The award of contracts worth AED747m ($203.4m) to local Target Engineering Construction Company this week may signal a shift that is set to continue in the coming years.
Korea’s GS Engineering & Construction has awarded Target, a subsidiary of Dubai-listed Arabtec Holding, contracts for construction works on three oil and gas projects in Abu Dhabi.
Target has won contracts in the oil and gas sector totalling AED1.6bn in the first six months of 2010. This may provide a degree of comfort to local contractors with the recession having had a significant impact on the region’s construction industry.
The downturn has hit the real estate sector particularly hard, which during the boom years had provided local contractors with plenty of work. According to regional projects tracker MEED projects, there are now $421bn of projects on hold in the UAE, the vast majority of which are real estate.
With the property downturn set to continue into 2011 it will become increasingly important for local contractors to diversify their bidding into other sectors, such as oil and gas, if they are to keep busy.
Despite the recession, the region’s oil and gas industry is continuing to flourish. In Abu Dhabi there has been about $40bn of engineering and procurement contracts (EPC) contracts awarded in the oil and gas industry since 2009. Moreover, the rise in the price oil from recent historical lows of below $40 a barrel in February 2010 to the current range of $70-80 a barrel is making it easier for energy companies to invest in new developments.
It is not just major engineering firms that will benefit from the windfall of new energy projects planned in the emirate. As construction starts on the oil and gas megaprojects, subcontractors are able to take advantage of all the secondary construction work available, from the building of roads and buildings and electrical networks.
The recession has had an undoubted negative impact on the local construction market, but if contractors are willing to diversify into the oil and gas sector there is still work to be won.