Oil projects to dominate spending

17 July 2014

Up to $137bn-worth of oil, gas and petrochemicals projects could be awarded by the first quarter of 2015, with Iraq and Kuwait leading the spending

Oil projects are expected to dominate hydrocarbons spending over the next 12 months, as the Middle East and North Africa (Mena) countries continue to command high prices for their crude exports.

In the 12 months from April 2014, as much as $137bn of engineering, procurement and construction (EPC) contracts could be awarded in the oil, gas and petrochemicals sectors.

Of this, $94.2bn, or about 69 per cent, comprises oil projects including upstream developments, refineries, pipelines and storage terminals, according to regional projects tracker MEED Projects. Gas is forecast to be the second-largest sector, with a potential $28.1bn of EPC awards in the 12-month period, while $14.6bn could be awarded in the petrochemicals industry.

Iraq on top

By country, Iraq is forecast to be the biggest spender on hydrocarbons projects, with $40.1bn due to be awarded, followed by Kuwait with $25.6bn and Algeria with $19.8bn. Other countries with more than $10bn of contract awards forecast for the 12-month period are the UAE, Saudi Arabia and Qatar.

Iraq’s spending spree coincides with the country’s plans to expand crude production to 9 million barrels a day (b/d) by 2020 from the current 3.5 million b/d, and its enormous programme to build new refineries and upgrade existing downstream units.

Earlier this year, three contracts worth a combined $2.2bn were awarded on degassing stations at Iraq’s Zubair field, with the deals going to South Korea’s Samsung Engineering, Hyundai Engineering & Construction (E&C) and Daewoo E&C.

Other upstream contracts in the pipeline involve phase two of the Majnoon oil field development, led by the UK/Dutch Shell Group, and the West Qurna-2 Mishrif full-field development, headed by Russia’s Lukoil, which have estimated values of $1.5bn and $2bn-plus respectively.

Downstream schemes due to start construction include the estimated $6bn Kirkuk refinery, the $2bn Basra refinery upgrade and the $2bn Boor and Baba Kurkur refinery, while storage tanks at the Bin Umar and Nassiriyah oil depot will also be a major undertaking.

Kuwait’s project spending over the next year will be dominated by the $11bn New Refinery Project. Kuwait National Petroleum Company tendered the three main EPC packages in early June and six consortiums are lined up to bid for the contracts.

The new refinery is key to the country’s hopes of meeting the growing power demand. The 615,000-b/d facility will supply 225,000 b/d of low-sulphur fuel oil for power generation.

Algeria awards

Algeria also has a strong mix of upstream and downstream projects in the pipeline. In May, state-owned Sonatrach awarded the UK’s Petrofac a $976m deal to develop the North Reggane gas field, while a contract to develop the Tinrhert gas field is reportedly imminent.

Sonatrach has also yet to award contracts on its ambitious refinery expansion programme, with refineries at Ghardaia, Tiaret and Biskra being developed, along with a liquefied petroleum gas plant at Rhourde el-Baguel.

With about $2.2bn already awarded in the second quarter of 2014, the 12-month period is expected to be relatively quiet for the region’s biggest oil producer, Saudi Arabia. Saudi Aramco is expected to award the three packages on its Ras Tanura refinery upgrade.

The largest upstream project in the pipeline in the country is a scheme to raise production capacity at the Khurais central processing facilities by 300,000 b/d. Aramco has invited nine contractors to prequalify for the tender, which could be awarded towards the end of 2014.

Abu Dhabi projects

In the UAE, several major contracts are expected in the upstream and downstream oil segments. Offshore producer Abu Dhabi Marine Operating Company (Adma-Opco) is expected to sign off more than $2bn-worth of EPC contracts on the second-phase development of its Nasr field, having received commercial proposals.

The project forms part of Adma-Opco’s plan to add 400,000 b/d of production capacity by 2020 from several offshore field developments including Nasr, Satah al-Razboot (Sarb) and Umm al-Lulu.

The UAE’s biggest downstream project is Abu Dhabi-based International Petroleum Investment Company’s (Ipic’s) estimated $3.5bn new refinery at Fujairah. The main EPC packages were tendered in September, but there is no timeline for bid submissions, according to contractors.

In the petrochemicals sector, several deals are expected to be awarded in the 12-month period, with spending dominated by Qatar, which is using its vast gas reserves to create value-added products. Projects include the Al-Karaana steam cracker and downstream units being developed by Qatar Petroleum (QP) and Shell, and the QP-Qatar Petrochemical Company (Qapco) cracker at the Al-Sejeel petrochemicals complex.

Aromatics award

There could also finally be an award at Abu Dhabi National Chemicals Company’s (Chemaweyaat’s) aromatics chemicals complex in the coming months. The project has hit several hurdles over the past five years, but the firm signed a joint venture with Singapore’s Indorama to develop the scheme at the start of 2014.

The actual spending for the 12 months to March 2015 will, however, not equal the value of projects in the pipeline, as many schemes will be subject to delays or cancellations. But 2014 promises to be a strong year for oil and gas projects in the Mena region, especially for Iraq and Kuwait.

Key fact

Gas is forecast to see $28.1bn of contract awards in the 12-month period from April 2014

Source: MEED Projects

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