Plg robinson petrochemical engineering & contstruction 2015 final

Logistics Engineering Supply Chain

Logistics & Transportation: Key analysis on how it could affect your project timeline

Prepared for:

Petrochemical Engineering Construction Conference 2015

Taylor Robinson President, PLG ConsultingJune 17, 2015

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Experience

Delivering value to over

150 clients since 2001

Real-world, industry

veterans team across

N.A.

Logistics, engineering

and supply chain

experts with deep

operational experience

Core Expertise

Bulk Logistics

Freight Rail

Energy & Chemical

Markets

Investment Advisory

and Corporate

Development

Services

Diagnostic assessments &

optimization

Supply chain design &

operational improvement

Logistics infrastructure

design

Environmental, Health,

Safety and Security (EHSS)

assessment, audit and

training

Independent logistics

technology assessment &

implementation

Investment strategy, target

identification, due

diligence, and post-

transactional support

About PLG Consulting

Partial Client List


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• New extraction technologies resulting in record production of natural gas, natural gas liquids (NGL), and crude oil – much of growth in the past five years!

• North America on pace toward full “energy independence” by 2020

• Implications of recent oil price correction is starting to be understood• Is $60 oil the “new normal”?

• Expect numerous oil & gas market corrections and expansions over the next 5 – 10 years – still in the “early innings”!

Source: CAPP Report, June 2014 Source: RBN Energy, December 2014

The North American Energy Revolution


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US gas demand will grow due to: Coal-fired generation plant converting to gas

More industrial use – steel, fertilizer, methanol

Mexican export via pipeline and LNG export overseas

Increasing use as transportation fuel

US gas cost competitiveness is sustainable 30+ year supply at ~$4/MMBtu; cost of

production decreasing

Supply will overwhelm demand as prices approach $5/MMBtu

US government will likely limit LNG export to protect US from world gas market price

Low-cost gas and NGLs driving US industrial “renaissance” Implications of decreased production of shale

oil on natural gas and NGL volume still being evaluated and understood

0

2

4

6

8

10

12

14

Natural Gas Price at Henry Hub ($/MMBTU)

Historical Futures

Source: EIA for historical and CME Group for futures as of Jan. 14, 2015

Shale Gas Will Have Long Term Implications on U.S. Industrial Landscape

60

65

70

75

80

85

U.S. Natural Gas Production (Bcf/day)

Actual Forecast

Source: EIA, Feb 2015


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Ethylene and Propylene

Ammonia and Derivatives

Methanol

Polymers and Resins

Chlor-alkali

Other

Source: American Chemistry Council and PLG analysis

Over $142B of New Shale-Related Investments Have Been Announced According to ACC

PLG is building S.H.I.E.L.D. • SHale gas Industrial Expansion

Logistics Database• Interactive information on over

150 projects at launch• Includes PLG chemical industry

expert insights on estimated logistics volumes per project

• Expected release late summer


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Abundant feedstock, structural cost advantages, and domestic market growth driving US petrochemical industry expansion

Rate of expansion growth will be slowed by: Lower crude oil prices (short or long term?) – six month

delay so far for a number of projects Lack of EPC capacity

Shortage of craft labor resources in the TX/LA

Increasing regulatory hurdles and delays

Expansion peak will be dampened and overall build-out will take longer than announced schedules

U.S. chemical industry is entering a historic growth period with incredible growth opportunities and challenges

Source: ACC and PLG Analysis, December 2014

ACC Estimate

PLG Estimate

U.S. Chemical Industry Capital Investment: Incremental Due to Shale Gas

0

200

400

600

800

1,000

1,200

1,400

SaudiEthane

US Ethane USWeighted

WE LowCost

AsiaNaphtha

USNaphtha

Dec. 2013

Dec. 2014

Source: Townsend Solutions, December 2014

Cash Cost US$/ton (Ethylene)

U.S. Petrochemical Industry Build-Out Realities


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Logistics can be one of the largest underestimated cost and schedule risk areas that may negatively impact a project

It is challenging! Two types of logistics expertise arevital for project success:

1. Project logistics2. Operational logistics (post-commissioning)• Both types of logistical planning and execution required

throughout the project life

Logistics expertise requires diverse skillsets such as: Dimensional shipping and handling for plant equipment Dry bulk materials for project construction Liquid/hazardous materials in operations International marine for project and operational cargo Rail freight for materials and products Domestic trucking for oversized and over weight loads Complex logistics project management

Logistics definition:

Logistics is the process of planning, implementing, and controlling the flow and storage of materials, goods, equipment, services, and related information from point of origin to point of consumption

Why Is Logistics Critical To Petrochemical Project Success?


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Each Project Team Must Include Logistics Representation

Nearly every key project decision needs logistics expert input

Note: Some companies may include a representative from Supply Chain in place of/together with Logistics

Logistics should have a “seat at the table” on the project team

Team member needs to be a Petchem industry veteran with broad logistical experiences – each mode, process,

and timeframe has different implications

Project team member must have direct, rapid access to necessary Subject Matter Experts to assist

Early logistics involvement vital during feasibility stage

Logistics will provide some project flexibility with team integration

Due to tightening U.S. logistics capacity, petchem projects will have little room for

error over the next five years and beyond


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Feasibility / Front End

Engineering

Detailed Engineering

Procurement & Construction

CommissioningOperate & Maintain

Project Stage Definitions

Does your project team have integrated, broad-based logistics planning and

execution expertise throughout the project?

Note: Each company has their own stage names and stage gate processes


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Project logistics Logistics infrastructure evaluation Plant equipment logistics Construction materials logistics Mobilization/laydown yard Modularization plan Demobilization plan

Operational logistics Supply network strategy & design Pipeline strategy Bulk product terminal planning Process material flow management Modal transportation capabilities

Rail Barge Ocean vessel Truck

The two types of logistics are interdependent but can require different skillsets

Logistics Key Elements


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Key Project Logistics Issues Feasibility / Front End Engineering Stage

Project Logistics Elements

Sample Issues

Logistics infrastructureevaluation

Pipeline access and capacityMarine, rail, highway access; capacity and capabilities for each potential site

Plant equipment logistics Dimensional freight route assessments requiredDimensional freight modal transition facilities and capabilities assessment

Construction materials logistics

Capacity study for aggregate, concrete, fuel, and water requirements-Sources, transportation, storage and unloading

Mobilization/laydown yard Land requirements and availability for both areasTraffic flow optionality for materials, equipment, and labor resources

Modularization plan Local and international facility options with capacity and capability assetsDimensional freight route assessments to and from facility

Demobilization plan Independent egress routesDimensional freight route assessments


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Operational Logistics Elements

Sample Issues

Supply network strategy & design

Must analyze feedstock supply, energy supply, facility location and product markets from a holistic supply chain viewpointAnalyze potential capacity and network constraints that may develop in the future

Pipeline strategy Feedstock material pipeline access optionsProduct(s) pipeline requirement optionalityProperty easements vs. expandability

Process material flow management

Local terminal facility options with capability assessmentCapacity planning for terminalsTerminal sourcing strategy – dual sourcing for critical materials?

Modal transportation capabilities

Regional capacity and growth assessment by modeWater and air draft for marineRail access – multiple Class I access if possible

Key Operational Logistics Issues Feasibility / Front End Engineering Stage


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Key Project Logistics Issues Detailed Engineering Stage


Sample Issues


Further study on modal transportation bottlenecks and potential limitationsLogistics infrastructure design decisions based on loading/unloading and storage capacities

Plant equipment logistics Confirmation of logistics requirements as specifications are finalized – route studies, carrier capability, lead time requirements


Receipt, storage and inventory plan by materialMaterial handling/equipment facility planning

Mobilization/laydown yard Traffic flow design planInventory control and site security planningSite emergency response plan

Modularization plan Detailed capacity and flow planning based on updated design specificationsModule build resource planning and logistics synchronization with latest construction schedule

Demobilization plan Detailed demobilization planningEgress route planning for inventory removal


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Sample Issues


Material flow management planning including stocking and modal transition pointsLogistics asset detailed planning and sourcing based upon final specifications

Pipeline strategy Further diligence on available and new build pipeline optionsContractual commitments may be required – existing or new build


Finalization of requirements and optionalityFinalize sourcing decisions – 3rd party or internal


Modal transportation strategy including risk mitigation optionsDetailed capacity studies by mode

Key Operational Logistics Issues Detailed Engineering Stage


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Sample Issues


Final confirmation of logistics infrastructure requirementsTransition to detailed operational planning steps

Plant equipment logistics Finalization and execution of detailed master plan for each plant componentSynchronization with construction schedule is critical


Execution stage of materials supply chain strategyPotential Problem Analysis (PPA) plans in place

Mobilization/laydown yard Tactical order execution, traffic management, inventory management and security in place

Modularization plan Detailed just-in-time component planning requiredStrict executional focus is imperative

Demobilization plan Demobilization planning must be linked to updated construction schedule in real time

Key Project Logistics Issues Procurement/Construction Stage


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Sample Issues


Finalization of commercial agreements for feedstock, assets, services and systemsEstablish master schedule for operational logistics activities

Pipeline strategy Confirmation of contractual commitments and capacity availability


Complete commercial agreements for third party providersMonitor construction of internal terminal assets


Finalize commercial agreements for additional volume for new facilityConfirmation of capacity availabilityBackup planning detailed analysis

Key Operational Logistics Issues Procurement/Construction Stage


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Key Logistical Issues During Commissioning / Operate & Maintenance Phase

• Disciplined transition from project team responsibility to operational logistics team

• Stock build of spare parts and MRO supplies

• Expedite procurement and delivery vendors, internal resources, and systems

needed for replacement and / or repair parts

• Final training and documentation for receipt inspection and dispatch inspection of

transportation carrier equipment


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• U.S. Petchem expansion is being driven by shale gas boom – but other dependencies will alter the growth path at times over the next 10 years

• Logistics planning and execution have always been an important part of a successful Petchem project and operating facility….

• …And will become more critical than ever due to the increasing logistics industry capacity constraints over the next decade due to:

• Rail congestion will worsen in the U.S. Gulf Coast

• Driver shortages/availability throughout U.S. trucking industry will persist

• Marine congestion, especially in the U.S. Gulf Coast ports

• Logistics support for Petchem projects is expertise-dependent - both direct expertise and support resources expertise

• Unforeseen logistics challenges and high risk potential have negative implications on Total Installed Cost (TIC) and justify extensive logistics planning and project management

Presentation Summary


Logistics Engineering Supply Chain

Thank You !

For follow up questions and information, please contact:

Taylor Robinson, President+1 (508) 982-1319 / [email protected]

This presentation is available for download at:http://plgconsulting.com/category/presentations/

mailto:[email protected]

http://plgconsulting.com/category/presentations/

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Plg robinson petrochemical engineering & contstruction 2015 final