Protel tracks capex project activity across the main process sectors to help suppliers win new business. In this article we aim to present a quick and easy to digest run-down of the main trends and developments in a highlighted sector of the process manufacturing industries in one of our covered regions. For more information on the areas we cover, click here.
In our previous industry outlook article covering the UK chemical industry in 2019, we wrote that the main challenge and source of uncertainty facing the sector stemmed from the then unclear future relationship between the UK and the EU.
Near the end of 2020, we are now reaching the end of the transition period, with so far no clear signals coming from negotiations as to the future relationship between the two parties. As such, the uncertainty persists, with precious little time for the industry to adjust to any developments.
Despite this, the outlook for the UK chemical processing industry remains relatively positive for the year ahead, with significant challenges still waiting to be traversed.
COVID has changed the make-up of capex slightly, though we anticipate the amount of capex to remain stable going into the year ahead.
Capex expenditure in the UK chemical sector has slowed as a result of the Covid-19 pandemic, in line with other process sectors. Project schedules have slipped and scopes have often been reduced, while cancellation of projects has remained stable at pre-pandemic levels (where Brexit was previously the primary source of uncertainty).
During the first lockdown, design and permitting was prioritised while the sector struggled with the adjustment of working from home. New tender activity for front-end work is now slowing and is not anticipated to pick back up until organisations feel safe committing to investment again. The impact of this is a reduction in project design at all stages, concept onwards.
Maintenance and repair programmes have been impacted with many seeing postponement until 2021. Site manpower requirements fell as output slowed, but are now starting to recover. 2021 is expected to be busy, as the shortfall from 2020 in maintenance is caught up on, along with a stronger demand from Q2 2021 onward. Some revised capex elements are being absorbed into maintenance programmes instead of progressing as larger-scale standalone schemes.
These are some trends we are seeing as areas to watch in the UK chemical sector now and into 2021.
The chemicals sector has a high dependency on information, data and analytics. Industry 4.0 is now starting to revolutionise the sector. There is a greater and greater consideration of Industry 4.0 in respect of automatic processing, the internet of things, big data and predictive analytics for example, and the smart factory is fast becoming reality as opposed to concept. It is thought that this uptake will only accelerate and the advent of Covid has hardened this view.
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Sustainability & The Circular Economy
In line with national and global targets & objectives, heavy process industries in the UK are tasked with reducing greenhouse gas emissions and improving energy efficiency. As one of the major energy users in the UK the sector is researching and implementing programmes to reduce consumption and generate on-site heat and power. Self-generation using CHP is becoming more prevalent, as are partnerships with energy providers to co-locate generation plants and sell the heat and power back to site.
AI & Robotics
As mentioned in our 2019 outlook, moving personnel out of hazardous process areas has become a key focus in the chemicals sector. This trend continues and the Covid lockdown at the start of 2020 was an opportunity for many now home-based organisations to look to the future and undertake concept and feasibility planning. Key areas of focus included; centralisation of distributed control systems, relocation of staff amenities outside process areas, process automation and integration of Industry 4.0 technologies. Going forward we expect this trend to continue as these types of projects gain traction.
Partnering for the supply of heat and power, waste-to-energy, waste-to-feedstock and similar projects are on the rise. This trend is set to continue and it is thought by many that it will expand to move the chemicals sector towards a true circular economy.
Protel are currently reporting on approx. 279 active chemical projects with a total potential investment value of £9.9bn.
Some of the larger chemical investment currently being tracked by Protel (data taken from our MyProtel project search engine, full details available to subscribers):
• Fawley – £500M+ FAST project
o BP Chemicals sold to Ineos
o Ineos building new VAM plant £150M
o Nippon Gohsei installing new production line
o Sabic – post-Aramco takeover mega project
o Anglo-American potash mine
o ESSAR Capex programme on hold
o Inovyn/Ineos – site rejuvenation
• Grangemouth – Petroineos/Ineos, multiple projects including
o New power & steam
o Cracker conversion
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Brexit & Covid aside, we expect to see continued investment in the UK chemical sector, to ensure it’s viability for the next 25 years. We see a continued focus on recycling, reuse, automation, AI and Industry 4.0, which is likely to generate much of the project work going forward in the years ahead.
In the short term we envisage a reduction of capex related work, due to the economic uncertainties and final investment decisions (FID) being delayed, but an uptick in maintenance related projects.
That said, the Q2 lockdown provided an opportunity for organisations to concept plan and focus on design and permitting, in preparation for FID when the economic outlook improves. We anticipate the level of concept and feasibility planning will increase if Covid continues to impact, as organisations prepare for the future and concentrate on continuing to remain competitive.
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