(By Joshua Von Fange & Nathan Kung)
The Engineering, Procurement & Construction (EPC) industry is fundamentally changing due to tightening of environmental regulations. As designers and builders of the world’s largest industrial projects, EPC companies have a substantial impact on the environmental sustainability of a plant. Since the average lifespan of a plant will far exceed 20-30 years, the EPC companies’ clients are increasingly selecting companies whose designs minimize the total lifetime cost of the plant. Thus, the roles of changing environmental regulations is shifting the engineering part of the business.
In addition, the large EPC companies typically procure between $10 – 20 Billion USD of materials each year. Despite a recent glut of basic metals, the overall trend is that material prices are becoming more and more variable as resources are depleted.
Finally, construction itself has a large impact on the environment in the villages surrounding construction sites. As emerging markets in China & India start to increase regulations on air pollution and waste discharge, construction projects are finding it more and more economical to pre-fabricate parts of the plant in controlled off-shore fabrication yards, where economies of scale allow newer environmental technologies to be implemented.
As you can see above, all aspects from Engineering to Procurement to Construction are being disrupted by climate change. With many new emerging competitors coming out of Asia, the true winners in this industry are the ones who see the changes on the horizon and can mobilize their organizations to effectively innovate. The following survey done by PwC reflects the importance of these changes to EPC company CEOs globally.
One specific company leading the way is Bechtel, a $33 Billion USD global EPC company which is famous for having built the Hoover Dam and has historically led the industry in innovation and technology. Bechtel recently launched a new campaign that “it is no longer good enough to build the biggest projects in the world. They want to build the best projects for the world.” While it might just sound like clever marketing, let’s explore their changes under the hood.
Bechtel has made substantial investments in building engineering talent and fueling innovation. One example of this paying off is for the Escondida copper project in the Atacama Desert in Chile. To operate mines, large amounts of water must be secured to clean equipment, keep down the dust, and transport/process materials. Since the Atacama region receives under one inch of rainfall per year, most EPC companies designed the mine to extract water from underground water tables. With increasing environmental regulations concerned about drying up local water sources and/or polluting them, EPC companies found this mine un-economical to develop. Bechtel’s innovative approach led to a design that included building one of the world’s largest desalination systems and pumping water over 180km and up 3,200 meters to the mine’s reservoir. This system serviced two of the copper mines that were in the region and made it economical and sustainable to develop them both. This was the result of pooling multiple projects in the area to distribute the costs.
Within procurement, Bechtel is implementing stringent environmental requirements in the Requests for Quotations sent to suppliers, including mandatory audits on new and existing suppliers to ensure that detailed plans are in place to reduce air emissions and minimize waste. Taking this to the next level, they are now ensuring that sub-suppliers are all meeting these same requirements. To date, they have ensured that 100% of all key suppliers have programs in place to promote sustainability in the delivery of materials and services, as well as within their own supply chains.
Procurement is the area where we believe they are weakest. Purely focusing on reducing procurement’s impact to the environment is not good enough. There are compelling business arguments for implementing innovations to make circular supply chains which close the loop by re-using scrap materials and reducing the amount of overbuy of materials (frequent practice historically due to severe impact of shortages; however, transit times and manufacturing times are improving as well as forecasting techniques from engineering).
Finally, the construction teams are improving the environmental performance, which Bechtel is then using to lobby for stricter regulation. In a recent project for Crossrail, Bechtel had more than 250 machines across 40 construction sites. According to Bechtel, “new engine performance standards, retrofitting of particulate controls, hybrid technologies, and training” has led to an 85% reduction in particulate emissions on this project, which is Europe’s largest construction projects. The UK praised Crossrail for environmental self-regulation, and the Greater London Authority is looking into introducing these controls on a wide-scale basis.
The EPC industry is being forced to become greener each year, and it’s exciting to see technology and innovation aligning economic incentives with environmental sustainability.
(784 words)
Source: Bechtel 2015 & 2016 Sustainability Reports. Also relied on inside industry knowledge.
Very exciting to see the EPC industry being proactive in reducing their carbon footprint. I wanted to touch upon a couple of interesting ideas raised. First, the idea of recycling materials for future projects, I wonder what role design with pre-fabricated components can play in this regard. Would it make sense to develop conventions and standard designs on how to build a dam for example, so that pre-fabricated units can not only be recycled across projects with the same company, but also across companies? Second, it is also great to see that Bechtel is trying to go deep into its supply chain to ensure compliance. I would love to know more of what compliance in the supply chain looks like starting from the raw building materials and what an ideal supply chain would look like from Bechtel’s perspective.
I too really enjoyed the article, thank you for sharing! As for the points raised above, I wonder if in addition to horizontal recycling (e.g. dams vs dams) if vertical recycling would be possible too. In other words, to design in such a way that the structure can be taken down and sold for scraps to provide raw materials for different smaller projects like houses, schools etc.