Offshore spending drives UAE market

30 November 2014

An increase in EPC contract awards in 2013 is expected to continue in 2014

In terms of the value of engineering, procurement and construction (EPC) contract awards, 2013 is set to mark a four-year high for the UAE’s oil and gas sector, with spending revived by a spree of offshore investments backed by Abu Dhabi National Oil Company (Adnoc).

Oil, gas and petrochemicals project sponsors in the country are expected to award about $15.1bn-worth of EPC deals in 2013, a 268 per cent year-on-year increase on the $4.1bn-worth of EPC contracts awarded in 2012 and the $3.7bn spent the year before.

Upstream developments

The UAE’s biggest offshore operators, Abu Dhabi Marine Operating Company (Adma-Opco) and Zakum Development Company (Zadco) – both of which are pushing ahead with greenfield oil developments to boost Abu Dhabi’s crude output – have dominated the spending in 2013. 

Adma-Opco awarded $4.9bn-worth of deals in 2013 on two oil field developments: Satah al-Razboot (Sarb) and Umm al-Lulu. South Korea’s Hyundai Engineering & Construction, the local National Petroleum Construction Company, France’s Technip and the UK’s Petrofac all picked up work on the four packages awarded.

Sarb and Umm al-Lulu are key developments in Adma-Opco’s plans to increase its total crude production to 1 million barrels a day (b/d) by 2020, up from the current capacity of 600,000 b/d. The fields are expected to add about 100,000 b/d each after the full-field developments are commissioned later this decade.

UAE’s top 5 planned oil and gas projects
ProjectOwnerBudget ($m)Main contract award due
Fujairah oil refinery: phase 1 (various packages)International Petroleum Investment Company (Ipic)3,500 (total)2014
Nasr full-field development: package 2 (platforms and wellheads)Abu Dhabi Marine Operating Company (Adma-Opco)1,5002014
North East Bab, Al-Dabbiya: phase 3Abu Dhabi Company for Onshore Operations (Adco)1,3002014
North East Bab, Rumaitha and Shanayel: phase 3Adco1,000End 2013
Umm al-Dalkh full-field developmentZakum Development Company (Zadco)600Early 2014
Sources: MEED Projects; MEED

A third full-field development, on the Nasr field, was tendered at the beginning of September, with Adma-Opco inviting prequalified companies to submit technical proposals in December.

Zadco’s expansion plans are focused on the Upper Zakum field, which, when combined with the Lower Zakum section – controlled by Adma-Opco – makes up the world’s fourth-largest known oil field.

Zadco awarded a $3.8bn EPC contract to a joint venture of Petrofac and South Korea’s Daewoo Shipbuilding and Marine Engineering (DSME) at the start of 2013. This is the largest single EPC package under execution in the Middle East and North Africa (Mena) oil and gas sector.

The package is part of early production facilities on the Upper Zakum field, which precede a full-field development expected to be awarded in the coming years. Developments planned on Upper Zakum will increase the oil field’s production capacity from the current 500,000 b/d.

Offshore awards are also expected this year in the smaller UAE emirates of Dubai, Ajman and Sharjah. Dubai Petroleum Establishment is preparing to select a contractor for a deal involving pipelines and platforms on the emirate’s Al-Jalila offshore oil field.

Meanwhile, Sharjah’s Dana Gas is preparing to award three smaller contracts on the development of the Zora offshore gas field, the ownership of which is split between the emirate and Ajman.

While Abu Dhabi is investing heavily in expanding its crude production, the UAE is reportedly falling behind on its capacity targets. The country has pushed its target date for producing 3.5 million b/d of oil from 2017 to 2020, due to delays in exploration and production awards. Media reports in July, citing sources familiar with the matter, said delays on awarding the Upper Zakum development deals contributed to the setback.

Continued growth

The strong stream of EPC awards is expected to continue in 2014 in the UAE oil and gas sector. The country’s energy projects market has recovered from the lows of the past two years, with several large schemes in the pipeline for contractors to target.

2013 is forecast to be the highest-spending year for the UAE since 2009, when the value of contract awards reached close to $30bn. Several major projects got under way in Abu Dhabi in 2009, including the Ruwais refinery expansion and the integrated gas development. This was followed in 2010 by the Borouge 3 petrochemicals upgrade and the $11bn Shah sour gas development.

In addition to the Nasr full-field development, several $1bn-plus deals are set to reach the EPC stage in 2013 and 2014. Abu Dhabi Company for Onshore Oil Operations (Adco), which holds the concession on all of the emirate’s active oil fields, has tendered a large package on its North East Bab phase 3 scheme to develop the capacities of the Rumaitha and Shanayel fields. The contract is expected to be awarded by the end of the year, followed by a deal involving the Al-Dabbiya field.

A large spate of contracts looms on the horizon in Abu Dhabi’s gas industry this year, with Adnoc choosing the UK/Dutch oil major Shell Group in April to develop its Bab sour gas project. The megaproject should be on a similar scale to the under-development $11bn Shah sour gas scheme, with several high-value packages planned to be tendered.

However, since Shell’s appointment, there has been a complete lack of progress on Bab, according to market sources, with no timeline announced for the project’s design phase, while the Adnoc/Shell joint venture has not been officially established.

Downstream developments

In the UAE’s downstream sector, there is much anticipation regarding the planned second refinery in Fujairah on the country’s east coast. The scheme’s front-end engineering and design (feed) has been completed by Technip and the project owner, Abu Dhabi’s International Petroleum Investment Company (Ipic), is expected to tender the EPC packages by the end of the year. The planned 200,000-b/d refinery is expected to be split into several large packages, with the total budget at more than $3bn.

Fujairah’s oil storage capacity is set to rocket, with more awards expected on terminal schemes after a strong run of spending in 2012 and 2013. Awards are planned on oil storage expansion projects owned by Azerbaijan/Swiss joint venture Socar Aurora and the Dutch/local joint venture Vopak Horizon. The northern emirate will also house the local Emirates LNG’s major liquefied natural gas (LNG) import facility, with South Korea’s Samsung Engineering selected for EPC work on the first phase earlier this year.

In the petrochemicals sector, awards have been non-existent since the last packages on Abu Dhabi Polymers Company’s (Borouge’s) Borouge 3 expansion in Ruwais were signed off in the first half of 2011. The limited supply of gas in the UAE has created doubts over the ethane-fuelled chemicals industry’s ability to expand further, with proposed plans on a Borouge 4 scheme not forthcoming.

Amid this backdrop, contractors eyeing the local petrochemicals sector will be relieved to see the long-delayed Tacaamol liquids-based project in Ruwais making progress. Project owner Abu Dhabi National Chemicals Company (Chemaweyaat) awarded the feed contract on the scheme’s aromatics plant to the US’ CH2M Hill in September, as reported by MEED. With the firm now working on the project and US-based Foster Wheeler appointed as the facility’s project management consultant, the first phase of Tacaamol now has a timeline of progression and the EPC phase could be tendered in 2014.

The UAE’s gas output declined by 1.5 per cent in 2012 to 51.7 billion cubic metres (bcm) a year, while consumption increased by 0.4 per cent to 62.9 bcm a year. The gas shortage has shaped much of the country’s industrial strategy since demand overtook supply in 2007.

Increasing gas

Schemes such as the Shah and Bab gas developments, the Dolphin Energy pipeline importing gas from Qatar, the Dubai LNG imports infrastructure and planned LNG imports in Fujairah have all been undertaken to increase gas supplies for the UAE’s growing population and industrial footprint.

Chemaweyaat’s project will use naphtha from the Ruwais refinery as feedstock rather than ethane gas utilised by Borouge, enabling Abu Dhabi to boost its chemicals output without further straining gas supplies.

The constraints have also pushed the UAE to review its policy of exporting gas as LNG. Through Abu Dhabi Gas Liquefaction Company (Adgas), the country currently sells LNG to Japan under a 25-year contract that is set to expire in 2019, even though it faces a growing challenge to meet domestic demand.

“We are exporting to Japan, [but] we are reviewing this policy to see what is best for the country in view of other elements,” said Abdulla al-Minhali, a manager at Adnoc Gas Directorate, in January. “We will explore all the opportunities available.”

In the UAE’s oil industry, the most significant development next year will be the renewal of Abu Dhabi’s onshore concession, which is currently operated by Adco. The onshore fields account for more than half of the emirate’s crude production capacity of about 2.6 million b/d. Up to 10 international oil companies have been prequalified to bid for a stake in a new joint venture, which is due to be formed in January next year.

This joint venture will face the challenge of boosting hydrocarbons production from Abu Dhabi’s maturing onshore fields using enhanced oil recovery techniques, making it essential for the UAE capital to select capable partners to manage key oil assets over the next two decades and beyond.

2013 is forecast to become the highest-spending year for the UAE oil and gas sector since 2009

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