Dredging: Confident in spite of capacity constraints

10 February 2006

Several ambitious projects mean dredging contractors will have their hands full in 2006 - too full, some say.

The dredging story of 2005 was undoubtedly the award of the $2,900 million eight-year Palm Deira dredging and reclamation contract to Van Oord Gulf. At more than 1,000 million cubic metres of material, it is reckoned to be the largest dredging project in history. The scope of works is so large, it is estimated that up to half the world’s dredging fleet will be involved in the city-sized reclamation scheme at one point or another.

Palm Deira and other massive dredging projects awarded last year - such as the $1,600 million Jebel Ali port contract and the $2,100 million expansion of Ras Laffan port in Qatar - are set to suck in much of the remaining spare capacity for dredging vessels. The challenge for dredgers in 2006 will not be a lack of projects, but meeting this projected shortfall in capacity.

Unlike other sectors in the construction industry, procuring and mobilising dredging equipment takes time. “It’s not like going out and buying 10 bulldozers,” says Jan de Nul regional manager Bassam Atiyeh. “Building dredging vessels takes more than a year. Almost everybody is fully booked. If many more projects come, some clients may have to wait.”

The view is shared by Van Oord Gulf’s commercial manager Peter Meijer. “There is sufficient equipment for existing projects - but down the line, if projects keep on coming, then there may be a problem.” The capacity squeeze is likely to have a knock-on effect in the form of higher prices, especially towards the end of the year when mobilisation on current projects is fully under way. The issue is compounded by the fact that major dredging jobs can only really be carried out by Europe’s big four - Dredging International and Jan de Nul, both of Belgium, and Royal Boskalis Westminster and Van Oord, both of the Netherlands - all of which have almost full workloads.

Seller’s market

Nonetheless, there are no signs that clients are slowing down their project activity, despite the trend towards a seller’s market. While last year’s total of more than $5,500 million worth of awarded dredging work is unlikely to be exceeded, a number of large-scale residential, port and industrial dredging projects across the Gulf are due to come to the market in 2006.

In the north, both Kuwait and Iraq are looking to improve their existing and new port capacities. Baghdad plans to develop the Grand Basra new port and deepen the approach channel to Umm Qasr as it seeks to open up its ports to world trade. Kuwait is aiming to build a new port of its own on Bubiyan island and to improve the draught levels at Shuwaikh and Shuaiba ports.

Saudi Arabia is also getting in on the act. Both Dammam and Jubail ports will be expanded to cope with the expected increase in throughput once the landbridge rail link is completed.

However, despite the potential of the northern Gulf, the main focus will be down the coast, with Doha, Muscat, Abu Dhabi and Dubai in particular taking up the most attention. Planned dredging works on Al-Raha Beach in Abu Dhabi, Nujoom Islands in Sharjah, Oman’s Duqm port, and the new Doha port and Dubai Waterfront projects will continue to ensure the lower Gulf generates the most headlines.

“The focus will still continue to be on Dubai and Qatar mainly, but there will also be plenty of opportunity throughout the Gulf,” says Meijer. “Bubiyan and the Qatar-Bahrain causeway may come to the market, and I think the Saudi market is picking up.”

The sheer amount of upcoming work, combined with the expected shortage in equipment, will ensure the continuation of the trend towards dredging contractors pooling resources and forming joint ventures. “We tend to help each other out,” says Meijer. “It’s a good business climate.”

The other danger is that with so much work and so few capable contractors, dredging firms will become increasingly selective when chasing projects. For less attractive or more difficult work, such as the recent tender to dredge Shuwaikh port in Kuwait, clients may find they have few - if any - bidders.

However, contractor reluctance to bid may mean there will be more opportunities for new entrants, either through joint ventures or in their own right. “We certainly expect there to be more opportunities, especially in the more minor markets,” says one regional dredging contractor. “The big players cannot win everything because many of them are already too stretched.”

The construction industry in the Middle East is booming and the dredging sector is no exception. While there is some concern, it will not be enough to prevent the sector having another bumper year. “Everybody in the industry is optimistic that it will be a good year,” says Atiyeh. “The most important thing is that there is so much work coming up. And it’s not just here, globally it’s the same, although the Middle East differs in that real estate projects take up the majority of work.”

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