Shale reigns, but executive says offshore poised for comeback
Unit leader at engineering and construction firm expects sectors each to attract investments as oil and gas demand — and prices — rise
Christian Brown is president of the oil and gas division of SNC-Lavalin, a Montreal engineering and construction company. He joined the firm in 2014 when it acquired another engineering and construction firm, Kentz Corp., where he was CEO.
In 2017, Brown began leading the company’s oil and gas operations, which employ about 22,000 people in the United States, Asia and the Middle East. His division, based in Houston, oversees the planning, engineering and construction of projects from petrochemical plants to offshore developments.
Brown expects the United States will continue to attract substantial investments in shale basins such as the Permian in West Texas, where abundant production on natural gas has spurred the development of petrochemicals plants and facilities to process and export liquefied natural
gas. But he also anticipates offshore exploration and production to make a comeback as oil demand — and prices — rise.
He recently spoke with the Houston Chronicle. Edited excerpts follow.
Q: You’ve done a lot of work on liquefied natural gas projects around the world. Which regions do you expect will attract the most export development in the coming years?
A: When you’ve got a low cost of capital and large supply of cheap natural gas, that’s where the projects will happen. That fits well with the U.S. And if you look at Mozambique and Tanzania, you’ve got very, very cheap gas and a very low cost of capital.
Qatar may be more difficult for international companies now, because the country wants to develop more on its own. That might force the bigger players in LNG to look more at aggressively at southeast Africa, or even Australia. Australia will absolutely have one more liquefaction train, maybe two, but I believe most of the trains will come to the U.S., Africa and Qatar.
You’ve really got an abundance of gas in all three of those locations.
Q: Do you expect Asia to continue to account for the majority of LNG import demand?
A: I think it will, but you have to wonder about Europe. If you listen to Ineos founder and CEO Jim Ratcliffe, he’s concerned about gas imports to feed his petrochemical agenda in Europe.
Where is the gas going to come from? Look at the disconnect with Russia and Europe’s reliance on its pipeline supply of gas. Unless relationships change, European countries have got to look for more security in supply.
They can’t be beholden to Russia. People want contingency plans, so I think Europe will need more LNG than it has traditionally needed. Whether it comes from Qatar or this side of the world will all come down to price.
Q: Do you expect tariffs on steel and aluminum imports to affect industry plans to build new petrochemicals projects?
A: If you look at building a greenfield asset here in the U.S., most of the simple carbon steel comes from China. The tariff probably adds between 2 and 5 percent in project costs. That will get priced in. But U.S. steel manufacturers are putting their prices up, and they’re not adding capacity. So you end up, essentially, with cost escalation.
A cost increase of 2 or 5 percent isn’t going to affect an investment decision. But what happens if this gets extended? What happens if the administration extends it to other commodities that affect 30 or 40 percent of the capital cost of an asset in the U.S.? There’s been a lot of good work here to drive the cost of capital down, but if you extend tariffs to other commodities, I do fear it’ll make us uncompetitive here.
Q: What have you seen in terms of interest offshore?
A: U.S. shale absolutely will account for a substantial portion of future oil demand, but I don’t think that will be enough. That’s why you’re starting to see customers, particularly the international oil companies and the independents, building some capacity offshore because they believe the market will be there for bigger developments.
If you look at some of the leading indicators, there will be 92 projects expected to be sanctioned offshore this year. You see the bidding activity in the Gulf, western Africa, the Middle East and Asia, and it’s a substantial change from where it was last year.