Projects market loses its momentum

12 May 2015

While essential schemes are still likely to move forwards, the drop in oil prices means projects that are more speculative could be put on hold

The pipeline for contract awards on oil and gas projects in the Middle East and North Africa (Mena) region over the next 12 months is estimated at $125bn by regional projects tracker MEED Projects, but the impact of lower oil prices and the usual delays and cancellations mean just a fraction of this amount could end up being spent.

Kuwait is expected to spend the most on new projects between May 2015 and April 2016, with the region’s largest planned downstream scheme, the New Refinery Project (NRP), still out to tender.

Kuwait could account for as much as a fifth of the region’s total spending, while more than 95 per cent of projected contract awards come from just six countries – Kuwait, Algeria, the UAE, Oman, Iraq and Saudi Arabia. Of the regional total, $72.5bn – about 58 per cent – comprises oil projects, including upstream developments, refineries, pipelines and storage terminals, according to MEED Projects.

Gas is forecast to be the second-biggest sector, with $43.3bn, or 35 per cent of the total, in the 12-month pipeline. Petrochemicals projects make up 7 per cent, with a project value of $9.2bn.

Uncertain times

Although $125bn of engineering, procurement and construction (EPC) contracts could be awarded based on the announced and estimated timelines of projects, the actual figure is likely to be much lower.

The drop in global oil prices from the middle of 2014 has caused uncertainty in the oil and gas projects market, with national oil companies (NOCs) looking at ways to reduce capital expenditure as the budgets of oil-exporting countries come under pressure.

Major projects due for award in next 12 months
ProjectCountryIndustryValue ($m)Status
Maysan oil refineryIraqOil6,500Feed
Hassi Messaoud peripheral field developmentAlgeriaOil5,000Feed
Wafra joint operations heavy oil: phase 1KuwaitOil5,000Feed
Middle East to India deepwater pipelineOmanGas4,000Feed
Shale gas development: system BSaudi ArabiaGas4,000Main contract PQ
New Refinery Project: package 1 (process plant)KuwaitOil3,550Main contract bid
Tiaret export refineryAlgeriaOil3,000Main contract bid
Ghardaia refineryAlgeriaOil3,000Design
Tinrhert gas field developmentAlgeriaGas3,000Study
New Refinery Project: package 3 (offsites and utilities)KuwaitOil3,000Main contract bid
New Refinery Project: package 2 (process plant)KuwaitGas3,000Main contract bid
Shale gas development: system ASaudi ArabiaGas3,000Main contract bid
Duqm refinery: process unitOmanOil2,200Main contract PQ
Duqm refinery: offsites and utilitiesOmanOil2,200Main contract PQ
Ain Tsila gas condensate field developmentAlgeriaGas2,000Feed
Fujairah refinery: phase 1 (process units)UAEOil2,000Main contract bid
Bab integrated facilities project expansionUAEOil2,000Main contract bid
Modification and upgrade of Ruwais refineryUAEOil2,000Main contract bid
Feed=Front-end engineering and design; PQ=Prequalification. Source: MEED Projects

While projects that are essential for the economy, such as additional gas production to meet future domestic demand, are still likely to move ahead, the more speculative schemes could be delayed and re-assessed based on global oil market developments.

The Kuwait oil and gas projects market went through several quiet years until 2014, when it awarded $12bn-worth of contracts on the Clean Fuels Project (CFP), covering the revamp of three existing refineries. Both the CFP and the NRP suffered set-backs for many years until the former started construction in 2014.

Kuwait National Petroleum Company has received EPC bids for the main packages of the estimated $14bn NRP, but package 4 is being retendered and there are concerns that others may be as well.

The low bids for the six unawarded packages came in $4.2bn over the budget. There is no timeline for the potential retendering of some of the packages, leaving it uncertain when construction will start on the project.

Wafra development

Another major oil scheme in the pipeline is the estimated $5bn Wafra development project, located in the Divided Zone, which Kuwait shares with Saudi Arabia.

The development’s EPC deals were expected to be awarded in 2015, but this now looks uncertain due to a dispute between the Kuwaiti authorities and Saudi/US Saudi AramcoChevron, the company that operates the shared fields on behalf of Saudi Arabia.

Saudi Aramco Chevron has made preparations to wind down its operations in Wafra after months of struggling with uncooperative Kuwaiti authorities, which have denied visas for the company’s staff and blocked shipments of equipment and materials.

Other large projects in Kuwait include the construction of gas gathering centres. An estimated $1bn scheme to establish gas gathering facilities at the Burgan field in southeast Kuwait is at the EPC prequalification phase.

The second-largest projects pipeline over the next 12 months is in Algeria, another country that has experienced slow spending in recent years.

Algeria pipeline

Potential EPC awards in Algeria include several projects planned by state oil and gas company Sonatrach, such as package 2 of the midstream pipeline network, the Tinrhert gas field development and refineries at Ghardaia and Tiaret.

Another Sonatrach project in the pipeline is the estimated $5bn Hassi Messaoud peripheral field development, which is currently in the front-end engineering and design (feed) phase.

Algeria’s state-owned utility, National Society for Electricity & Gas (Sonelgaz), recently issued a tender for engineering consultancy services on a project to expand the country’s gas pipeline network by 1,446 kilometres. The pipeline is expected to be worth about $2.4bn and will be constructed in five packages.

The UAE and Oman also have a significant value of projects approaching the EPC award phase, representing between them more than 30 per cent of the Mena total.

UAE projects

There are a number of large downstream projects planned in the UAE after several strong years of upstream awards in Abu Dhabi’s oil sector.

The next major downstream project likely to be awarded in the UAE is the estimated $3bn-plus greenfield refinery in Fujairah. The developer, International Petroleum Development Company (Ipic), received commercial bids for the project’s two packages earlier in 2015.

Also in Fujairah, UAE-based Petrixo Group is planning to award the EPC contract on its planned $1.2bn biofuels refinery.

Elsewhere in the UAE, there is an estimated $2bn scheme to upgrade the country’s biggest refinery in Ruwais and a new refinery proposed in Dubai by Chinese-Angolan joint venture China Sonangol.

Major upstream contracts in the UAE will be scarce over the next 12 months after two years of heavy spending in offshore and onshore field developments by Abu Dhabi.

The largest project approaching the award stage is the estimated $2bn Bab integrated facilities development to increase the production capacity of Bab – one of the country’s biggest onshore fields.

Oman activity

Oman also has major downstream projects approaching the EPC award phase over the next 12 months, including a new refinery and the sultanate’s largest-ever petrochemicals project.

Duqm Refinery, a joint venture of Ipic and the state-owned Oman Oil Company, has prequalified companies to bid for the refinery’s main EPC packages, and construction is expected to start in the second quarter of 2016.

However, the planned petrochemicals project in Duqm, which was initially going to be built in tandem with the refinery, has been postponed until after the refinery’s completion, due at the end of the decade at the earliest.

Although the Duqm petrochemicals scheme has been put on hold, Liwa Plastics– the $3.6bn petrochemicals complex to be built in Sohar – is expected to be awarded by the end of 2015. Companies have already prequalified for four EPC packages, but the tender has yet to be announced.

In the upstream sector, state oil company Petroleum Development Oman (PDO) has several schemes going ahead, including a project at the Yibal, Fahud and Lekhwair fields and the development of the Khulud tight gas field.

At a PDO press conference in April, CEO Raoul Restucci said the only major project on hold was the development of the Budour field – one of PDO’s three megaprojects. The scheme is being reassessed in light of the significant new reserves discovered at the Tayseer prospect.

PDO has completed the feed for the Yibal-Khuff project in-house, and has said it is on track to reach a final investment decision on the development. This means the EPC packages for the $1bn-plus scheme could soon be floated.

Meanwhile, the UK’s BP has yet to award EPC contracts for three pipelines at its $16bn Khazzan Tight Gas Development in the north of Oman.

Iraq prospects

Iraq is still one of the biggest prospects for oil and gas spending, despite the conflict in the north and west of the country.

A number of large EPC projects are out to tender on oil field developments in the south of Iraq, but there have been significant delays in awarding contracts, especially as Baghdad is looking to renegotiate agreements with international oil companies operating in the region.

There is the potential for major contract awards on the Rumaila, West Qurna-1, West Qurna-2 and Garraf fields over the next 12 months.

Many of the refining projects Iraq has planned over the past five years have failed to materialise, but the sector recently received a boost when the project management consultancy contract was awarded to France’s Technip on the estimated $1.5bn Basra refinery upgrade.

Saudi Arabia is traditionally the largest EPC market in the region’s oil and gas sector, being by far the biggest producer of crude oil and petrochemicals. However, the kingdom has a relatively small projects pipeline, representing only 12 per cent of potential spending over the next 12 months.

Saudi Aramco has three major projects that could be awarded over the next year: the unconventional gas development in the north of the country; the Fadhili gas plant; and the Master Gas System Expansion.

Although Saudi Arabia appears to have fewer projects in the pipeline than some of its smaller neighbours, these projects have a stronger chance of progressing than those elsewhere, and the kingdom could still emerge as the largest oil and gas spender over the next year.

Qatar appears to have the smallest EPC market of all the major oil and gas exporters in the region. The country has some oil projects in the pipeline – notably US-based Occidental’s Idd e Shargi North Dome expansion – but with a moratorium remaining on developing its gas fields there is little work coming up for contractors.

Projects cancelled

Doha has also shelved two major petrochemicals complexes in the past year – Al-Sejeel and Al-Karaana – wiping more than $13bn off Qatar’s potential hydrocarbons
project spending.

Elsewhere, there is very little in the way of potential spending. Libya is still mired in civil war and Egypt is returning to stability after years of political upheaval.

Iran, which was not included in the outlook, has perhaps the largest potential for investment of any oil and gas sector in the Middle East, but its prospects all hinge on the outcome of the nuclear talks in June.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications