Europeans stage a comeback

29 May 2013

Firms from South Korea continue to dominate the oil and gas, and petrochemicals project sector, but Petrofac has come out on top as region’s leading contractor

South Korean firms continue to dominate the region’s hydrocarbons projects market, but it is the UK’s Petrofac that has emerged as the single most successful company over the past 12 months after a stellar year in key markets such as Abu Dhabi and Saudi Arabia.

According to regional projects tracker MEED Projects, a total of $43.38bn-worth of oil, gas and petrochemicals contracts were awarded in the Middle East and North Africa region between June 2012 and May 2013. The figure excludes work awarded in Iran due to the difficulty in confirming the data.

Top 10 EPC contractors, June 2012-May 2013
 Contractor Country of origin Value of work won
2Samsung Engineering  South Korea$5.1bn
3Tecnicas Reunidas Spain$3.81bn
4Daelim Industrial South Korea$2.68bn
5SK Engineering & ConstructionSouth Korea$2.41bn
6Hyundai E&CSouth Korea$1.88bn
7JGC CorporationJapan$1.65bn
8Hanwha E&CSouth Korea$1.05bn
10Saipem Italy $0.8bn
EPC=Engineering, procurement and construction. Source: MEED Projects

South Korean firms comprise five of the 10 leading engineering, procurement and construction (EPC) contractors. This is one better than last year and some of the major players, such as Samsung Engineering and SK Engineering & Construction, improved on their performance in 2011/12.  Of the top 10 performers, South Korean firms were awarded a combined $13.2bn-worth of deals, with the five other contractors winning work totalling $14.42bn.

European resurgence

European contractors have enjoyed a resurgence this year with $12.77bn-worth of awards. Petrofac accounts for 56 per cent of that total and has enjoyed a highly successful 12 months with $7.15bn-worth of contracts.

The world’s largest oil exporter, Saudi Arabia was the most active market in terms of the value of contracts awarded. The kingdom signed deals worth more than $17bn, with the projects reflecting Riyadh’s strong focus on the downstream sector.

The oil and gas projects market in the UAE, in particular Abu Dhabi, picked up in the past 12 months with deals signed on a series of high-profile schemes being initiated. The UAE awarded more than $12.1bn-worth of projects with some schemes valued well in excess of $1bn. The rise in activity is in stark contrast to 2011/12 when only $3.8bn of schemes was awarded in the country. Elsewhere in the GCC, activity is still relatively slow, although Kuwait, Qatar and Oman have several multibillion-dollar projects in the pipeline, which bode well for the future.

In the wider Gulf region, Iraq is making steady progress with efforts to rehabilitate its oil and gas sector. In the past 12 months, it has awarded deals worth almost $4bn.

In North Africa, Algeria’s projects market was showing signs of recovery until the terrorist attack at the In Amenas gas-processing plant in January. The incident caused state-owned Sonatrach to reconsider planned initiatives and take stock of its entire operation resulting in a drop off in awards.

In terms of sectors, oil production and refining were the major focus of activity between June 2012 and May 2013, with more than $25bn of awards made solely in the oil sector.

Upstream oil production, storage and transmission accounted for $14bn of the contracts signed, which reflects the focus of key oil producers such as Abu Dhabi and Iraq.

Abu Dhabi provided much of Petrofac’s success with a string of deals for offshore projects in the emirate, with a total value of almost $4bn. The largest single contract in the period under review was the $3.7bn award made in April by Abu Dhabi National Oil Company (Adnoc) subsidiary Zakum Development Company (Zadco) for the development of the offshore Upper Zakum field.

Petrofac secured the deal in partnership with South Korea’s Daewoo Shipbuilding & Marine Engineering (DSME). The UK contractor’s portion of the contract is worth $2.9bn, with DSME receiving the remaining $800m. The project will be executed by Petrofac Emirates, the company’s Abu Dhabi affiliate, which is co-owned by the local Mubadala Petroleum.

“This was the one project everyone in Abu Dhabi was looking to win,” says a source working for an upstream oil and gas contractor in Abu Dhabi. “Bidding was a lot tighter than usual and by the end there was only about $150m separating the top two bidders.”

Refining sector

The oil refining sector also had a busy year with total awards of $11.5bn as national oil companies carry out rehabilitations of and upgrades to existing facilities or initiate expansion plans.

For second-placed Samsung Engineering, the refining sector was the chief source of the $5.2bn-worth of work it won in the period under review. Major awards in Saudi Arabia included the $871m expansion of the Saudi Aramco Lubricating Oil Refining Company (Luberef) complex in Yanbu, as well as upgrade work on Saudi Aramco’s Riyadh refinery.

Samsung’s largest deal was the $2.47bn contract for Abu Dhabi Oil Refining Company’s (Takreer) carbon black expansion at its refining complex in Ruwais.

The largest refining project tendered in the past 12 months was Saudi Aramco’s $7bn Jizan refinery; various packages were awarded to contractors in late October 2012. Petrofac featured prominently, winning the tank farm packages in a deal worth about $1.5bn. Spain’s Tecnicas Reunidas, which ranks third among the 10 leading contractors, picked up about $1bn-worth of work, covering the hydrocracker and diesel hydrotreater.

Gas disappoints

Spending in the gas sector totalled $5.6bn between June 2012 and May 2013, which was relatively low compared with the other hydrocarbons sectors. The region’s acute shortage of gas has meant that countries are exploring the possibility of non-conventional sources, but most of these schemes are still some way off.

Only one gas project broke the $1bn mark and that was the $1.08bn gas pipeline contract in Algeria. Other notable, but smaller gas awards were made, including India-based Larsen & Toubro’s contract to build processing facilities for the Midyan gas field in Saudi Arabia.

Despite the shortage of gas feedstock becoming more acute, the petrochemicals sector managed to enjoy a robust 12 months with $12.2bn-worth of awards. The majority of the deals came in mid-2012 and a large chunk of this relates to Saudi Arabia’s petrochemicals spending boom.

These include several packages at the $20bn Sadara Chemical Company complex being built in Jubail, as well as Saudi Basic Industries Corporation’s (Sabic) $3.4bn elastomers joint venture, also in Jubail.

The surprise in the period under review was the $3.75bn-worth of packages awarded to Germany’s Linde Group, South Korea’s SK Engineering & Construction and Petrofac for the Tahrir petrochemicals complex in Egypt. It is hoped the awards represent something of a turning point for the beleaguered projects market in Egypt, which is suffering from a variety problems that include a shortage of feedstock, slow decision-making, bureaucracy and lack of finance options. In the past 12 months, Egypt awarded $4.65bn of deals in the upstream oil and gas and petrochemicals sectors.

The region’s hydrocarbons project sector has had a robust, if not spectacular, 12 months. It is encouraging to see Abu Dhabi and Egypt awarding contracts again, but other key markets such as Qatar and Kuwait, have been still relatively quiet. With several high-profile projects on the short-term agenda for both Qatar and Kuwait, it is likely that this will change over the next year. It is also hoped that better security in Iraq will kick-start the country’s projects market so it can become a serious challenger to Saudi Arabia.

Whether South Korean contractors can maintain their dominance for another 12 months is a source of much speculation across the industry. Chinese and Indian contractors, such as Wison Group and Larsen & Toubro, have been awarded small contracts in the region and this may lead to more trust being placed in companies from emerging markets.

Korean track record

South Korea is still by far the most successful country in the hydrocarbons EPC sector and even though Petrofac has enjoyed a great 12 months, the major players from the Asian country should not be written off yet.

South Korean operators such as GS Engineering & Construction and Hyundai Heavy Industries have not made the top 10, so they may come back aggressively in 2013/14. What is clear from the success of both Petrofac and Samsung Engineering is the importance of having a geographic footprint spread as wide as possible. Being able to mobilise in countries, such as Egypt and Algeria, as well as the less risky markets of Saudi Arabia and the UAE, is the key to winning large amounts of work.

Key fact

European firms have enjoyed a resurgence with $12.7bn of awards between June 2012 and May 2013

Source: MEED Projects

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