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CAPEX Q3 2019

Strong project awards seen in Q3 2019 brings 2019’s GCC energy spends to a total of c.USD 44.3bn – a c.28% rise from the total energy spends seen in 2018. With some key mega projects in advanced stages, decent project activity is expected to continue in the remainder of this year

 

Similar to the first half of 2019, crude oil prices have continued to remain within the c.USD 60 – c.USD 70 per barrel range for the most part this past quarter. In August, however, the market witnessed a large dip in oil prices after the announcement of Russia's oil production cuts being below those agreed under the deal between OPEC and non-OPEC producers. This led to oil prices reaching lows of c.USD 58 per barrel. Post this dip, crude oil prices gradually began to rise due to multiple market situations causing supply disruptions including a tropical storm that inundated large areas of South Texas and affected oil facilities from refineries to pipelines, attacks on two critical Saudi Arabian oil installations – the Abqaiq processing facility and the Khurais oilfield – which resulted in production suspension of 5.7 million barrels of crude oil per day and a new round of sanctions against Iran’s national bank – put in retaliation for the attacks on Saudi Arabia’s oil facilities.

Although crude oil prices have remained within similar levels the past three quarters despite several large fluctuations, project activity within the region has been extremely strong in Q3 2019. This past quarter witnessed c.USD 22.8bn worth of spends across all GCC countries which is a c.444% increase in project awards compared to that seen the previous quarter and a c.105% increase in spends from the average spends seen per quarter over the past 3 years (2017 – 2019). This large addition in project awards seen this quarter brings the total spends seen in 2019 to c.USD 44.3bn which already exceeds the total project spends seen in 2018 by c.28%.

"This past quarter witnessed c.USD 22.8bn worth of spends across all GCC countries which is a c.444% increase in project awards compared to that seen the previous quarter"

An analysis of the c.USD 22.8bn project spends reveal that, like the previous quarter, this quarter witnessed a majority of its project awards in 3 countries – Saudi Arabia (c. 88%), UAE (c. 4%) and Kuwait (c.3%). Moreover, a sector breakdown illustrates that most spends were seen within the oil & gas production, gas processing and water & waste sectors – c.48%, c.34% and c.5% respectively. In addition to the large awards, these countries also witnessed good progress on major key projects.

 

Saudi Arabia:

  • The large spends witnessed in Saudi Arabia stem from the multiple mega project awards announced by Saudi Aramco to boost production capacity by 550,000 barrels per day at its Marjan and Berri oilfields as well as increase gas output by 2.5 billion cubic feet per day. These two programs are expected to significantly enhance Saudi Aramco’s oil production and gas processing capabilities to both strengthen its position as the leading integrated energy supplier and meet growing long-term demand for petroleum. Furthermore, the new investments are anticipated to help reduce the ‘carbon intensity’ of crude as well as reduce emissions.
  • In order to achieve its gas processing targets, Saudi plans to additionally award several key gas development and processing projects in the upcoming quarters. Some of these projects include Aramco’s Shedgum and Uthmaniya Gas Plant worth c.USD 2.5bn and South Ghawar UR Field Development package worth c.USD 700mn.

UAE:

  • As UAE continues its plans to develop its sour gas reservoirs in order to achieve self-sufficiency in gas, it is progressing with its Hail & Ghasha Sour Gas Development program which is expected to add 1 bn (cf/d) of additional gas capacity. The project is currently in advanced stages (EPC Bid) and is expected to be awarded in early 2020.
  • With ENEC’s Barakah Nuclear plant start-up being delayed and a demand for more power, UAE’s Emirates Water and Electricity Company (EWEC), the utility company mandated to ensure water and power supply to consumers in Abu Dhabi and other emirates, has two key power projects in the pipeline that is expected to generate around 4GW of additional power. One the two projects, ‘Fujairah Combined Cycle Gas Turbine (CCGT) F3’, aims to develop a 2,000-2,400 MW (2-2.4 GW) natural gas power plant in Fujairah and has seen good progress this past quarter. The bids for the project are expected to be received by October 2019 with a target commercial operation date of April 2023. The other project, a solar photovoltaic power plant, with a maximum production capacity of 1,500 MW located in Al Dhafra has also seen progress with bids expected to be received by end of October 2019 as well.

Qatar:

  • Qatar further progressed with its key North Field Expansion (NFE) program which aims to expand the State of Qatar's LNG production from 77 million to 110 million tons per annum by 2024. While the country issued tenders for its LNG trains (EPC 1) earlier, it also issued tenders for its EPC 2, 3 and 4 packages which include liquid products storage & loading facilities, Terminal Operations & Offplot facilities.
  • Qatar is also in advance discussions for its Qafco 7 project (worth c.USD 900mn) which is currently under bid evaluation. The client has completed post-bid clarification meetings with all the bidders and thus project award is expected to take place shortly.

 

Looking ahead, the remainder of 2019 has c.USD 16.3bn worth of spends planned of which, approximately c.USD 8.5bn is expected to be awarded based on our proprietary Tiering methodology (where Tier 1 projects have a 70% or greater probability of going ahead and Tier 2 projects have a 30% probability of being awarded). Analysis of data reveals that a majority of the Tier 1 projects for this year are anticipated to take place in Saudi Arabia (c.36%), UAE (c.28%) and Kuwait (c.20%). A sector analysis (Figure 2) of the Tier 1 projects illustrates that the water & waste (c.33%) and power (c.25%) sectors will likely witness the most project spends in the remainder of this year.

With numerous opportunities, that are in advanced stages, in the pipeline, get in touch with Contax Partners for holistic market intelligence & insights and sound strategies in order to take advantage of the current market. For more information, contact the VP of Business Advisory Services, Ann-Marie Carbery, at
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-Shamlee Epari, Research Consultant
Contax Partners

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