The year 2018 saw one of the lowest overall energy project spends within the last decade with decent project spends of c.USD 10bn in Q1 2018 and project awards worth only c.USD 8.2bn, c.USD 8.6bn and c.USD 8bn in Q2, Q3 and Q4 2018 respectively. 2019, however, started off on a positive note with the first quarter witnessing c.USD 11.7bn worth of spends – an increase of c.35% from the average seen in 2018. This increase in spends stems from the fact that there were numerous projects that were in advanced stages – under bidding – and due for award last year but were postponed; some of these projects were finally awarded.

Analysis of the projects awarded in Q1 2019 illustrates that a majority of the projects took place in Saudi Arabia (c.59%) and UAE (c.26%) – typically the largest spenders in the region. While Saudi Arabia witnessed a majority of its spends across the water & waste and oil & gas production sectors, UAE witnessed a majority of its spends in the oil & gas production and power sectors. Some of the key project awards which took place in the aforesaid countries include: ADNOC Sour Gas’ Hail & Ghasha Reclamation package worth c.USD 1.4bn, SEWA’s Hamriyah IPP worth c.USD 800mn, Saudi Aramco’s Zuluf Field Expansion worth c.USD 640mn and Saudi Aramco’s Marjan Offshore Water Injection Package worth c.USD 600mn.

With 2019 commencing with a healthy start, in terms of project spends, market sentiment suggests that the Middle East energy industry will continue to remain relatively positive for the remainder of the year – particularly within Saudi, UAE and Qatar. These three countries are likely to witness stronger awards than its neighboring countries due to several mega projects in the pipeline, increasing international investment taking place and a stronger focus on project awards.

Saudi Arabia:

• With Saudi Arabia’s national oil company, Saudi Aramco, engaged in discussions with SABIC since mid-2018 for a potential purchase, the Kingdom has not witnessed the level of spends as expected over the past several quarters. This strategic move prior to its initial public offering is aimed at expanding Aramco’s downstream business. Aramco plans to boost investments in refining & petrochemicals to secure new markets as it sees growth in chemicals being central to its downstream strategy to cut the risk of an oil demand slowdown. On March 27th of this year, however, Aramco announced that it had reached an agreement to acquire 70% of SABIC for a value of USD 69.1bn. With an agreement for purchase of SABIC finally announced, Aramco will now likely be able to place a greater focus on the award of several mega-projects that it has in its pipeline
• This year, Saudi Arabia is expected to witness the award of Marjan Onshore & Offshore packages worth a combined total of c.USD 7.5bn. Additionally, the Zuluf Increment project, worth a combined total of c.USD 7.2bn, was recently announced and is planned to be tendered soon

UAE:

• The country recently saw progress in a couple of its key mega projects – while FEED for Borouge 4 Petrochemical complex was awarded to Tecnimont, Pre-FEED for the New Refinery was awarded to Wood. Moreover, in the remainder of the year, UAE is anticipated to see the awards of projects such as ADNOC Refining’s Gasoline & Aromatics Project (GAP) worth c.USD 2.5bn, SNOC/Uniper’s LNG Import Terminal worth c.USD 800mn and BPGIC’s Expansion of Fujairah Oil Storage Plant worth c.USD 600mn
• Apart from project awards, with ADNOC aiming to reach its target of 5 million barrels per day of oil production by 2030 from the current levels of approx. 3 million barrels per day, it has also placed its focus on awarding its various concessions for its Onshore and Offshore blocks. In March, it awarded exploration rights for its Onshore Block 4 to Japan’s Inpex Corporation for c.USD 176mn and exploration rights for its Onshore Block 1 to a consortium of two Indian oil companies – Bharat Petroleum Corporation Limited and Indian Oil Corporation Limited – for c.USD 170mn. The award of these blocks to international companies enables UAE to develop strategic relationships and increase its engagement with its consumer base in Asia

Qatar:

• With an aim of being the market leader as the largest exporter of LNG globally, Qatar announced plans of constructing four liquefaction trains in order to increase its current LNG production capacity of 77mmta to 110mmta. The North Field LNG Expansion (Onshore) project, budgeted to be c.USD 15bn, is expected to witness awards later this year. Moreover, it is believed that Qatargas is looking at international partners such as ExxonMobil, Shell and ConocoPhillips for the development of this project
• Another key upcoming project in Qatar is its new petrochemical plant worth c.USD 5bn. While the project is in early stages, it is believed that QP is looking at international partners such as Shell and Total for the development of this project

Looking ahead, the remainder of 2019 has c.USD 120.2bn worth of spends planned of which, approximately c.USD 49bn 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 (Figure 1) this year are anticipated to take place in Saudi Arabia (c.34%), Qatar (c.29%) and UAE (c.17%). A sector analysis of the Tier 1 projects for this year illustrates that the LNG (c.28%), oil & gas production (c.18%) and gas processing (c.16%) sectors will likely witness the most project spends in the remainder of this year.

Although it is likely that the next quarter will witness a slight slowdown in project activity due to religious holidays such as Ramadan coming up, 2019 overall is expected to be a better year in terms of project activity compared to last year. With the energy market looking relatively positive with numerous mega-projects expected to be awarded over the next couple of quarters, get in touch with Contax Partners for holistic market intelligence & insights on various upcoming opportunities and 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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