The EPC market: Repaying confidence

16 January 2006
Daniel Valot was in confident mood in early 2005. 'The outlook for the year is good and business is expected to continue to grow,' the chairman and chief executive officer (CEO) of Technip predicted. 'Even if competition remains fierce and currency and commodity markets are subject to fluctuations, the overall environment in which we operate will rarely be as favourable, given the high growth prospects that exist in the targeted markets in which we maintain a clear-cut competitive advantage.'

Valot's confidence was not misplaced. According to a 2005 survey of major engineering, procurement and construction (EPC) awards in the GCC oil and gas sector compiled by MEED and MEED Projects, valued at more than $350 million, the Paris-based giant ended 2005 with close to $6,000 million worth of new contracts, the highest value by any EPC contractor.

Technip's elevated position benefited from an estimated $4,000 million worth of new work on Qatar's liquefied natural gas (LNG) expansion programme, which involves the addition of 47 million tonnes a year (t/y) of new capacity by 2010. Following on from its two-train contract from Qatar Liquefied Gas Company (Qatargas) II in mid-December 2004, Technip was awarded last year, in joint venture (JV) with Japan's Chiyoda Corporation, two more mega train contracts on the RasGas III and Qatargas 3 and 4 developments. Chiyoda's involvement in the programme led to it being ranked second in the survey, with GCC total orders of $4,000 million.

Major contract wins in Abu Dhabi and Saudi Arabia put Italy's Snamprogetti and Japan's JGC Corporation in third and fourth positions, with total orders of $3,150 million and $2,500 million respectively.

The raft of project activity saw the return to the market of two major US-based EPC contractors - Bechtel and Fluor Corporation. Bechtel picked up its second EPC package, worth $1,250 million, on Abu Dhabi's OGD-3/AGD-2 programme and won, in a JV with Technip, the largest package on the $3,000 million Abu Hadriyah, Fadhili and Khursaniyah (AFK) oil development for Saudi Aramco. After a decade's absence, Fluor signalled its re-entry into the major upstream EPC market by winning in October the $999 million Habshan plant expansion in Abu Dhabi.

South Korean contractors also made their mark, winning in total more than $3,500 million worth of oil and gas contracts. The performance underlined the growing acceptance by national oil companies of Korean EPC and financial capabilities.

Last year also saw several newcomers establish a presence in the EPC sector. Washington Group International of the US won its first major EPC contract in years, taking the $360 million sulphur handling project at Ras Laffan in a JV with Abu Dhabi's Al-Jaber Energy Services. Spain's Tecnicas Reunidas cemented its position as a leading EPC contractor in Saudi Arabia, taking two packages on the Rabigh refinery upgrade and the Hawiyah natural gas liquids (NGL) project.

Capacity constraints among the biggest EPC players, coupled with a deluge of new tenders, allowed smaller contractors to enter the big league.

UAE-based Petrofac International ended the year with major contract awards of more than $1,650 million. 'We were successful well beyond our imagination and surpassed all our plans,' says Ayman Asfari, Petrofac's group chief executive. 'At the end of June, our backlog was $2,494 million. We hope to end the year with about $3,500 million. This is a historic high for our business.'

The steep increase in project activity was not without its challenges and major bottlenecks were encountered. While contractors had to contend with growing shortages and rising costs of materials, equipment and manpower, client-contractor relationships also underwent structural changes. 'The hierarchy collapsed and the pecking order was completely reversed,' says a a senior official at an As

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