South Korean dominance of the oil and gas projects market in the Middle East and North Africa (Mena) continues, but it is the UK’s Petrofac that for the second year in succession tops the list as the region’s leading contractor, with almost $5bn-worth of awards.

According to regional projects tracker MEED Projects, a total of $58bn of engineering, procurement and construction (EPC) deals were awarded in the oil, gas and petrochemicals sectors between 1 June 2013 and the end of May 2014. The figure excludes Iran due to difficulties in confirming the data.

The amount is $14.5bn higher than the total value of awards in the same period a year earlier. This is despite Saudi Arabia and the UAE having a quiet period by their own standards.

Top 10 EPC contractors, June 2013-May 2014
  Contractor  Country of origin Value of work won
1 Petrofac UK $4.94bn
2 GS E&C South Korea $4.55bn
3 SK E&C South Korea $3.91bn
4 Samsung Engineering South Korea $3.75bn
5 Dodsal Group  UAE $3.2bn
6 Daewoo E&C South Korea $3.07bn
7 JGC Corporation Japan $2.42bn
8 Hyundai E&C South Korea $2.26bn
9 Daelim Industrial South Korea $2.05bn
10 NPCC UAE $1.91bn 
E&C=Engineering & Construction; NPCC=National Petroleum Construction Company. Source: MEED Projects

Petrofac leads

Petrofac enjoyed a highly successful 2013/14, and proved yet again that a European EPC contractor can not only compete with the South Koreans, but can actually surpass them. Having a diverse set of capabilities and spreading operations across the region has proved to be an effective strategy for the London-listed firm, whose main operational base is Sharjah in the UAE.

Petrofac picked up contracts in Algeria, Oman and Kuwait worth a total of $4.94bn. This was $390m more than its nearest competitor and $2bn up on its performance in 2012/13, which cemented the company’s position as the region’s top EPC contractor.

Having operations in a diverse geographical area means that while its Saudi Arabian and UAE operations were extremely quiet in 2013/14, Petrofac has still been able to secure more than $5bn of EPC contracts elsewhere. The firm picked up two consortium awards in Kuwait and Oman.

It is the leading contractor on the Mina Abdullah 1 refinery upgrade, part of Kuwait’s Clean Fuels Project (CFP). The Petrofac-led group was the low bidder and Kuwait National Petroleum Company (KNPC) awarded it a $3.7bn deal, worth $1.7bn to the company.

The contractor also won two $1bn-plus deals in Oman. In November, it picked up a $1.1bn share of Oman Refineries & Petroleum Industries Company’s (orpic’s) Sohar Refinery Expansion. This was followed in February with a $900m share of the central processing facility at the Khazzan Tight Gas Development.

“Petrofac has been on a winning streak since 2009 and has proved the South Koreans can be beaten at their own game,” says an executive from an international EPC contractor. “[It is] the one European firm that has been able to compete every year and it surprises no one in the industry that it has finished on top again.” 

Petrofac is the only European contractor to make the Top 10 this year, with France’s Technip, Italy’s Saipem and Spain’s Tecnicas Reunidas all dropping out of the list. However, Saipem and Tecnicas Reunidas have enjoyed significant success in a crossover power project at Jizan in Saudi Arabia. Saipem picked up a deal worth $3bn-plus, and Tecnicas Reunidas a contract worth $1.7bn, at Saudi Aramco’s gasification power project.

The South Koreans remain well-represented, and despite several of them recording large losses in 2013, six still made the list, which is one more than 2012/13. With so much work being awarded in the downstream refining sector, it is no surprise that the construction arms of two major oil refiners from South Korea – GS Engineering & Construction (E&C) and SK E&C – finished second and third, with almost identical numbers. 

Korean contractors

SK E&C moved up three places with a total of $3.91bn of awards, while GS E&C is a new entrant to the Top 10. Most of these values relate to two projects. SK E&C and GS E&C were the two other companies in the consortium led by Japan’s JGC Corporation that was awarded a $4.8bn deal for another package on the Mina al-Ahmadi refinery rehabilitation by KNPC. The upgrade is part of the CFP and is worth $1.6bn to each firm.

The firms were also members of the South Korean consortium chosen by Iraq to build a new 140,000 barrel-a-day (b/d) refinery at Karbala in the south of the country, in a deal worth $6.04bn. GS E&C holds a 37.5 per cent stake in the scheme, while SK E&C has 25 per cent.

The top two South Korean contractors in 2012/13 were Samsung Engineering and Daelim Industrial, but both have dropped down the list. Samsung finished fourth this year after finishing second last time, while Daelim fell from fourth to ninth place. Both firms had a quiet 12 months by their own standards, but this corresponds with Saudi Arabia’s relative inactivity in the oil, gas and petrochemicals sectors. The two traditionally have a strong presence in the kingdom.

The remaining two South Korean contractors are Daewoo E&C and Hyundai E&C with $3.07bn and $2.26bn of awards respectively. Daewoo especially will be pleased with its performance as it has been one of the few Korean contractors to struggle to make an impact in the past five years, but the firm will be hoping a $3bn-plus year will be the turning point. 

An encouraging sign for local companies is that two UAE contractors made the Top 10. The highest-placed is Dodsal Group, which finished fifth after recording excellent wins in Saudi Arabia and Abu Dhabi, with the promise of another $1.5bn of oil project awards in Kuwait. National Petroleum Construction Company picked up two major offshore contracts from Abu Dhabi Marine Operating Company (ADMA-OPCO) worth $1.9bn, putting it at 10th place on the list.

From the awards over the past year, it is clear that oil – both upstream and downstream – dominates, while the gas and petrochemicals sectors have been quiet. Oil refinery schemes in particular have proved popular, with several huge projects being awarded. Downstream project awards account for more than $22bn of the total spend. This contrasts sharply with the petrochemicals sector, which saw just $8.6bn of awards, with half that figure relating to the Waad al-Shamal fertiliser project in Saudi Arabia. In recent years, many of the largest schemes in the region were petrochemicals projects and the figures show that the sector is going through a period of consolidation.

Upstream accounted for $11.9bn of awards, with $9bn of that figure being spent on oil projects and only $2bn on gas schemes. However, there was some movement in midstream gas awards, with $6.2bn being spent on gas pipelines and infrastructure. 

The shortage of awards in Saudi Arabia has been balanced by the emergence of Kuwait, which, after years of indecision, has finally started to move forward with its $12bn CFP, awarding three packages. This made Kuwait the region’s second-largest projects market between June 2013 and the end of May 2014, with a total spend of $13.55bn. Most of this was spent in the downstream oil sector. The country could also dominate in the year ahead, as it looks to award another $10bn-plus refinery project.

The $6bn Karbala refinery deal meant Iraq was the highest spender, with $15.5bn of awards. Iraq is now one of the most active markets for upstream and midstream projects and this was reflected in the $6.6bn spent on upstream, transmission and storage schemes in the period under review.

Saudi Arabia and the UAE, particularly Abu Dhabi, appear to have spent the past 12 months consolidating after half a decade of massive investment in oil, gas and petrochemicals schemes. Saudi Arabia spent $7.9bn in the period under review, compared with $17bn in the corresponding period of 2012/13, while the UAE spent $5.7bn, compared with $12.1bn.

North Africa activity

There was some positive news from North Africa, however, as Algeria and Egypt witnessed significant project activity. Awards were made on Egypt’s long-awaited $4bn Tahrir Petrochemicals Complex, which is now expected to start construction. Many believe it could be the catalyst for further investments in the state. It also looks as though Algeria’s state oil firm Sonatrach is becoming more active, after a corruption scandal caused a hiatus in project awards. The company signed $5.4bn of deals in 2013/14.

Looking ahead to the next 12 months, Saudi Arabia is expected to recover some ground from last year, although it will not match its huge capital expenditure in 2009-12. However, it is likely Riyadh will at least double the spending seen between June 2013 and May 2014, with large awards expected in the upstream and downstream sectors. Qatar should also sign contracts for the massive petrochemicals projects planned in Ras Laffan and the Idd al-Shargi North Dome oil field. If these move forward, the country could award as much as $17bn-worth of deals.

MEED’s annual EPC survey shows that even after six years of dominating the market, South Korean contractors are still the ones to beat. However, there is no doubt that they are now starting to raise their prices.  

It will be interesting to see what the top EPC contractor list will look like in 2014/15, as many major projects are now being tendered to consortiums. After the losses of 2013, South Korean firms are not bidding as aggressively as before for single-source projects, but groups offer them the chance to spread the risk among themselves.

However, as Petrofac has shown for the past two years, having a diverse set of specialist skills, a strong regional base and a willingness to adapt to prevailing market conditions is the key to success in the Mena EPC projects market.

Key fact

Despite several South Korean contractors recording large losses in 2013, six still made the Top 10 list

Source: MEED