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Oil Report

UPDATE 1-Reuters Summit-Fluor sees robust energy spending

(For other news from the Reuters Global Energy Summit, clickhere) (Adds details on energy spending, background)

NEW YORK, June 2 (Reuters) - Spending on new energy projects will stay robust through 2009 as companies plow their growing cash piles back into their businesses, a senior executive at engineering and construction group Fluor Corp FLR.N said on Monday.

“I would characterize this as a supercycle. I don’t anticipate the peak. We really don’t see any waning in the capital spend over the next year or so, we think it will continue to be robust as these companies play catch-up on the refining side,” David Seaton, president of Fluor’s energy and chemicals group, told the Reuters Global Energy Summit in a conference call.

Fluor’s backlog of work for its oil and gas business swelled to $20.4 billion at the end of the first quarter, up 46 percent from the year-earlier level.

Seaton also said he was surprised that diesel fuel had topped gasoline prices, and he expected diesel to remain expensive.

Refiners in the U.S. were mostly focusing on adding units to their refineries to process the heavier crude oil grades coming from Canada’s oil sands, he said.

“There’s been no new capacity for diesel ... I see the diesel market continuing to be pretty tight,” he said.

Retail diesel fuel prices have reached $4.79 a gallon on average in the United States, about 80 cents above gasoline’s price.

Fluor also has businesses that include engineering for offshore wind farms, power plant construction and government services. That government services arm won part of a contract a year ago from the U.S. Defense Department to provide services for the military in war zones such as Iraq and Afghanistan.

The company’s energy-focused business has passed along higher prices to its customers as labor and materials’ costs skyrocket.

“It’s been a tremendous escalation,” Seaton said.

Price increases for products such as steel will continue to climb, he said, “though not as much as they have over the last three years.”

Still, Fluor counts among its customers many of the largest oil companies in the world, including state-owned Middle Eastern oil producers, whose coffers have been bulging with revenues from the oil boom.

“Two years ago ... that was one of things that kept me awake at night. I looked at the huge amount of escalation, and whether business models (could) absorb that,” he said.

And while the large integrated companies that produce oil and operate refineries are in the best position to cover the rising project costs, he said even the independent refiners are spending heavily just to stay competitive with their peers.

For summit blog: summitnotebook.reuters.com/ For more on the Reuters Global Energy Summit, see [ID:nN02260761] Reporting by Matt Daily

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