Capital expenditures dominate oil, gas industry spending

Plant-level expenditures in the oil & gas industry are expected to grow at a cumulative annual growth rate exceeding 2%, according to a recent study. The research by the ARC Advisory Group shows that the worldwide market totaled more than $196 billion in 2003 and should reach nearly $218 billion by the end of 2008.

02/19/2004


Plant-level expenditures in the oil & gas industry are expected to grow at a cumulative annual growth rate exceeding 2%, according to a recent study. The research by the ARC Advisory Group shows that the worldwide market totaled more than $196 billion in 2003 and should reach nearly $218 billion by the end of 2008.

'Oil and gas companies spend enormously on exploration every year to ensure steady supply of crude oil and natural gas for the future,' said Senior Analysts Dave Clayton and Ravi Murthy, authors of the survey, ' Oil & Gas Industry Plant-Level Expenditures Worldwide Outlook .' They continue, 'Although there are several factors driving up operation and maintenance costs in the refining industry, the bulk of the money spent is still in the exploration and production phase.'

Oil and gas companies must invest heavily in exploration and production to find new sources of crude reserves. As current reserves are depleted, companies must drill deeper to reach new supplies. As a result, the costs associated with obtaining new wells continually increase. Refiners also depend heavily on capital expenditures to control the large continuous processes used to produce refined oil and gas from crude. Major oil companies have become more cautious about the pace of their capital spending and capital markets are scrutinizing oil and gas expenditures more thoroughly than they did before. Based on recent consolidations, restructuring, and cost-cutting programs, the oil and gas industry is expected to be more adaptable to fluctuations in upstream spending.

Another issue having an impact on oil and gas industry spending is regulatory compliance. Compliance with the many environmental regulations is further fueling capital expenditures worldwide. Emission control regulations such as Maximum Achievable Control Technology II are causing refineries to upgrade process equipment in an effort to reduce hazardous air pollutants, such as sulfur. EPA’s attempts to regulate routine maintenance, repair, and replacement activities in North American refineries may force additional capital expenditures in these areas. Even in developing countries, environmental regulations are forcing greater capital expenditures for processing equipment.

In addition, valves—because so many are used in the industry and they are so important in meeting emission-control regulations—continue to be a leading processing equipment expenditure for oil and gas companies. Increasing investments in digital valve positioners to provide remote monitoring and self-diagnostic capabilities are key. Refineries are also attempting to lower emissions by focusing on replacing improperly sized valves.

—Jeanine Katzel, Senior Editor, Control Engineering, jkatzel@reedbusiness.com





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