Fluor Pursues 'Pockets of Opportunity' While Awaiting Clarity from Congress and EPA

---

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Fluor Corporation (NYSE:FLR) (Irving, Texas) prides itself on solving the toughest challenges in engineering, procurement, construction, maintenance and project management. But the current energy policy gridlock in Washington, D.C. has created a particularly steep set of challenges for Fluor's power business, ones that are resistant to its engineering and technological expertise, according to a Fluor executive.

"I've been in the power construction business for 31 years, through several cycles of boom and bust, and the last 12 months may have been the toughest I've ever seen," David Eppinger, Fluor's vice president for sales, marketing, and strategic planning, told Industrial Info in an interview. "I've never seen a market ramp down as fast as the power market did after the highs of 2006 and 2007."

The drop-off in electric demand that followed the start of the U.S. recession at the end of 2007, coupled with the financial meltdown of 2008 and the continued lack of clarity over CO2 emissions levels, have upended the power business for many engineering, procurement and construction firms. Fluor is no exception. The firm's book of new business in the power sector fell 75% for the six months ended June 30, to $239 million from $948 million that was awarded during the first half of 2009.

Although six-month revenue for Fluor's power segment increased about 10% to $1 billion, and profits from that group increased to $106 million, Eppinger is concerned about Fluor's winnowing backlog of power-industry work, which had fallen to $1.07 billion on June 30, 2010, down from $2.6 billion on June 30, 2009.

Fluor is working on several other natural gas power projects in the U.S., including:

• The 580-MW Bear Garden Generating Station, located in Buckingham County, North Carolina, and owned by Dominion Virginia Power, a subsidiary of Dominion Resources (NYSE:D) (Richmond, Virginia)
• The 620-MW Jack County Unit 2 gas-fired, combined-cycle generator located near Bridgeport, Texas. That generator is owned by Brazos Electric Cooperative Incorporated (Waco, Texas)

One of Fluor's big coal-fired power projects, the 800-MW Oak Grove Unit 2 in Franklin, Texas, began commercial operations this past May. The Oak Grove Generating Station is owned by Luminant Energy Company LLC, a unit of privately held Energy Future Holdings Corporation (Dallas, Texas). For more information, view May 7, 2010, article - Texas Power Generating Plant Goes Commercial with Second Unit.

Eppinger said Fluor's new-build coal-fired power plant business is "absolutely dormant--all our new-build projects are on hold. It's virtually impossible to get a permit now," given the continued uncertainty over limiting carbon dioxide emissions. Fluor has had better success in winning gas-fired power plant work, and Eppinger said he expects to bid on several more requests for proposals (RFPs) later this year.

Carbon capture and sequestration (CCS) projects also have been a bit of a bright spot for the Texas-based firm, Eppinger said. Last month, Fluor was awarded a contract for front-end engineering and design (FEED) work for a CCS project to be built at the 600-MW Trailblazer Energy Center in Sweetwater, Texas, which is owned by Tenaska Incorporated (Omaha, Nebraska). Fluor also is the engineering, procurement and construction contractor for the generation project there as well, which is scheduled to begin construction later this year. Fluor is part of the CCS project recently announced by NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey) for Unit 7 of the W.A. Parish Generating Station in Thompsons, Texas, near Houston. That project will use Fluor's EconoAmine FG Plus process. For more information, view March 30, 2010, article - NRG to Receive Up to $154 Million to Demonstrate CCS Technology at Texas Power Plant. Eppinger said Fluor also has won FEED work at two European CCS projects at E.ON power plants.

Fluor, which has built dozens of is flue gas desulphurization (FGD) projects, is finishing work on two or three FGD projects now, but it has no other projects in its pipeline, Eppinger said. "Clients have been waiting for the EPA to act" on emissions of oxides of sulfur and nitrogen, he said, adding that the recent proposed Transport Rule from the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) "could drive a substantial amount of FGD work for us over the next three to five years."

Next year, the EPA is expected to propose tougher standards on power-plant mercury emissions, which is expected to make it even harder to build coal-fired generators.

While the regulatory and legislative wheels continue to turn, Fluor is pursuing "pockets of opportunity" in renewable generation, Eppinger told Industrial Info. Fluor is seeing "quite a bit of activity" in solar power development, in both photovoltaics and concentrating solar power, he said. "It's one of the bright spots for us, though it remains a challenge to put the financing together." He expects activity to continue rising as power developers face a year-end deadline to quality for cash grants from last year's American Recovery and Reinvestment Act, which requires developers to have 5% of the value of a project committed, and construction activities begun, by December 31, 2010. There's "no question" that the run to the sun will turn into a stampede as the yearend deadline approaches, he said.

Although Fluor has not actually begun turning dirt on any U.S. solar projects, Eppinger said the firm has several projects that are being developed in California, Arizona and New Mexico. He also noted that other states, including New Jersey and Colorado, have established renewable electricity standards that are spurring development of renewable energy.

"In terms of construction starts, we thought renewable would have been doing better than they are right now," Eppinger told Industrial Info.

In the wind energy market, Fluor is pursuing offshore opportunities in the U.S. and abroad, but nothing in the onshore market. The company is building the 500-MW Greater Gabbard windfarm off the southeastern coast of the U.K.

Most of the U.S. power projects that are moving forward these days are being built for utility companies under a regulated rate base, Eppinger said, noting that the high-flying days of merchant power development appear to be over: "It's hard enough to get good power projects across the finish line, but virtually impossible to finance a merchant power plant these days."

Eppinger noted that legislative and regulatory decisions in Washington D.C. will significantly affect nearly all aspects of its power business, which also includes nuclear power. Fluor is doing pre-construction work at South Texas Project (STP) units 3 and 4, which is on the short list for billions of dollars in federal nuclear loan guarantees. STP 3 and 4 is one of several projects vying for those loan funds. Eppinger acknowledged that it's hard enough to build a new nuclear generator, even with billions of dollars of loan guarantees. Without those loan guarantees, however, new-build nuclear appears impossible.

View Plant Profile: 1055470 1002706
View Project Report: 27001204

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.