BECHTEL OBSERVES THAT TECHNOLOGY IS LOWERING THE COST OF SYNTHETIC FUELS

In a paper prepared for the 17th Congress of the World Energy Council held in Houston, Texas, in September, chairman R. Bechtel of the Bechtel Group stated that several trends are profoundly changing the energy industries: erosion of international barriers, privatization and deregulation, and technological progress.

Developing nationsí energy consumption will surpass that of developed nations by 2020, accounting for 64 percent of the increase in world energy consumption. This implies improved standards of living worldwide. The erosion of barriers to trade and investment, transportation and information technology and finance will drive the process. Growing markets worldwide mean that the energy industries will be active in new and unfamiliar locales, where the local experience of major engineer/constructors will be a major asset.

For engineer/constructors to compete effectively, says Bechtel, they must cultivate what Bechtelís past president and former United States Secretary of State G. Shultz has characterized as "a global reach and a local touch." Local presence is important for frequent and open communication with customers, for management of local contractors and suppliers, for accommodating local customs and institutions and for ensuring quality and integrity.

Erosion of international barriers makes it possible for engineer/constructors to drive down costs without compromising quality. Three key ways to accomplish this are through global procurement, global engineering execution and global financing:

Erosion of international barriers to investment also provides engineer/constructors with opportunities to become project developers and builders where they have the in-country experience and performance capability that sponsors demand.

New energy companies with new needs are emerging around the world. In many countries, energy is moving from state-owned or franchised monopolies to competitive private ownership. For example, there is a worldwide shift from independent power projects that are financed by non-recourse debt secured on power purchase agreements to merchant powerplants that sell electricity on the spot market.

One approach to managing risk in competitive power markets is to secure "anchor tenants" that will buy power regardless of market volatility. Another is to integrate powerplants with fuel supply and electric power trading and brokering. Engineer/constructors play an enabling role in integrating not only the physical plants but also in bringing together fuel and power generation sponsors who may have little familiarity with each otherís business, thus reducing risks for all concerned.

Rapid currency depreciation is an important risk, particularly in developing countries. Engineer/constructors with international experience in minimizing and mitigating currency risk exposure can make a valuable contribution in structuring procurement, execution and financing to reduce the vulnerability of such projects.

Although oil is being discovered faster than it is being depleted and production costs are declining, existing fields will be exhausted and petroleum consumption will continue to grow. New fields will present engineer/constructors with increasing technical, program management and logistical challenges in enabling oil companies to work in deeper water, harsher terrestrial environments and more remote locations. These conditions will put a premium on generating innovative solutions and managing complexity.

Furthermore, notes Bechtel, technology is driving down the break-even point of production from previously uneconomical sources of hydrocarbons, such as tar sands and heavy oil. Also, advances in the chemical conversion of natural-gas-to-middle-distillates will probably result in commercial-scale production in the next decade.

These new technologies will require engineer/constructors to be agents of change by developing innovative ways to reduce costs through creative engineering and project management. Equity participation and financing assistance on the part of engineer/constructors may be a requirement to participate in some of these projects. This will prove an opportunity as well as a risk.

Proven technologies also present technical challenges. For example, most easy liquefied natural gas opportunities have been developed. Future expansion depends on developing smaller plants to match smaller fields, largely through proprietary technology.

Environmental issues present enormous technical challenges for engineer/constructors, which must develop and maintain the capability to react to the requirements of the energy industries. Combining affordable energy with environmental quality is an ongoing quest for prosperous countries and it is gaining in importance in the developing world. In reacting to this quest, engineer/constructors must have the technological prowess needed. But in addition they must be sensitive to difficult choices between environmental quality and other concerns.



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