South Koreans remain dominant of EPC sector

12 September 2012

Contractors from South Korea have been the major driving force in the oil and gas, and petrochemicals sectors over the past year, outperforming international competitors vying for Middle East business

South Korean engineering, procurement and construction (EPC) contractors maintained their status as the top performers in the Middle East’s oil and gas, and petrochemicals sectors over the past 12 months.

According to regional projects tracker MEED Projects, four of the top five positions were taken by South Korean contractors for the period July 2011 to June 2012. 

Top 10 EPC contractors*
ContractorCountryValue of award ($bn)
1. DaelimSouth Korea4.87
2. Samsung EngineeringSouth Korea4.47
3. PetrofacUK2.08
4. GS E&CSouth Korea1.95
5. SK E&CSouth Korea1.75
6. Tecnicas Reunidas Spain1.56
7. SaipemItaly1.33
8. TecnimontItaly1.08
9. Toyo Engineering Corporation Japan 1.00
10. JGC Corporation Japan 0.99
*=Middle East oil, gas and petrochemicals sector. Source: MEED Projects

The top four South Korean contractors were awarded projects worth a combined $13.05bn over the second half of 2011 and the first half of 2012. This is almost $5bn more than the combined total of the six other contractors that make up the top 10.

Seoul-headquartered Daelim Industrial Company ranked first with $4.8bn-worth of hydrocarbons awards. The contractor had a particularly strong year in Saudi Arabia, picking up several awards on some of the country’s largest projects. These include the $20bn Sadara Chemical Company petrochemicals complex and the $3.4bn elastomers plant for Saudi Basic Industries Corporation (Sabic) and the US’ ExxonMobil, both at Jubail in the Eastern Province.

Aggressive pricing business model

“Daelim [Industrial] has a good track record in the petrochemicals industry and the kingdom is ramping up its downstream industries on an unprecedented scale,” says an executive from a major chemical technology company. “It has gone in using the usual [South] Korean model of aggressive pricing and has won some major contracts as a result.”

[Daelim Industrial] has gone in using the usual [South] Korean model of aggressive pricing and won major contracts

Chemical technology company executive

Samsung Engineering ranked second on the list with almost $4.5bn-worth of deals. The South Korean contractor secured a broader mix of contracts spread across the region, including a $2.47bn deal to build Abu Dhabi Oil Refining Company’s (Takreer) carbon black and delayed coker unit in the UAE, as well as two contracts worth about $1.7bn for upstream facilities at the West Qurna phase 2 oil field in southern Iraq.

South Korea’s GS Engineering & Construction (GS E&C) and SK Engineering & Construction (SK E&C) ranked fourth and fifth respectively. GS E&C picked up three packages worth a combined $1.4bn at the Saudi Aramco joint venture PetroRabigh, as well as an upstream oil project in Kuwait. All $1.74bn of SK E&C’s awards came at the Tahrir Petrochemicals complex in Egypt.

Top five clients by spend
CompanyCountrySpend ($bn)
Saudi Aramco*Saudi Arabia 8.20
Sabic*Saudi Arabia 3.40
Egypt Hydrocarbon Corporation (EHC)Egypt3.75
Lukoil/NOC Iraq2.02
*=Includes joint ventures and/or subsidiaries and affiliates. Source: MEED Projects

The UK’s Petrofac was the highest-placed non-South Korean contractor, in third place. The company is a key player in the joint venture to build the Tahrir Petrochemicals complex, with SK E&C and US-headquartered The Shaw Group. Petrofac was also awarded contracts in Iraq and Saudi Arabia, to finish with more than $2bn-worth of work for the year.

“The majority of Petrofac’s operations are managed out of its Sharjah office and, as such, it seems to have weathered the storm of South Korean contract awards better than most of its competitors,” says a senior executive from a major EPC contractor. “It also has been much more open to joint ventures with South Korean contractors and this has paid off.”

Potential resurgence for European EPC contractors

Most European contractors apart from Petrofac and Italy’s Saipem have experienced a lean couple of years, but there are signs of resurgence.

Towards the end of the first half of 2012, several high-profile contract awards were won by Spain’s Tecnicas Reunidas (TR), Italy’s Tecnimont and France’s Technip.

With the vast majority of its awards coming in June, TR rocketed up the top 10 list to place sixth overall. All the Spanish firm’s contracts came in the Saudi Arabian petrochemicals sector, with $1.2bn-worth of packages at the Sadara complex and a further $400m-worth at the Jubail elastomers project.

Japan’s Toyo Engineering Corporation and JGC Corporation round out the list with about $1bn-worth each of contract awards.

Most of those ranked in the top 10 won at least one contract in Saudi Arabia, signifying the kingdom’s level of spending in the sector over the past 12 months.

Total contract awards amounted to more than $13.5bn in the kingdom, with almost that entire figure being spent in the petrochemicals sector. The largest project under execution is the Sadara complex in Jubail, but what is surprising is that only three of the top 10 contractors won large EPC contracts at the site: Daelim Industrial, Techicas Reunidas and JGC Corporation.

Fewer opportunities

A contributing factor was that about $5bn-worth of awards were made to engineering consultancies on an EPC management basis. This was a result of several factors, including concerns over intellectual property expressed by the joint-venture partner in the project, the US’ Dow Chemical, as well as the highly technical nature of the offsites and utilities (O&U) not being suitable for execution under the lump-sum turnkey contracting model.

Most of those ranked in the top 10 list of EPC contractors won at least one contract in Saudi Arabia

“Sadara has employed several models, from Dow itself doing the engineering to the cost reimbursable model for the O&U package,” says a contracting source employed on the project. “This means there haven’t been as many opportunities as the [EPC] contractors might have anticipated when prequalification first commenced.” 

After several months of delays, PetroRabigh phase 2 – Saudi Aramco’s joint venture with Japan’s Sumitomo Chemical – made its awards. All of the packages were won by firms ranked in the top 10 EPC contractors.

Given the scope of Aramco’s downstream plans, it is little wonder the company finished the year as the region’s top client, with $8.2bn worth of awards. This is almost $15bn more than the rest of the GCC combined. Saudi Arabia’s other big spender was Sabic, with its $3.4bn Elastomers project.

The wider region

It has been a comparatively slow 12 months elsewhere in the GCC. Takreer’s carbon black projects pushed the UAE’s spend up to $3.8bn, but contract awards in the remaining member states totalled $1bn or lower during the year.

Qatar’s oil and gas industry is in the midst of a slowdown in terms of new contract awards, with the trend expected to continue through 2014-15. Kuwait posted just $875m of awards and many EPC contractors are beginning to worry that the $60bn budget for oil and gas investment that has been frequently quoted has still not materialised.

In upstream oil and gas investments, data suggests a continued slowdown in the major regional markets

Outside the GCC, Egypt has shown some signs of a revived projects market after its revolution, with $7.6bn-worth of awards made in the last year. However, the speed of progress regarding key projects remains unclear, with the exception of the Tahrir Petrochemicals complex, which is expected to commence construction to schedule. 

Elsewhere in North Africa, the bottleneck in the decision-making process at the Algerian oil major Sonatrach has still not been fully cleared after a corruption scandal that started in 2010. Algeria posted $618m of awards, mostly in essential gas processing works.

Slowdown remains

After years of malaise, Iraq’s EPC market is finally beginning to open up with $2.2bn worth of work awarded in the country’s oil and gas upstream sector during the surveyed period. This figure is expected to rise significantly in the next five years and most contractors have identified the country as a key growth market.

In terms of upstream oil and gas investments, the MEED Projects data suggests a continued slowdown in the major regional markets.

In Saudi Arabia, no major upstream projects have been awarded since early 2011 and this is unlikely to change until the offshore Manifa field comes on stream and investment in downstream industries slows.

With just $6.7bn-worth of oil, gas and petrochemicals projects covering the remainder of the GCC, it is clear Saudi Arabia’s neighbours have other priorities.

In numbers

$13.05bn: Combined total of projects won by the top four South Korean contractors in 2011/12

$6.7bn: The value of oil, gas and petrochemicals projects in the GCC, except Saudi Arabia

Source: MEED Projects

Uncertainty excludes Iran from rankings

The Middle East’s oil and gas sector attracted significant investment in the period from June 2010 to July 2011, with engineering, procurement and construction (EPC) contracts totalling $30.938bn being awarded. This feature profiles the most successful EPC contractors over the past 12 months.

The figures are supplied by Middle East projects tracker MEED Projects and account for the whole Middle East region except for Iran.

Iran has reported $26.92bn-worth of contracts awards in the same period, which is 72 per cent of the total of the rest of the Middle East combined.

However, due to concerns over verifying the size of the awards and whether work is ongoing at each project, the Islamic Republic has been omitted from the analysis. Also omitted are any awards made for engineering, procurement and construction management contracts.

Iran awards present an unrealistic scenario

While most Middle East and North African (Mena) countries are consolidating their investments in new projects, Iran’s spending, by comparison, has rocketed over the past 12 months.

According to data supplied by regional projects tracker MEED Projects, more than $24bn-worth of engineering, procurement and construction projects were awarded in the country from July 2011 to June 2012.

Iran’s contentious nuclear programme has resulted in a swathe of sanctions against the country, including an EU ban on crude exports. This means Tehran suffered a severe reduction in its petrodollar revenues over the past year as the sanctions took hold.

Iran’s subsequent allocation of $24bn for new oil and gas projects has raised eyebrows among many who question how the country can afford such a level of spending. Taking the awards at face value, the biggest winner from the sanctions is local engineering firm Khatam Al-Anbia.

The company is controlled by the Iranian Revolutionary Guard Corps and was first incorporated during the Iran-Iraq war to aid the reconstruction of the country’s industrial sectors.

According to MEED Projects, Khatam al-Anbia was awarded $10bn-worth of projects in the second half of 2011 and the first half of 2012. The bulk of this was accounted for by two major pipeline projects. The biggest project award was the $6bn Iran-Pakistan Gas Pipeline, which was confirmed in the third quarter of 2011.

Work is believed to be continuing on the project, but conflicting reports have emerged regarding the construction phase. Some claim 20 per cent of the work has been completed, while others state that construction will commence in December.

Khatam al-Anbia has also been awarded the 1,515-kilometre Neka-Jask pipeline that will transport crude oil to a terminal located on the Gulf of Oman.

Iran’s investment in upstream projects also contrasts significantly with its Mena rivals. According to MEED Projects, the country spent more than $14bn on upstream oil and gas projects in the past year.

Some industry experts speculate that while the awards might have been made, it remains unlikely many of them will be executed in the near future, given the sanctions against Iran. The more believable scenario is that only essential works are being carried out.

“There are few companies who would supply essential oilfield equipment to Iran,” says a Middle East-based contracting source. “Most of the oil majors would not do it and the major oilfield services companies, such as Halliburton and Baker Hughes, are from the US so are banned from working in Iran.”

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