contractors and develop an
understanding of the assets being set up. Too often, NOCs/
project developers are singularly focused on the execution of the
project and leave it very late to think about key operational
readiness aspects. This can cause significant issues such as
delayed start up, slow ramp up and significant unplanned
downtime in the early stages of the operations. Even with the
best project execution, the loss of the early cash flows can
significantly impact the overall project economics. Hence,
starting early and developing the right operations and
commercial strategy as well as organisation is critical.
Workforce development and skills
upgrading
Finally, NOCs would need to consider a differentiated approach
to developing the required capabilities in house not only in
projects and operations but also in the area of marketing, trading
and distribution. But this by itself is insufficient and would not
lead to a best in class megasite. NOCs would need to go beyond
developing their own in house capabilities and incubate the
development of technical, vocational and administrative
capabilities on the site to ensure that outside investors are
attracted by the higher quality of the workforce. Workforce
development could be done through dedicated training
academies or vocational centres on the site through partnerships
with specialised companies. A high quality workforce is a
distinctive competitive advantage for the long term sustainability
of the site.
Conclusion
In summary, ASEAN countries are embarking on a
US$ 50 billion investment campaign in megasites during a time
where the global petrochemicals competitive landscape is
evolving rapidly and ASEAN region as a whole is becoming
increasingly oversupplied in key products. Developing the
megasites in a cost competitive manner is not just a ‘nice to have’
but a survival imperative for the NOCs and their joint venture
partners to ensure the long term sustainability of their multi
billion dollar investments. Failure to take a rigorous and holistic
view on optimally developing the megasites will only lead to
disappointing investment returns and a missed opportunity to
play a key role in the increasingly important ASEAN chemicals
market.
References
1. Consisting of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar,
Philippines, Singapore, Thailand, Vietnam.
Table 1.
List of key megasites being considered in ASEAN countries and international partners
Country
Project name/location
Status
Planned investment
(billion US$)
Project owners and
international partners
Project description
Vietnam Nghi Son refinery and
petrochemical project
FID
8.0
PVN
Mitsui Chemicals,
Idemitsu, Kuwait
Petroleum International
Integrated refinery
and petrochemicals
complex
Nhon Hoi
Petrochemical complex
project
Planning
20.0
PTTGC
Petrovietnam and other
JV Partners
Integrated refinery
and petrochemicals
complex
Indonesia
Integrated petrochemical
complex, Balongan
Planning
5.0
Indo Thai Trading (JV
between Pertamina and
PTT GC)
1.2 million tpy of PE
and PP; 1 million tpy of
MEG and butadiene
Brunei
Integrated and refinery and
aromatics cracker plant
Planning
4.0
Hengyi Industries,
Hongkong Tianyi,
Damai Holdings
1.5 million tpy of PX
in addition to refined
fuel products
Malaysia
Pengerang integrated
complex
FID
16.0
Petronas,
Evonik Industries,
Versalis,
Itochu Corporation
Refinery &
petrochemicals
integrated
development (RAPID)
