Oil and gas project spending in Saudi Arabia falls

15 August 2012

No major project awards made in the kingdom compared with $8.1bn in first half of 2011

Saudi Arabia’s continued emphasis on its petrochemicals sector has rarely been brought into such focus as by how many major oil and gas contract awards were made in the kingdom in the first half of 2012 – none.  

According to the Middle East projects tracker MEED Projects, no major awards with a value of more than $50m were made in upstream, midstream and downstream oil and gas projects sectors in the kingdom.

This is in stark contrast to the corresponding period of 2011, with more than $8.1bn-worth of major projects awarded during that time. However, the slowdown in upstream investment started in the second half of 2011 and MEED Projects states that about $300m of awards were made during that period.

There are some additional contracts that need to be taken into consideration alongside the MEED Projects figures due to the operational structure of state-owned oil company Saudi Aramco.

The US’ Baker Hughes was awarded a $400m five-year drilling contract by Aramco in the second quarter of 2012. The scope involves the American oilfield services company drilling 70 wells at the Shaybah oilfield in the Empty Quarter of the kingdom.

Other long-term contracts include a three-year seismic survey scheme awarded by Aramco to the local/Chinese BGP Arabia. This will involve a series of geophysical surveys carried out across the kingdom.

The US’ McDermott also picked up two offshore contracts for an undisclosed figure as part of a long-term agreement with Aramco.

With most of the kingdom’s major petrochemicals ventures being awarded, the cycle of awards is now about to turn back in favour of oil and gas schemes in both the upstream and downstream sectors.

According to MEED Projects, Saudi Arabia has $13.65bn-worth of oil and gas projects at the design or tender phase, with the vast majority being in the refining sector.

The $7bn-plus Jizan refinery project in the south of the kingdom is currently at the tender phase and submissions for most packages are due in mid-September. Awards are expected for the scheme by late 2012, but market sources believe that early 2013 is a more likely time frame.

Aramco is also executing a clean fuels programme, which means billions of dollars have been earmarked for the rehabilitation and expansion of the kingdom’s existing refineries. Significant amounts of work are expected at the Ras Tanura, Riyadh, Yanbu and Jeddah refineries over the next 12 months.

Upstream oil and gas remains quiet and this is expected to remain the case until 2014-2015. There are some lower value contracts coming up at small non-associated gas fields such as Midyan, but no large-scale field developments are expected until after the Manifa offshore field begins production in 2014-2015.  

The cyclical nature of hydrocarbons investment means this is a quiet period for upstream schemes at the expense of downstream and petrochemicals projects. It is highly likely, however, that the second half of the decade will see the exact reverse of this trend, with several huge schemes, such as the proposed $25bn Red Sea development, moving from the drawing board to reality.


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