Asset-intensive industries like chemicals, refining and oil and gas, have rapidly moved to cut capital spending for the next eighteen months, or at least the remainder of 2020 and for 2021.
The spending cuts have ranged from 20% to 50% of capital budgets, impacting not only expansion plans, but also CAPEX to ensure ongoing asset integrity and asset health, as well as investments in sustainability initiatives.
Over the coming months, executives will be asking themselves, have we made the right cuts? Have we strategically prepared ourselves to move our business forward in the midst of defending it from unpredictable global events and the economic impact of the past two months, not to mention the blow to short-term demand?
How Do We Ensure the Most Strategic Use of Capital in a Volatile Environment?
Technologists in these leading chemical and energy companies have in their hands extremely powerful tools that can inform the best decisions. What many companies don’t realize is the power they have to review these decisions and optimally position themselves to both minimize risk and maximize resilience and flexibility.
And what most companies urgently need to do is to use these powerful predictive and analytical tools collaboratively to make the most important corporate capital decisions:
What CAPEX/OPEX optionality exists to best serve the business?
How do I maximize future agility to react to today and tomorrow’s volatility?
How do I adjust and change my production processes to react to new market opportunity with a minimum use of CAPEX?
Critical to answering these questions is a data-driven assessment of the enterprise’s CAPEX and OPEX portfolio. Here are a few of the tools that are helping leading companies make the best decisions:
System lifecycle risk modeling (Aspen Fidelis Reliability®) looks at probabilities of achieving desired economic outcomes and the resulting availability and vulnerability across an interconnected system. What is the impact of eliminating or adding capacity, parallel trains or storage? What is the cost and availability risk profile of decisions? How can projects be ranked by cost, revenue, availability, vulnerability and risk?
Process optionality modeling and evaluation (Activated Economics in Aspen Plus® and Aspen HYSYS®) provides a rapid workflow to simulate and contrast process options, evaluating CAPEX, ROI, OPEX and revenue. When an alternative is devised, CAPEX and performance can be optimized without the time delay of going back to a contractor. Within days, this approach has enabled companies such as Kuwait Oil Company (KOC) and Versalis to trim 20-30% CAPEX, preserving projects at the same performance levels but cutting CAPEX, OPEX and lifecycle cost.
Templates (Aspen Capital Cost Estimator™) leverage a drop-in workflow to re-use prior designs to reduce risk and achieve lower CAPEX. In a recent paper (presented at AspenTech’s global OPTIMIZE conference), ExxonMobil reports this has cut time by 30% and cost by 50% in capital projects, with prior-executed projects to draw from.
Decision Analyzer (Aspen Capital Cost Estimator) uses the power of volumetric cost models to rapidly compare locations, sizing and material options, answering executive team questions about optionality and discovering lower-cost options. Dow and Saudi Aramco have employed this powerful capability to cumulatively cut billions of dollars in cost from mega-projects.
Modules (Aspen Capital Cost Estimator) provide the ability to answer executive questions quickly, comparing the benefits and costs of modular construction versus onsite “stick-built” construction strategies. A current paper on the ExxonMobil website describes this approach.
Advanced planning (Aspen PIMS-AO™) enables companies to evaluate production strategies for different feeds, products and technologies, evaluating throughput and economics for different technology and capital alternatives. The Petronas RAPID project team has used this approach throughout the construction and commissioning of the RAPID integrated site.
In the current earliest stages of economic recovery and awakening for the chemical and energy industries, these tools are being used in technical departments to assemble information need for decisions. Only a few companies, though, have taken stock of the ability to use these technologies together to make the most agile economic decisions and achieve leading-edge resilience and strategic advantage. Those companies are the ones able to make data-driven tradeoffs and decisions, based on the key parameters of CAPEX, OPEX, sustainability, performance and risk.
As economies and oil prices begin a slow comeback, companies have time to orchestrate their use of analytical tools like those I’ve described to achieve a best-practice recovery and position themselves for the future.
For more information, check out our on-demand webinar, Making Difficult CAPEX and OPEX Decisions in Uncertain Times.