Energy majors will comply with regional demands

Oil majors and international contractors have endured a difficult 12 months. The price of crude, which peaked at $147 a barrel in July last year, has since dropped by two-thirds as the global recession has taken hold.

Foreign firms seeking sweeter commercial terms to offset the impact of a fall in profits have been left stranded. Following five years of strong growth, energy firms looking for their next source of revenues have been hit by national oil companies (NOCs) that are delaying projects because of falling demand.

The break in the fevered activity that has characterised the market over the past few years has also led NOCs to think about the best way to develop their domestic resources. Saudi Arabia, Iraq, Libya and Algeria are tightening the screws on oil majors and contractors by asking for a deeper commitment to developing local expertise.

Big construction projects have historically been outsourced in their entirety to multi-national contractors. But oil majors have often made only a token gesture to requirements to hire and train locals. NOCs in the region are starting to resent the fact that few of the multi-billion-dollar projects being built throughout the Middle East offer a significant contribution to the long-term training of nationals and the development of skills.

This trend for more stringent conditions is a particular concern for companies who operate across several countries in the region.

They now face a difficult decision about prioritising work based not just on their own ability to carry out a project but also whether they can create local joint ventures and meet an array of training standards.

Given the severity of the economic downturn, few international firms are in the mood to provoke their most important clients. NOCs appear to have it all their own way for now.