Higher bid prices return to the GCC

10 April 2014

European firms have been winning work again for a couple of years now, beating South Korean competition

Italy’s Saipem and Spain’s Tecnicas Reunidas have emerged as the two frontrunners for Aramco’s Jizan gasification project, and Saipem is also in the running for the Shedgum-Yanbu natural gas liquids pipeline, despite being the third-lowest bidder for the scheme.

European contractors have been winning work again in the GCC for a couple of years now and momentum is beginning to build around some of the larger engineering, procurement and construction (EPC) operators from the UK, Spain and Italy.

There is definitely a sense that South Korean EPC contractors are consolidating their respective positions at the moment and this has given others the opportunity to fill the gap.

Several South Korean EPC companies reported losses in 2013 and this might signal the end of the aggressive pricing tactics employed to such devastating effect over the past five years in the Middle East. They are still winning work, but are not completely dominating the market as they did in 2011-12.

Higher bid prices are evident in the fact that Aramco had to retender its gasification project in order to drive the costs down and that it is looking at a similar move for the Ras Tanura refinery expansion in the Eastern Province.

As the world comes out of recession, there are more opportunities opening up for EPC contractors across the global energy and petrochemicals sectors. This means companies will not be as eager to risk huge losses by bidding very low on megaprojects.

The knock-on effect is regional oil majors may decide to select a more expensive option from a company with a long track record of success, rather than take a risk with a cheaper but less-experienced alternative.

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