- June was the worst month for contract awards since August 2012
- In the first half of 2015 project contracts worth $75.3bn were awarded
- Saudi Arabia was the best performing nation in terms of contract awards
- All other GCC nations saw a reduction in contract awards compared to the first half of 2014
The value of first half contract awards in the GCC dropped to $75.3bn in 2015, falling by 31.5 per cent compared with the same period in 2014 as lower oil prices continue to weigh on regions project market.
Over the first six months of 2015 contract awards peaked in February, when contracts worth $21.2bn were awarded.
Awards saw a steady decline over the following four months, falling to $5.2bn in June, which was the worst month for contract awards in the region since August 2012, according to projects tracking service MEED Projects.
The latest decline started in the second half of 2014 and follows an exceptionally good period for project awards.
The first half of 2014 saw $109.9bn in contracts awarded, a 36 per cent improvement on the first half of 2013, which saw $80.8bn awarded.
In the second half of 2014 there was a significant decline in contract awards, with only $72.7bn being awarded.
Though contract awards rose slightly in the first half of 2015 compared with the preceding six months, they remain low by the standards of recent years.
The current period of reduced project contract awards comes in the wake of the collapse in oil prices that occurred over the second half of 2014, slashing revenues for GCC oil producers and introducing a new element of uncertainty for large capital projects in the region as governments considered budget cuts.
The best-performing country in the region over the first half of 2015 was Saudi Arabia, which saw $27.4bn in contracts awarded over the first half of 2015.
As well as seeing the highest value in contract awards in the GCC it also was the only nation to see an expansion in the value of contract awards, which rose by 7.2 per cent compared with the same period in 2014.
Among the big-ticket project awards is the $3.8bn phase one of the Ministry of Defence Medical City in Riyadh and the $1.9bn contract for an air separation unit for the Jizan Refinery power plant.
The air separation facility will be the worlds largest industrial gas complex, supplying 20,000 tonnes of oxygen and 55,000 tonnes of nitrogen every day.
Saudi Arabia also saw a $1.8bn infrastructure package awarded to Nesma & Partners in February as part of the $9bn King Abdulaziz Road Project in Mecca.
Interior Ministry residential compounds in the provinces of Jizan and Najran, which have a total contract value in excess of $4bn dollars, were also awarded over the first half helping to bolster the value of Saudi Arabia project awards.
Oman saw the biggest per cent slide in the value of contract awards, with the value of awards in the first half of 2015 coming in at $4.1bn, 55.2 per cent less than the $9.2bn in contract awards it saw in the first half of 2014.
The UAE, the regions second-biggest project market, also saw a hefty decline, with contract awards in the first half of 2015 coming in at $17.3bn, 44.4 per cent below the same period last year.
A similar decline was seen in Kuwait where the value of conflict awards dropped by 49.9 per cent between the first half of 2014 and 2015.
Qatar and Bahrain saw declines of 33 and 35.3 per cent respectively.
While the value of project awards has declined, GCC project activity remains relatively robust.
The GCC Projects Index, which measures the total value of active projects in the region, rose by 2.0 per cent over the first half of the year to $2.8 trillion.
This expansion indicates that the value of new projects announced exceeded the value of projects put on hold, cancelled or completed.
Despite the increase in the value of active projects, the second half of 2015 is unlikely to see much of an uptick in contract awards due to lingering uncertainty in the regions project market, which has slowed down progress on a range of strategic projects in the region.
The Brent crude benchmark has stayed firmly below $70 a barrel since early December 2014, something that has forced governments and international oil companies to reevaluate their spending plans.
High-profile casualties include Qatars $12bn Sharq crossing, which was put on hold in January.
Also in January, Qatar put the $6.4bn Al-Karaana petrochemicals project on hold. This disrupted work on the Ras Laffan industrial water project, which was subsequently put on hold in April.
Many other GCC projects that have not officially been put on hold or cancelled are seeing slower progress.
In Kuwait the tender process for the Al-Zour New Refinery Project, which is estimated to be worth about $15bn, has been significantly delayed.
At the beginning of 2015 the Al-Zour New Refinery Project was due to see its major packages awarded before the end of the year, but this now seems unlikely.
It is now more than six months since the first bids on the tender were submitted and no awards have been made due to ongoing difficulties gaining approval for a budget expansion from the board of the state-owned oil company Kuwait Petroleum Corporation (KPC).
Industry insiders says the disruption to the 615,000 barrel-a-day facility, which will potentially be the biggest refinery in the Middle East, could have a knock-on effect for related petrochemical schemes and the liquefied natural gas terminal due to be built nearby.
Whether Saudi Arabia will be able to maintain the current level of project awards remains to be seen.
The kingdom benefits from a robust capital projects programme that has helped it to successfully award nearly $500bn in contracts since 2005.
It also benefits from a solid project pipeline, with almost $177bn-worth of projects in the tender phase or under design.
These two factors should help it to maintain a high level of project awards in the near future, but Saudi Arabias project market continues to face significant headwinds.
Lower oil prices have caused unwanted budgetary pressures and come at a time of major government restructuring following the January leadership change.
Additionally, the region has experienced a deterioration in security, with an increase in attacks claimed by militant Islamist groups.
Although Saudi Arabias new leadership has proved adept at shielding business activities from potential disruptions so far, these negative factors will remain a risk to the countrys project market over coming months.