The Society of Petroleum Engineers’ (SPE) Oil and Gas Facilities newsletter recently published an article on the risks to delivering capital-effective petrochemical projects, featuring contributions from two Independent Project Analysis (IPA) Project Research Division leaders. Mike McFadden, IPA Director, Project Research Division, and Jason Walker, Principal Deputy Director, Project Research Division, co-authored the article with Ian Deakin of Saudi Aramco and Mark Cudmore of Wood PLC.
In early 2020, Saudi Aramco enlisted IPA and Wood PLC to produce a collaborative report on the key risks to delivering capital-effective petrochemical projects in four regions: China, India, Saudi Arabia, and the United States Gulf Coast (USGC). Saudi Aramco commissioned the work as part of its efforts to expand its petrochemicals business globally and deliver shareholder value. The article provides a detailed look at how Saudi Aramco leveraged IPA’s capital project research capabilities.
With a propriety capital projects database containing detailed project data collected directly from owner companies and expertise in performing quantitative research, IPA was uniquely positioned to perform a top-down risk analysis of large petrochemical project execution in each of the four regions.
IPA identified the key risks facing major petrochemical projects and categorized them as either low, medium, or high based on each individual risk’s effect on project cost growth and schedule delay. A chart included in the article illustrates how procurement delay and procurement pricing volatility are high-level risks for all four regions. On the other hand, while inclement weather is a high-level risk in India, the same risk is less significant for the USGC, China, and Saudi Arabia.
IPA also evaluated contracting strategies used by major chemical projects in each region and their historical implications on project outcomes. Whether taking a lump-sum or reimbursable approach, the contracting strategy must factor in the implications of each region, in addition to project-specific characteristics.
Lastly, IPA’s assessment also focused on the importance of the quantity and quality of work performed prior to project authorization. IPA’s Front-End Loading (FEL) Index measures the risk a project faces in meeting the planned project outcomes and is highly predictive of project outcomes. Major petrochemical projects that attain a Best Practical FEL Index rating by doing the front-end work well can achieve significant cost and schedule savings in comparison to industry average.
Follow this link to read the full article on the SPE website. Contact us for more information on how IPA can perform a top-down factored risk assessment to help your organization deliver capital-effective projects.