Energy

With projects worth more than $200bn, the region is likely to account for 26 per cent of global capacity additions this decade

Source: Morgan Stanley

The potential for engineering, procurement and construction contractors in the Middle East energy sector over the next 18 months and beyond will be huge, with at least $63bn-worth of spending planned for 2012-13.

US investment bank Morgan Stanley estimates that the region will account for 26 per cent of the global capacity additions until the end of the decade, with projects worth in excess of $200bn.

Much of this spending is likely to be in Iraq as the country moves ahead with its ambitious plans to raise capacity to more than 12 million barrels a day (b/d), from less than 3 million b/d today. International oil companies are now actively launching tenders for new facilities and rehabilitating existing infrastructure at most of the fields awarded in Iraq’s first and second hydrocarbon licensing rounds in 2009. The development of the Rumaila oil field by the UK’s BP and China National Petroleum Corporation will be the biggest draw, with a potential spend of up to $34bn by 2020.

Next year will see Iraq hold its fourth oil and gas licensing round … with 12 exploration sites up for offer

Work could also start in 2012 on the long-delayed gas capture and utilisation project, being led by UK/Dutch oil major Shell Group. After waiting for approval from the Iraqi government since late 2008, the $17bn scheme finally got the green light at the end of November. Shell will want to make up for lost time building the facilities that will capture associated natural gas in four southern oil fields.

Next year will also see Iraq hold its fourth oil and gas licensing round at the end of January, with 12 exploration sites up for offer. As many as 46 companies have been prequalified to bid.

Security concerns, which have slowed the pace of development in Baghdad over the past few years, remain, however. The US will officially withdraw all but a few hundred troops from Iraq on 31 December. The security situation has improved immensely compared with the peak level of violence seen in 2007, but analysts say the situation has worsened since 2010. Attacks on oil and transport infrastructure have been a major problem this year and remain a target for insurgents in 2012.

Aramco’s plans

Saudi Arabia will continue to draw attention from engineering firms, with an estimated 5-6 million man hours a year planned for the general engineering services plus (GES-plus) signatories, a sign of the scale of Saudi Aramco’s ambitions. The GES-plus firms will work with state-owned Saudi Aramco’s project management team to provide engineering and construction management services for a wide range of Aramco projects, including oil and gas, and infrastructure.

The firm plans to add some 250,000 b/d of new production capacity at the Shaybah field as well as implementing enhanced recovery techniques at the giant Ghawar oil field. Work is also due to start on the planned onshore and offshore facilities for Khafji Joint Operations in the neutral zone between Saudi Arabia and Kuwait.

In Kuwait, the focus will be on the downstream sector next year. The country is tentatively moving towards launching two enormous refining schemes worth up to $30bn. The schemes have been planned since 2005, but have faced a multitude of set-backs due to political wranglings.

The long-delayed Al-Zour refinery, known as the New Refinery Project, is the centrepiece of Kuwait’s downstream strategy, along with the Clean Fuels Project, but has been beset by political opposition since it was first mooted in 2004. Despite the scheme having now received approval from the country’s Supreme Petroleum Council, its highest hydrocarbon policy body, questions remain over whether Kuwait’s labour force and supply chain can cope with the logistics of launching both projects at the same time.

Other regional refining schemes have also faced delays. Abu Dhabi’s International Petroleum Investment Company (Ipic) is now undertaking a feasibility study for an integrated refinery and petrochemicals complex in Duqm in Oman, a project it aims to develop with state-owned Oman Oil Company. Ipic awarded the project management consultancy contract to US-based Shaw Group in April. The state investment arm had previously stalled its refining plans when oil prices slumped in 2009. Its interest in downstream projects was rekindled as prices started to climb again.

Toughened sanctions for Iran

Iran’s plans to push forward with the development of the South Pars gas field in 2012 could be hit by a new round of sanctions on the country. The UN’s International Atomic Energy Agency issued a highly critical report at the end of October accusing Tehran of developing a nuclear weapon.

Enhanced sanctions since June 2010 have left the country without technical expertise from western oil majors. In their absence, Tehran has been forced to rely on Asian and Chinese firms with little to show for it so far. Existing projects are either on hold or severely behind schedule and new investments are limited. Without this, Iran will struggle to arrest declining production in some of its fields.

Restoring oil production will be a priority for Libya in 2012. The country’s energy infrastructure came under attack during the civil war, which ended in October with the death of leader Muammar Gaddafi. Production should hit 1 million b/d within a year. State-run companies have already managed to bring oil output up to 500,000 b/d. National Oil Corporation (NOC) has asked its subsidiaries and partners to focus initially on ramping up production at the country’s major oil fields before starting work at reservoirs. With a few exceptions, most facilities and pipelines are thought to be in a relatively decent state of repair, with most damage caused to offsite facilities.

International oil companies (IOCs) have been working to restore production, with Spain’s Repsol bringing engineers into the country in late October. The firm is focused on turning the taps on at its Sharara field, which had a production capacity of about 290,000 b/d before the civil war.

IOCs have been reassured that if their contracts were won legally, the state is unlikely to nationalise existing oil assets. Although reaching production levels of 1 million b/d should be relatively easy, NOC will have more trouble from that point on. It is impossible to assess the damage that quickly shutting down oil production earlier in the year had on older reservoirs.