CAPEX - Q2 2019
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CAPEX Q2 2019

H1 2019 has so far witnessed decent project awards and steady progression in key upcoming projects. With multiple mega projects present in the pipeline, the remainder of the year will likely continue to see healthy project activity

 

Despite significant fluctuations in crude oil prices over the past several years, the market witnessed a steady rise during the course of 2018 where it hit a peak of c.USD 85 per barrel in October 2018. Post this peak, however, Brent prices saw a drastic drop to a low of c.USD 51 per barrel due to the ongoing trade dispute between two major crude oil consumers – the United States and China – and higher than expected US oil production. Over the course of 2019, however, crude oil prices saw a slight rise and has majorly remained within the c.USD 60 – c.USD 70 per barrel range. Geopolitical concerns in the Middle East (two tankers being attacked and a US drone being shot near Strait of Hormuz earlier this year) along with an expected announcement in early July for the extension of production cuts will likely further support oil prices to remain within similar levels.

Similar to the relatively positive trend in Brent crude oil prices, 2019 has so far progressed with decent project spends and healthy project activity in the region as expected. In terms of project awards, while Q1 2019 witnessed approximately USD 12bn worth of spends, the past quarter saw c.USD 9bn worth of spends – bringing the total spends seen in H1 2019 to c.USD 20.9bn which already accounts for c.59% of the total spends seen in 2018.

"Similar to the relatively positive trend in Brent crude oil prices, 2019 has so far progressed with decent project spends and healthy project activity in the region as expected"

A breakdown of spends seen the previous quarter reveals that Saudi Arabia and Qatar saw the largest spends (c.60% and c.16% respectively). While Saudi Arabia witnessed a majority of its spends across the petrochemicals sector, Qatar witnessed a majority of its spends in the oil & gas production sector. Some of the key project awards which took place in the aforesaid countries include: Pan-Asia Saudi’s Petrochemical and Chemical Fiber Integrated Project in Jizan (c.USD 3.2bn), Umm Al Houl Power's Facility D Water Desalination Plant Expansion (c.USD 520mn) and Qatargas's North Field Gas Development: Offshore Jackets (c.USD 500mn).

In terms of project activity, Q2 2019 saw Saudi Arabia, Qatar and Oman witness decent strides in several of its key projects:

 

Saudi Arabia:

  • Post its announcement of reaching an agreement to acquire 70% of SABIC for a value of USD 69.1bn, Aramco has been able to place a greater focus on the award of several mega-projects that it has in its pipeline. While Aramco has already awarded a couple of packages from its mega Marjan Increment Program, there has been significant progress on the remaining packages (worth a combined total of c. USD 7bn+) which are expected to be officially awarded shortly. Moreover, Aramco’s Berri Gas Plant Expansion project (worth c. USD 1.9bn) is also anticipated to be officially awarded soon.

Qatar:

  • The country’s ability to make quick decisions has allowed it to ramp up its project activity in the hydrocarbon sector unlike before where its primary focus was on the infrastructure sector. As such, QP finally tendered its LNG Onshore Trains mega project worth c.USD 15bn in April 2019 and announced the selection of Chevron Phillips as its new partner for its New Petrochemical Complex worth c.USD 5bn. Moreover, bids for Qafco 7 Expansion project worth c.USD 900mn were also submitted this quarter.

Oman:

  • Although at a slower rate, progress has also been achieved by Oman on several of its key projects. While the FEED contract for DRPIC’s Duqm Petrochemical Complex (c.USD 7bn) was awarded to Wood, the FEED contract for Oman LNG’s Debottlenecking of Qalhat Plant (c.USD 300mn) was awarded to KBR. Furthermore, Total has started the FEED conversion to lump-sum EPC competitive bidding for its LNG Bunkering Project (c.USD 1bn) with 3 contractors

UAE, however, typically a large spender in the region, is still focused on finalizing its operating structures and bringing in funding (ADNOC launched a second competitive licensing bid round for 2 major onshore and 3 major offshore blocks in the past quarter) and thus has not seen progress with its key projects. These mega projects, including Hail & Ghasha (c.USD 9bn), Expansion of Umm Shaif Field Facilities: Gas Cap (c.USD 3bn) and Gasoline & Aromatics Project (c.USD 2.5bn) are now expected to see award in 2020.

 

Gulf countries project spendings 2016

 

Looking ahead, the remainder of 2019 has c.USD 57.2bn worth of spends planned of which, approximately c.USD 28.2bn 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 (Figure 1) reveals that a majority of the Tier 1 projects this year are anticipated to take place in Saudi Arabia (c.57%), UAE (c.18%) and Kuwait (c.15%). A sector analysis (Figure 2) of the Tier 1 projects for this year illustrates that the oil & gas production (c.29%) and gas processing (c.21%) sectors will likely witness the most project spends in the remainder of this year.

With numerous opportunities 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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