Capex Spending to Be Slashed


Oil, Gas, Chemicals Sectors to Face 'Significant' Slowdown



Capital expenditure in the chemicals sector will be slashed this year, as global investment in oil and gas slows considerably in the wake of the Covid-19 pandemic, according to industry analyst firm ICIS.

While noting that major chemical projects under construction should continue, Joseph Chang, global editor at ICIS Chemical Business, notes that the fall in Brent crude oil prices will impact a range of downstream projects going forward.

“While oil companies have not yet specifically mentioned cuts to chemical projects, all investments should see an impact … many of these companies had aggressive plans for petrochemical capacity expansion, as they shifted their focus away from transportation fuel and towards chemicals for future growth,” Chang states.


Delays Until 2025

Dow has now reduced its capex plan from U$2 billion in 2019 to U$1.5 billion for 2020, and on March 18, Shell announced the temporary suspension of work on its 1.5 million tonne-per-year cracker facility, under construction in Monaca, Pennsylvania

“We could see delays in decisions for projects that were going to start up in 2025. Companies can certainly afford to delay a decision by a quarter or two,” said Kevin Swift, chief economist of the American Chemistry Council, adding that the current oil price dynamic “puts into question the economics long term” for a range of projects.

Hundreds of billions of dollars of investment in downstream projects related to U.S. shale gas had been planned, but the current crash in crude oil prices, now makes many of these projects unviable, with Chang saying the industry was “clearly under threat.”


Oil Producers Cut Projections

The world’s largest oil producer Saudi Aramco has led the market in drastically reducing capex projections for 2020, cutting an estimated US$10 billion from its previously forecast range of U$35 and US$40 billion. The company’s capex plans for 2021 and beyond are under review.

“As yet, no one knows precisely the impact on economic activity and energy demand from the coronavirus outbreak, especially in the longer term, and additional efficiencies may be required,” said Khalid al-Dabbagh, chief financial officer of Aramco.

U.S.-based ExxonMobil is already considering "significant cuts to capex" as are rival producers Occidental Petroleum, Apache and Marathon Petroleum.

“In the wake of the coronavirus and collapse in crude oil prices, chemical, and oil and gas, and midstream companies will all slash capital spending (capex) for growth projects to preserve cash. As a result, the U.S. and global chemical investment wave looks to slow considerably in the years ahead,” Chang forecasts.
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