As the energy industry embraces calls for more efficiency, decarbonisation and adoption of environmentally friendly business practices, they are increasingly turning to their engineering, procurement, and construction or "EPC" partners to replicate that in the built environment.
With large-scale energy, oil and gas projects being a critical part of their business, EPC companies also appear to be embracing the challenge effectively turning into "EPCM" outfits, with the "M" incorporating management services as part of their broader client offering.
EPCM contracts now routinely involve sustainability targets, circularity or circular economy tenets and environmentally friendly practices in the construction and procurement value chain, according to research conducted by EY, based on its study of 30 leading firms in the segment.
Furthermore, EY also notes that new global regulatory requirements will likely compel EPCM companies to disclose information about their own greenhouse gas emissions and climate-related risks in tandem with the sponsors of the projects they happen to be working on.
Addressing An Immense Challenge
Nobody in the industry has any illusions about the scale of such a challenge. That too in an operating climate which until very recently saw EPCM companies clobbered by high inflation and interest rates whilst facing the constant age-old clamour for on-time and on-budget energy project delivery.
To manage the turbulence, many turned to technology and digital tools to the point that what was once a subtle shift has now become routine practice.
Artificial intelligence, industrial internet of things, robotics, construction data analytics, 3D and 4D printing, drones, virtual reality and augmented reality are all playing a vital role in enabling the EPCM segment to become more efficient and sustainable across the life-cycle of the project, according to Chris Ashton, CEO of Worley, one of the largest companies operating in the segment.
"These digital tools are disrupting ways of working as they are deployed, leading to a reduction in time on repetitive tasks. And we see the development of digital platforms, the digital accelerant, as critical enablers to create trust amongst stakeholders and drive faster, more efficient project processes to move forward at speed," Ashton added.
He also appeared unfazed by the fact that some investments in emerging technologies carry the near-term risk of failure.
"We're regularly investing and are open to failing fast as we learn and pivot if roadblocks appear; leveraging advancements in information technologies; tapping into our global expertise, using standardised tools and processes to reduce costs and increase capital efficiency; and truly working in partnership with our customers to deeply understand their strategic plans for the future."
According to EY, despite economic headwinds, capital flows in construction technology or "ConTech" came in at just under $5.7 billion in 2022. Further growth is expected when the latest data becomes available early in 2025.
An evolving built environment within the energy sector inevitably requires heavy equipment partners to also respond in kind and they are, said Gavin Kerr, Director Global of Services at Mammoet, the world's largest engineered heavy lifting and transport company.
"We own and operate most of the world's largest cranes, and large jacking systems and transporters that are specialised to lift the heaviest loads built by humanity. Recognising the growing need for efficiency and sustainability in EPCM segment, we recently launched the world's strongest land-based crane – the SK6000."
It has a maximum capacity of 6,000 tons and can lift components of up to 3,000 tons, roughly the weight of six Airbus A380 super-jumbo aircraft, to a height of 220 meters.
"Such a capacity allows for critical components to be simultaneously built offsite anywhere in the world, before being transported to the actual project site ahead of installation. This potentially allows our EPC customers to build efficiently in larger pieces and shrink their project logistics, integration and mobilisation phases in the construction cycle," Kerr added.
Ultimately, it is all about helping project developers reach first power generation or first hydrocarbon production sooner.
The Times They Are A-Changing
The evolving climate has resulted in EPCM companies and equipment makers becoming co-drivers of industry change for their project partners. Nowhere is it more visible than at industry trade shows and exhibitions in general, and ADIPEC in Abu Dhabi, United Arab Emirates, in particular. Regularly billed as the world's largest energy event of its kind, it attracts nearly 200,000 attendees every year.
Among its over 2,000 exhibitors will be 30 of the world's largest EPCM companies and energy construction equipment makers of all shapes and sizes jostling for attention at a 155,000-square-foot facility from November 4 to 7.
How EPCM corporate exhibits, displays and business pitches to the world have evolved over the years offer ample proof of "changing times" according to Christopher Hudson, President of dmg events, an organiser of over 30 global energy events in a typical calendar year including ADIPEC.
"When we look at ADIPEC and go back as recently as ten years ago, it was primarily an oilfield services show. But since then, it has gradually transformed into a broader energy show with many, dare I say most, participants making their displays more cognisant of the need to address the energy sector's efficiency and sustainability challenge," Hudson said.
"It feels different for us as platform creators. Even as recently as 10 years ago, you'd see very traditional exhibition booths of 100 square meters with a drill bit here, a lifting equipment display and a generator model there. Now it's far more technology-driven with often two to three level stands, pods and multiple meeting rooms.
The EPCM exhibition booths of today also highlight specific technology and efficiency gains that can be achieved from energy project conception to completion – to produce on one level and generate at another level, and how you split within that supply chain, Hudson added.
"There is a clear reason for this. The major energy companies need to invest heavily in sustainability, and decarbonisation remains a key ADIPEC theme - something that 12 leading energy CEOs committed to in Abu Dhabi in 2023. The EPCM segment is key if this is to be achieved, and we see firms operating in the segment adapting to opportunities presented by an evolving climate, something that's reflected in their displays and exhibits."
Doing 'more with less' - or in other words, achieving improved throughput / energy generation, doing so sustainably and while using less energy - has become imperative for the industry. Therefore, ditching the old way of doing things is both mission-critical and commercially logical for the EPCM segment. Research strongly points to it, said Worley's CEO Ashton.
"Our thought leadership work with Princeton University Andlinger Center for Energy and the Environment shows us that executing projects the same way we always have will not get us to net zero by 2050. In fact, we won't even get halfway. So we must change, and are changing, how we traditionally deliver projects."
Ashton added that energy project sponsors are balancing strategic investments supporting their move to a lower carbon future and at the same time managing shareholder, investor, and society's environmental and sustainability expectations with the complex capital management, regulatory and jurisdictional frameworks within which they operate.
"Over the past five years, we've seen our customers shift to partner with Worley, to share their strategic plans and work together to drive down costs while delivering projects in new and innovative ways. And by working in partnership with our customers on their vast portfolios of projects, we're delivering real, lifetime value across their assets."
This will in all probability accelerate in a fiercely competitive post-pandemic EPCM market.
- Gaurav Sharma is a London-based analyst who covers energy & ESG.
Source: Forbes
