Oil & Gas: A maturing industry

20 February 2012

The Gulf’s ageing oil and gas fields offer enormous potential for contractors looking to work on rehabilitation schemes

In numbers

$600m: The value of Oman’s investment in its Amal steam injection project

865,000 b/d: Oman’s crude production after investing in enhanced oil recovery

b/d=Barrels a day. Source: MEED

Last year marked 60 years since the start of production at the world’s largest oilfield, Ghawar, in Saudi Arabia.

The intervening period has witnessed huge changes in the way the world consumes oil and currently more than 80 per cent of energy is derived from fossil fuels. The Middle East produces more than 25 million barrels of oil a day, or more than 30 per cent of total global production. 

Ghawar shows that the region’s oil sector is a mature industry, but the disadvantage of that is much of the oil and gas infrastructure currently in place is now in urgent need of rehabilitation. For the region’s brownfield contracting sector, the Middle East offers enormous potential. 

The Middle East’s oil and gas brownfield market is the largest of its kind in the world

Mike Mair, Wood Group PSN

“Without any doubt the Middle East’s oil and gas brownfield market is the largest of its kind in the world,” says Mike Mair, business development director at the UK’s Wood Group PSN, a brownfield service provider. “However, it can also offer some the most difficult working environments in the world, especially in less secure countries such as Iraq.”   

Unique requirements of brownfield sites

Determining exactly what qualifies as a brownfield project is simple. It is any project on an existing facility that has been commissioned and is in operation.

Within the full spectrum of the region’s hydrocarbons sector, a brownfield project can range from a small maintenance job on an offshore oil rig to a multibillion-dollar rehabilitation of a 500,000 barrel-a-day (b/d) refinery. Brownfield schemes are under way in all segments of the upstream and downstream sectors of the

Oman’s EOR projects are essential for future output and it should get another 30 years of production

Muscat-based contractor

Each oil or gas field has unique requirements, which originate from the type of hydrocarbons it contains. Oman’s oil, for example, is viscous and has a high sulphur content, which has resulted in the sultanate having to invest billions of dollars in enhanced oil recovery (EOR) techniques.

Brownfield projects under execution in Oman include the $600m Amal steam injection project. The scheme is being implemented by Petroleum Development Oman to boost oil production by injecting superheated steam into the field to make the hydrocarbons less viscous. Other EOR projects in Oman include injecting water or chemicals into fields to aid extraction. “Oman’s EOR projects are essential for future output and it should get another 30 years of production,” says a Muscat-based contractor.

Gulf downstream oil & gas facilities 
CountryNumber of facilities
Saudi Arabia157
Source: MEED O&M 

“But there is also pressure from the Omani government that minimal production is lost while these projects are being implemented.  This is a testing environment for a contractor as any loss of revenues for the government could result in a loss of future work.”

Complicated brownfield projects

Oman’s EOR investments have been successful; production has risen to more than 865,000 b/d from lows of 715,000 b/d in 2007. The sultanate is now a global leader in EOR and contractors working in Oman have acquired invaluable experience in executing complicated brownfield schemes.  

Gulf downstream facilities, by sector
SectorNumber of facilities
Gas processing66
Refining 64
LNG=Liquefied natural gas. Source: MEED O&M 

Other countries in the region with maturing oil fields that will require investment in EOR include major producers such as Iran. Of Iran’s current production, about 60 per cent comes from fields discovered more than 50 years ago. However, Tehran’s political and economic isolation as a result of its nuclear-enrichment programme means opportunities will remain limited for foreign contractors and technology providers.

Across the region, upstream investment in EOR remains relatively low as most fields do not yet require drastic measures. Most national oil companies (NOCs) are instead concentrating on capturing associated gas from oil fields.

In many cases, the process plants being constructed to capture and process the gas are adjacent to the current facilities, so are technically greenfield projects. However, offshore projects are providing contractors with a new set of challenges.

In the Divided Zone between Saudi Arabia and Kuwait, the Saudi/Kuwait joint venture Khafji Joint Operations (KJO) is about to start work on the full rehabilitation of the Hout oil field’s onshore and offshore facilities. The scheme is worth about $300m.

Major Gulf brownfield projects
CountrySectorNameBudget ($bn)
BahrainRefining Bapco refinery upgrade2
Kuwait Refining Clean Fuels Project20
Iraq Oil & gas productionRumaila field upgrade15
Iraq Gas captureSouth Gas project 17
OmanRefining Sohar refinery upgrade1.5
QatarGas development Barzan project3.3
Saudi ArabiaRefiningRas Tanura2
Saudi ArabiaRefiningRas Tanura2
Source: MEED Projects

The project is designed to capture the 120 million cubic feet a day (cf/d) of associated gas that is currently being flared at the field. The onshore work is a mostly straightforward, but the offshore work is an example of a complicated brownfield project. 

Production from the Hout field will have to continue with few shutdowns or stoppages. Facilities to capture and transfer the associated gas to onshore facilities will have to be constructed while hydrocarbons are still being produced. 

Iraq potential for brownfield contracts

In Iraq, a $17bn scheme by the UK/Dutch Shell Group to capture flared gas in the south of the country will be a mix of both greenfield and brownfield work. 

The southern oil fields have given international oil companies (IOCs) and contractors the most challenging conditions since the licensing agreements were awarded in 2009.

“It is difficult to know where to even start with many of the oil fields in Basra,” says a source from an engineering contractor based in the province. “The amount of investment required is only matched by the amount of expertise required to bring the fields to an acceptable standard.”

The issues IOCs and contractors had to deal with at the Basra fields included antiquated facilities that were built in the 1970s, thousands of landmines that were laid during the 1980s and 1990s, as well as operations teams that lacked basic skills.

“All of the Iraq oil workers are very intelligent, but many of them cannot work a computer nor have any idea how to operate modern day technology,” says the contracting source. “So working alongside these guys to ramp up production and increase revenues took a lot of thoughtful planning.”

Most contractors working in the brownfield sector say that Iraq is the market with the most opportunities, but it is also the most risky, especially in terms of security. Iraq’s potential does not end in the upstream sector, with much of the country’s downstream facilities also requiring major investment.

The country’s oil refineries are under performing with most experts stating that the facilities do not operate at their name plate capacity of 600,000 b/d. As well as production issues, the refineries are also making too much heavy fuel oil and not enough gasoline or diesel.

Several projects are planned at rehabilitating Iraq’s downstream facilities, but issues such as security and a lack of skilled staff remain. 

Iraq needs to get its refineries and other hydrocarbons infrastructure working again to support its reconstruction programmes. Oil receipts account for almost 90 per cent of government revenues.

Iraq is not the only country in the region that has put a strategy in place aimed at rehabilitating ageing refineries. Leading the way in this is Saudi Arabia.

The kingdom boasts a large domestic refining capacity, but the majority of it has now been in production for about three decades and is in dire need of modernisation.

State-owned oil giant Saudi Aramco is now rolling out a comprehensive rehabilitation programme on its domestic refineries in a multibillion-dollar clean fuels programme.

The programme will lower the sulphur content of Aramco’s domestically produced refined products. Some of the existing facilities, such as the Ras Tanura refinery in the kingdom’s Eastern Province, will also undergo extensive upgrades, such as the addition of an aromatics cracker.

“All the kingdom’s existing refineries require some sort of modernisation and the key to the projects that will be tendered is how much Aramco can minimise the current production from each facility,” says Mair. “Aramco is a forward-thinking national oil company by international standards, so it will be looking for the lowest amount of disruption possible.”   

Saudi Arabia’s neighbours, Bahrain and Oman are also executing major rehabilitation work on refineries. Kuwait, however, has the most ambitious plan in the region with its $16-18bn Clean Fuels Project (CFP). State-owned Kuwait National Petroleum Company (KNPC) wants to rehabilitate and expand capacity at its Mina Abdullah and Mina al-Ahmadi refineries.

The scheme is aimed at lowering the sulphur content in the oil, as well as raising the existing combined capacity of refineries by 800,000 b/d from the current 736,000 b/d. The refineries will also be equipped to handle more viscous crude oil types.

Once the work is complete, KNPC plans to close the ageing Shuaiba refinery. But its recent high performance could make the state-owned company consider carrying out rehabilitation work on the facility.

Ambitious schemes

Although KNPC’s CFP project is the most ambitious in the region, Kuwait has a track record of announcing huge projects only to see them cancelled at a later date. This has made some contractors sceptical as to whether the country will actually spend the $20bn or will scale back the scheme in the future.

What is clear from the sheer amount of project activity in the brownfield sector, the Middle East offers huge potential for contractors looking to win work.

Energy is the region’s most important natural endowment so it is essential that the facilities that provide the world with a third of its oil are maintained properly to maximise returns and promote efficiency.

Brownfield projects are challenging, but in the Middle East, the rewards on offer are starting to make them worth the risk.

MEED O&M is an extensive database of operational facilities across the GCC, Iran and Iraq. It provides comprehensive details on oil, gas and petrochemicals facilities. Along with valuable data on the region’s key countries and sectors. For more information, go to www.meedoandm.com, tel: (+971) 4 3671 302 or email: om@meed.com

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