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$386 billion of major industrial projects in Canada: increasingly at risk September 25, 2013 . An increasing share of the total value of major industrial projects announced in Canada – mainly in the area of natural resources – is delayed or even threatened. While this share stood at 21 percent at the end of 2012, it reaches 32 percent as of June 2013. However, the situation varies according to host regions of projects and to the investors’ country of origin. It also depends on the positioning of the project within the production chain. Indeed, the majority of extraction (e.g.: oil, mining) and transportation projects (e.g.: pipelines) continues to move forward according to initial budgets and timelines (only 29 percent of their value is at risk), while nearly half (47 percent) of the value of processing projects (e.g.: refineries, primary metals manufacturing) is at risk. *** *** *** In a context of disappointing commodity prices, the decrease in new announcements of private industrial megaprojects in Canada in 2013 should not come as a surprise. The situation varies depending on the industry and on each project’s positioning within the product processing chain. In fact, at an annualized rate, the level is at its lowest since 2010. Moreover, the likelihood that a project currently underway will be completed within predicted timeframes has dropped significantly: E&B DATA estimates that 32 percent of the value of announced megaprojects are fragile—delayed or otherwise at risk—an increase of 21 percent since the end of 2012. The situation varies depending on the industry and on each project’s positioning within the product processing chain. Extraction Who will have strong enough positions to go forward with their capital megaprojects notwithstanding the depressed prices of raw materials? Surely, it will be international companies with integrated downstream operations and large State-owned enterprises, even though they will likely have to pay the price. Current circumstances represent an opportunity for these companies to squeeze out emerging competitors with weaker financial capabilities. This situation applies as much to oil & gas as it does to some of the extractive sector, such as the iron-mining industry. Processing Canada’s goal of increasing local resource processing will remain a dream if it is up to the majority of investors. The resource-nationalism movement demonstrated by some public administrations in recent years is showing less vigor in the face of the highly volatile economic climate. Nearly half of all processing projects (by value) are at risk, whether they involve oil & gas or minerals. That being said, Canada’s energy surplus—an anomaly among industrialized countries—will eventually find new outlets, in the natural-resources sectors or other industrial sectors. The emergence of large data-centre projects constitutes an early indicator of this trend. Transport The Asian thirst for energy (India, China, Japan) seems unquenchable, and liquefied-natural-gas (LNG) terminal projects on Canada’s Pacific coast (total value $36 billion) are progressing on schedule, largely unaffected by the economic situation. However, in spite of growing concerns about shipping oil & gas products by rail, not all currently proposed pipeline projects will be completed. As the projects move forward, the complexity of their deployment is revealed. The multiplicity of administrations (federal, provincial, First Nations and even municipal) and the variety of areas of jurisdictions (energy, natural resources, transport, environment), guarantees significant delays, if not outright postponements. One may recall the sagas of the Foothill and MacKenzie Delta pipeline projects. *** *** *** While post-2008 forecasts expected a global recovery in 2012-2013, any return to strong economic growth around the world in the next few months has already been ruled out. While only five percent (by value) of ongoing projects have been abandoned since the start of 2013, this outcome seems increasingly likely in the months to come. More detail in our new publication “MEGAPROJECTS OUTLOOK – Canada“ .
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