UAE oil and gas looks to stronger second half

07 July 2015

Slump in contract awards could turn around on major deals in the pipeline

The UAE’s oil and gas sector has experienced a slow first half of the year for contract awards, with project spending for the period at its weakest since 2011.

Since the price of crude started its drop in mid-2014, there has been widespread speculation about the effect of lower oil revenues on new projects.

With only $2.6bn of engineering, procurement and construction (EPC) contracts awarded in the first half in the UAE, there does appear to have been a slowdown in spending, but little of this can be directly attributable to oil prices.

Some major deals that were due to be awarded in the first half of the year, such as the main packages on the new refinery and liquefied natural gas (LNG) terminal projects in Fujairah, have long been delayed.

Although there has been speculation that International Petroleum Investment Company (Ipic) – the Abu Dhabi investment vehicle backing the two projects – has been seeking lower bid prices amid the oil price plunge, both schemes have already hit several major hurdles in their development timelines.

One reason for the slowdown in contract awards is the end of a major spending cycle on upstream oil development in Abu Dhabi.

Most of the $21bn-plus of contracts awarded in 2012 and 2013 were part of major offshore and onshore oil field expansions and these spending programmes – especially in the offshore sector – appear to have largely come to an end.

Spending is expected to pick up in the second half, with the largest upstream project out to tender, the Bab integrated facilities expansion, set to be awarded.

The lowest commercial bid for the EPC contract, submitted on 29 June, is thought to be about $3bn, industry sources told MEED. The contract should be awarded in the coming months after assessment by project owner Abu Dhabi Company for Onshore Petroleum Operations (Adco).

Bidders on the two major Fujairah projects will also be looking for awards in the coming months.

The UAE oil and gas projects market has been the strongest in the GCC since 2009, with spending even higher than neighbouring oil giant Saudi Arabia.

Although lower spending in the GCC has been somewhat offset by Kuwait this year, the strength of Abu Dhabi’s projects market remains a core sector for contractors in the region.

Contractors looking to pick up work will hope this new era of lower oil prices will not affect the longer-term pipeline for new projects in the country.

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