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ANALYSIS | INDUSTRY SECTORS


BRAZIL’S RISE AND FALL


In 2013 Brazil was a rising star but come 2016, that picture had changed. Lower oil prices impacted oil and gas projects, government revenue generated from state-owned oil company Petrobras fell, while corruption scandals rocked investor confidence. Murilo Caldana, project director, FOX Brasil, reflected on the past ten years: “While we had major new projects like the power plants of Jirau, Belo Monte, Santo Antonio, the Xingu transmission line, several pulp and paper, mining, wind parks by the hundreds, and also supplying for neighbouring countries like Bolivia and Venezuela, at each political or economical downturn, and we had more than our fair share of it, we faced a severe


modules. At that time a key concerns was the availability of specialised vessels, such as module carriers and semi- submersibles, to handle these huge modules and drilling rigs. However, any optimism quickly turned to despair. Oil


prices crashed in mid-2014 and billions of dollars worth of projects were deferred and cancelled.


Te success of the US shale gas sector and subsequent


overproduction saw gas prices collapse. Drillers then directed their attention towards oil, to the point that unconventional oil finds accounted for 72 percent of global supply growth since 2005. Added to that, there was a recovery in output from Iraq and Libya and a fall in Chinese demand. By the close of 2015, oil prices were touching USD30 per barrel. Come 2016, the Organization of Petroleum Exporting


Countries (OPEC), plus Russia, took drastic steps to arrest the market downturn, agreeing to slash collective production by 1.2 million barrels per day. Meanwhile, the election of pro- fossil fuel US President Donald Trump encouraged some that a recovery in the sector may be expedited.


RUSSIAN VOLATILITY


Russia’s intervention in Crimea in 2014 and the subsequent sanctions imposed by the EU and the USA, compounded by the low oil price environment, created a difficult time for many project logisticians active in the region. Marat Yarullin, head of sales, project office at Fesco


Transportation Group, commented: “In 2015, the market was dominated by negative trends. The combination of macroeconomic and geopolitical factors continued to put pressure on the Russian economy. The transportation industry, being centred around servicing and supporting other industries’ processes, suffered more, as the market was depressed.” He added: “Other key negative factors included Russia’s


GDP decline (down 3.8 percent), China’s economy slowdown (lowest performance in 26 years), drop in turnover volumes between Russia and foreign partners, and rouble volatility.”


drought with business almost dwindling to a complete halt. “The aforementioned power plants, sporting events like the


World Cup and the Olympics, and the discovery of our pre-salt layer oil and natural gas reserves, all gen erated massive investments and a huge influx of cargo. “Political distress, corruption scandals, large scale accusations


of entryism, the impeachment we have been through, even the 2007 subprime mortgage crisis, all affected us greatly. Brazil is still undergoing a true manhunt for the corrupt politicians and others who committed crimes against the state and for the first time in a couple of years we are foreseeing a positive GDP growth and even a better result for 2018. Confidence is being rebuilt and we have a very positive outlook for the short-term future.”


Trough 2017 the oil price stabilised before recovering to


around USD60 per barrel by the close of the year, a price that many people consider to be the ‘new normal’. Te landscape, now, is very different. Te emergence of electric vehicles and the propagation of renewable energy sources has led some to suggest that we are close to hitting ‘peak oil’, with global demand tailing off in the upcoming decades. Te downstream oil and gas sector has, despite the


challenges plaguing the upstream sector, performed above expectations. Te European refining sector has been challenged by increasingly stringent regulatory compliance costs. Tis spurred a wave of modernisation projects at refineries in the early part of the decade. Furthermore, in the low oil price environment, many of those operating in the downstream field have looked to upgrade production facilities to improve efficiency, or diversify their product ranges. However, in places where regulations are less stringent, such as the Asia Pacific region, the Middle East and Russia, widespread refinery development has continued apace. Te relocation of older European and US refineries to emerging markets has also been an eye-catching topic covered in the pages of HLPFI.


Mining


Te mining industry has followed the typical boom and bust cycle correlated to the ebbs and flows of global markets. Commodity prices soared during the 2000s, driven by


strong demand from emerging economies, with the boom exceeding (both in duration and magnitude) the period of high commodity prices in the 1970s. Te extraordinary increase in commodity prices highlighted that global supply has had difficulty keeping pace with the growth in demand. However, the 2008 global credit crunch began making it


increasingly difficult for companies involved in mineral extraction operations to finance their capital programmes, and a subsequent rapidly worsening worldwide economic downturn triggered a 50-70 percent slump in commodity prices, particularly for core minerals, like iron ore and copper. A recovery in demand for most commodities in 2009 generated more of a buzz around the industry in 2010, with


HLPFI10 | 67


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