Business Monitor International (BMI) has released a report on US construction company Bechtel, suggesting that the firm continues to place itself in a strong position to capitalize on changing opportunities in the engineering industry. BMI believes that this strategic flexibility will allow it to continue to report improved order booking figures despite strong competition in the global engineering sector.
The company continues to use strategic partnerships and sector and geographic diversification initiatives. BMI holds that this methodology was fundamental to the recovery in order bookings reported for 2013, with an increase of 42% compared to 2012 (when order bookings fell significantly below the 2011 record high). BMI estimates that this trend of strong order growth has continued in 2014, particularly as Bechtel has significantly increased its exposure to the energy sector.
Consolidating to compete
Ongoing consolidation in the US construction and engineering sector underlines the continued pressure of companies to adjust to compete. In particular, US engineering companies are increasingly positioning themselves to target the domestic energy sector, an area Bechtel has been very successful in and has accounted for the majority of its contract awards in 2014. As such, competition is growing in this area and will be further increased as capital expenditure in the US is expected to remain more resilient to falling oil prices than in other regions. In this environment, Bechtel’s strategic partnerships and market share should help sustain order bookings.
Shale key to growth
According to BMI, Bechtel has achieved considerable success in winning contracts in the energy sector. Across downstream, midstream and the power sectors, both in the domestic market and globally, Bechtel has secured considerable market share, leveraging strategic partnerships and technical expertise. IN a period of lower oil prices, BMI expects Bechtel to be more resilient than other engineering firms in the sector due to its competitive positioning, while continuing to benefit from growing demand for natural gas globally.
Domestically, Bechtel has been well positioned to capitalize on the shale boom in the US. BMI expects continued contract opportunities in the segment, as demand for infrastructure to support domestic production of hydrocarbons grows. In particular, opportunities are anticipated for Bechtel in the downstream segment of the natural gas market – such as LNG facilities, natural gas power plants and petrochemicals.
Natural gas fired power
BMI anticipates strong growth in the natural gas fired capacity to utilize cheap domestic feedstock, and replace ageing coal fired capacity. Bechtel, in cooperation with Siemens, has been awarded contracts on this segment, and BMI expect that they will continue to benefit from more opportunities.
The ongoing expansion of ethylene production facilities is expected to provide contract opportunities for Bechtel. Bechtel was ahead of the curve in taking advantage of a revival in the US petrochemical industry, announcing in July 2011 a venture with Linde to develop new ethylene cracker plants in the US. The venture has, and will continue to do well, and in June was awarded a design build contract for a 1.55 million t capacity plant in Texas by ExxonMobil.
As a leading LNG contractor globally, Bechtel is well placed to secure additional contracts for LNG export terminals as the US gears up to become a major exporter. The company is the EPC contractor for the Sabine Pass LNG project, what will be the US’ first LNG export terminal. As more projects move through the approval process, BMI believes that Bechtel will continue to benefit. In October, it was awarded a front end engineering design (FEED) contract for the Louisiana LNG Energy export facility, which is currently in the proposal phase.
Competitive in global energy
Outside of the US, BMI anticipates a number of opportunities for Bechtel. This is because its LNG capabilities and partnerships offer Bechtel a technical competitive across the oil and gas industry.
Bechtel holds contracts for a third of the LNG capacity currently being developed globally. The company is currently involved in projects in Canada, Mozambique and Australia. Although BMI does not anticipate a significant expansion in new LNG export projects, the size of current projects will sustain revenues for some time.
Downstream investment in emerging markets
Bechtel’s ThruPlus coking technology leaves it well placed to capitalize on an expansion drive in refining capacity in emerging markets. Since acquiring the technology in 2011, Bechtel has been awarded a number of contracts in emerging markets, including Mexico, Kazakhstan, and most recently Croatia.
The most recent strategic venture in the energy sector is a partnership with Gulf Island Fabrication, a manufacturer of offshore drilling platforms based out of Texas. The venture will target projects in the Gulf of Mexico, where BMI expects activity to remain strong due to lower breakevens and high prospectivity. The venture is also looking internationally, however, BMI anticipates offshore investment globally may struggle in a climate of lower oil prices due to the cost intensive nature of deepwater drilling.
Bechtel has been diversifying its regional exposure, in addition to utilizing technical advantage to build its order books.
In particular, BMI has identified opportunities in the Middle East, a market that it expects to provide some of the highest value contract opportunities globally. The company is already working on two of the largest airport projects in the region (Oman and Qatar) and will likely benefit from the World Cup related projects in Qatar. Following the US$ 9.4 billion contract win for the Riyadh metro – the largest lump sum EPC contract in the company’s history – Bechtel is well placed as the region seeks to develop rail networks, especially urban transit infrastructures.
In terms of new markets, BMI suggests that Africa could be a profitable frontier market for Bechtel. The company is already in Gabon, where it is formulating a plan for infrastructure development, while in Mozambique, it has opened a regional office in early 2014 and is developing an LNG terminal. BMI believes that both countries could provide significant potential growth for Bechtel. The company is developing a master plan for an industrial complex, with huge investment into the mining sector also generating significant demand for support infrastructure and freight transport capacity.
Adapted from a report by Emma McAleavey.
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