After a disappointing 2013, Saudi Arabia’s hydrocarbons projects market made a decent recovery in 2014 although the value of contract awards was still way down on the huge sums signed off in 2011 and 2012.

The kingdom spent about three times more in 2014 than in 2013, with project spending across all hydrocarbons sectors hitting a total of $12.1bn, according to regional projects tracker MEED Projects. This is a major improvement on the $3.9bn spent the previous year, but still some way off the $20bn-plus years of 2011 and 2012.

Jizan plant

However, the figures do not include the $8.5bn budget for the integrated gasification combined-cycle power plant that is under construction at Jizan Economic City. There are certain packages of that scheme that many would consider to be related to oil and gas rather than power production, not least the gasification unit itself as well as the sulphur recovery unit. If these two packages were included in the oil and gas figures then spending for 2014 would be around the $17bn-$18bn mark, which would represent a far more positive scenario.

Despite this sector-based anomaly, there is no question that many international engineering consultancies and contractors working in the kingdom believe 2014 offered the last real chance of winning any significant new projects. For many, the glory days of the past five years have well and truly gone.

“The buzz is definitely not there in 2015 and it was not really there in 2014 either,” says a senior executive from a major engineering, procurement and construction (EPC) contractor. “If you look at the pipeline of potential projects coming up, most of the big ones are several years away and the low oil price is only going to make matters worse.”

Project delays

Lower oil prices have already meant Aramco has postponed the $3bn Ras Tanura refinery clean fuels rehabilitation and expansion programme. This scheme was originally going to be awarded between late 2013 and early 2014, but was retendered by Aramco after the initial bids submitted came in too high. Now it looks as though the project will not move until at least 2016.

Alongside the Jizan gasification scheme, two other major schemes accounted for more than 50 per cent of the total contract awards in 2014.

In October, Italy’s Saipem was awarded a $2bn deal by Aramco to build the main processing facilities at its onshore Khurais oil field expansion in the Eastern Province. Aramco is planning to add 300,000 barrels a day (b/d) to the field’s current capacity of 1.2 million b/d.

The Khurais expansion is part of a wider trend for the firm’s upstream oil sector, as it looks to increase capacity at newer fields while simultaneously reducing output from more mature assets.

Khurais represented Aramco’s only major upstream investment in 2014, but the state oil company is in the process of altering its strategy. The next year will see a long-term contract being signed with up to four EPC contractors to carry out work on offshore assets.

Master gas expansion

The other major award was for Aramco’s Master Gas System Expansion (MGSE) and was made to China’s Sepco in October.

The scope of work includes the EPC of two booster compressor stations, as well as all associated works including offsite and utilities. The location is between Dammam in the Eastern Province and Riyadh, and the value of the deal is $1.3bn.

The MGSE is being implemented to meet increased gas demand from the kingdom’s Central Region and Western Province. Once the scheme has been completed, it will be able to provide 9.6 billion cubic feet a day (cf/d) of gas using the booster compressor stations and pumping stations.

Gas is one sector that is not going to be affected by the low crude prices as Aramco looks to maximise output in order to feed insatiable domestic demand brought about by industrialisation and increased power generation.

The largest project expected to be awarded in 2015 is the $5bn Fadhili gas processing plant that Aramco already has out to tender with international EPC contractors. MEED reported in November that the capacity for the facility was being increased from 1 billion cf/d to 2.5 billion cf/d. This has pushed the project’s budget up from the original $3bn figure.

The Fadhili plant will process sour gas from the Khursaniyah oil field and the Hasbah non-associated gas field. Aramco has ramped up its offshore non-associated gas operations in the Gulf in recent years and is developing several fields in the region. These include the Karan, Hasbah and Arabiyah fields.

Fadhili essential

“Fadhili is essential if Aramco wants to process the really sour gas it has in some of its offshore fields,” says the senior EPC executive. “This is why it is still going ahead.”

Other likely gas projects include the second phase of the MGSE as well as some movement in the kingdom’s modest, but extremely important, tight gas scheme in the north of the kingdom.

Fadhili and the MGSE make up the majority of the kingdom’s $12bn-worth of hydrocarbons schemes at the front-end engineering and design or main contractor phases, and will be the main focus for most international EPC contractors in 2015.

Long-term strategy

With the volatility in global oil markets, it is likely 2015 will see only the most pressing schemes go ahead. Anything that is aimed at domestic job creation and industrial development will have a better chance of being given the green light by Aramco than something that is part of a long-term, export-oriented strategy.

The years 2009 and 2010 showed that Aramco likes to operate in a counter-cyclical manner, especially when there are vast savings to be had in terms of material costs for megaprojects. If prices for other commodities such as steel and aluminium fall in line with oil prices then Aramco may decide to take advantage of these low costs and fast-track any number of schemes.

However, Aramco’s spending spree that began in 2009 was initiated after a long period of consolidation and was spurred by a real requirement to increase capabilities across several key operational areas. It would be extremely surprising if the world’s largest oil company decides to repeat this strategy so soon.