Project Cancellations Remain Low Despite Market and Feedstock Woes

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Researched by Industrial Info Resources (Sugar Land, Texas)--As the price of crude oil continues to climb and commodity price increases show up in daily news reports, it is expected that the Chemical Processing Industry (CPI) will respond with cutbacks or project delays and cancellations. Despite these constraints and other issues, Industrial Info has identified only $826 million in CPI projects to be canceled or placed on hold that were originally planned to begin construction in the first six months of 2008. This level of project cancellations and delays represents only a slight increase over the same time period last year when nearly $650 million in capital and maintenance projects were identified.

Chevron Phillips Chemical Company LP shelved plans for restarting currently idle high-density polyethylene capacity at its Orange, Texas, plant as previously planned. This project was canceled after the initially estimated cost of nearly $50 million fell significantly short of final estimates to refurbish and restart the two loop reactors and related compounding equipment. Fortron Industries (Wilmington, North Carolina) canceled plans for a major $40 million debottleneck of its No. 2 polyphenylene sulfide unit at the Wilmington plant. Capital projects haven't been the only victim of market concerns within the industry. INEOS NOVA LLC (Channahon, Illinois), a joint venture company between NOVA Chemicals (NYSE:NCX) (Calgary, Alberta) and Ineos, has canceled plans for a major turnaround of a styrene plant originally planned to begin in June. A smaller turnaround is planned for the fourth quarter with the potential for a major turnaround next spring.

Looking ahead to the last half of this year, another $300 million has already been identified as canceled or indefinitely placed on hold. "This number sounds large, although when comparing it against the billions in active projects we are tracking for this industry, this is only a small fraction of the projects in the planning or construction phase," said Trey Hamblet, Vice President for Industrial Info's Chemicals Group. Despite the headlines, there is still a lot more optimism about current spending than there is pessimism.

There are many factors that contribute to a project's demise. These often include energy and/or feedstock costs, sales, transportation and logistics, and, of course, the general mood of the economic outlook. Considering we are struggling through the most costly period in history for a barrel of crude oil, battling multiple war fronts at once and electing a new president all in one year, the level of project fallout could be worse.

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Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.