CAPEX - Q4 2018
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CAPEX Q4 2018

Even with an increase in crude oil prices, 2018 was a troubled year for the Middle East projects market with project spends of only USD 32.5bn. With major strategic plans being finalized by NOC’s in the region, 2019 is expected to witness significantly higher project spends

 

2018 has seen one of the lowest energy projects spends within the last decade with only USD 32.5bn worth of projects awarded as compared with USD 52bn in 2017. Despite high crude prices, the GCC energy projects market is going through troubled times due to several strategic and geo-political problems that have had a severe impact on the entire O&G value chain. Of the several reasons for the low capex activity, a shift in execution, feedstock and/or ICV strategy and fiscal budgetary stress due to the expensive war in Yemen are the main reasons impacting the ongoing project delays.

Within the projects awarded this year, the O&G production, power, pipeline and water & waste accounted for 75% of the total market spends with UAE and Saudi Arabia accounting for >70% of project spends.

Top Sectors for GCC in 2018

 

"Despite high crude prices, the GCC energy projects market is going through troubled times due to several strategic and geo-political problems"

An analysis of the project spends in the GCC markets would reveal some of the key reasons for the poor project spends in 2018.

UAE: UAE led the GCC Projects market with c. USD 14.9bn of project spends in 2018. Major projects including ADNOC Refining – Crude Flexibility Project (USD 3.1bn), ADNOC Onshore – Bu-Hasa Integrated Field Development (USD 1.4bn) and ADNOC LNG – IGD Expansion Phase II (USD 860mn) were awarded this year. This, however, fell way short of expectations as c. USD 22bn of projects were expected to be awarded in 2018. The main reasons for the low projects spend in UAE in 2018 included:

  • Diversion of ADNOC’s focus with more attention and resources being placed on re-strategizing to prepare for the changing market realities of the global energy market. As such, ADNOC spent most of its time in 2018 developing and revealing new Downstream, Upstream & Gas strategies
  • ADNOC introduced revised In-Country Value (ICV) guidelines which led to delays in project awards as both ADNOC and contractors required more time than expected to familiarize themselves with the impact of the ICV guidelines on the bidding process
  • Geopolitical factors such as the need to end UAE’s gas dependence on Qatar, and the strain on the fiscal budget caused by the war in Yemen also contributed greatly to the depressed projects market in UAE in 2018
  • Major project delays in UAE included ADNOC Refining – Gasoline & Aromatics Project (USD 2.5bn), ADNOC Sour Gas – Shah Gas Expansion Project (USD 2.3bn) and ADNOC Refining – Inter Refineries Pipeline (IRP) Phase III (USD 1bn)

Saudi Arabia: Saudi Arabia had project spends of c. USD 9.2bn in 2018 with major projects including Ma’aden – Ras Al Khair Ammonia Plant (USD 900mn), SWCC – Water Transmission System for Shuqaiq Phase III (USD 850mn) and Aramco – Satellite Haradh Gas Compression Plant (Sa-GCP) Pipeline Package (USD 600mn) being awarded this year. Saudi’s project spends were just 40% of the c. USD 23bn worth of projects that were expected to be awarded in 2018. The main reasons for the low projects spend in Saudi Arabia in 2018 included:

  • Aramco had an extremely challenging 2018, with its resources being focused on preparing for its upcoming IPO (which was eventually put on hold) and then on planning for its upcoming stake acquisition in SABIC. This led to major decision-making problems for Aramco and consequently the award of new projects was significantly delayed
  • Furthermore, for its Marjan Field Development Project, Aramco decided to change its project strategy for offshore packages from just inviting LTA contractors to having an open bid slate for international qualified EPC contractors which contributed to the project being delayed
  • Geopolitical turmoil caused by the war in Yemen severely strained the government’s budget and contributed directly to the relatively quiet project market in Saudi Arabia in 2018
  • Major project delays in Saudi Arabia in 2018 included Aramco – Marjan Field Development Project (USD 7bn), Ma’aden – Third Phosphate Fertilizer Project (USD 6.4bn)

Qatar: As compared to the rest of the GCC, Qatar’s project market witnessed a relatively good year in 2018 with CAPEX spends of approx. USD 3.1bn which were 64% of the expected project spends of USD 4.9bn. Major project awards in 2018 included Qatar Gas – Barzan Replacement of Faulty Pipelines (USD 1.3bn) and Qatar Gas – North Field Gas Development Offshore Jackets (USD 500mn)

  • The merger between Qatar Gas and Ras Gas led to a change in strategy and caused the new combined entity to reconsider the Zekreet Gasoline Process Plant (USD 1 bn)
  • The Idde Shargi North Dome Expansion Project (USD 500mn) was delayed as Qatar Petroleum decided to take over the management and operation of the Idd El-Shargi North Dome (ISND) offshore oil field from Occidental Petroleum (OXY)

Kuwait: Kuwait projects market was the slowest in GCC with project spends of only c. USD 1.2bn which were 13% of the expected project spends of c. USD 8.6bn. Major project awards in 2018 included Ministry of Public Works – Network & Water Treatment Tanks for D1 (USD 250mn) and KOC – Desalter Train at GC 09, GC 10, GC 19 & GC 21 (USD 200mn). The main reasons for the extremely low project spends in Kuwait in 2018 included:

  • Delay in completion of major projects valued at c. USD 30bn including the Clean Fuels Project (CFP) and New Refinery Project (NRP). These projects were awarded in 2014-15 and have faced major delays in meeting their completion deadlines leading Kuwait to focus most of its resources on completing these projects rather than awarding new projects
  • Major project delays in Kuwait in 2018 included KOC – Jurassic Gas Facility Development (USD 3.6bn), KNPC – Al Matlaa Dept Project (USD 1.4bn) and KOC – Gathering Center 14 Upgrade (USD 1.2bn)

Oman: Oman’s project market witnessed a relatively stable year in 2018 with project spends of approx. USD 2.4bn as against expected project spends of USD 3.6bn. Major project awards in 2018 included PAEW – Water Transmission System from Sohar to Al Dhahirah (USD 415mn), Marafiq – Duqm Power & Desalination Plant (USD 350mn) and OTTCO – Ras Al Markaz Crude Storage Terminal Phase I (USD 320mn). Liquidity remains a key concern for Oman and consequently some major projects faced delays in 2018 including OOC – Sohar PTA & PET Plant (USD 500mn) and PAEW – Water Transmission Pipeline from Sohar to Muscat (USD 250mn)

Bahrain: Post award of its mega refinery project in late 2017, Bahrain only had USD 2.4bn worth of projects planned for award in 2018. Out of this planned expenditure, Bahrain’s actual project spends for 2018 were USD 1.8bn (c. 75% of the planned project spends). Major project awards in 2018 included EWA – Al Dur IWPP Phase II (USD 1.3bn) and EWA – 400 KV Cable Works for Ras Legrain Substation (USD 250mn). Just like Oman, raising finance remains a key problem for Bahrain and consequently it was forced to delays some projects in 2018 which included EWA – 100 MW Solar Plant IPP (USD 200mn) and Tatweer – Phase 5 Compression Project (USD 100mn)

With 2018 ending on a very timid note, the market expects a significant uptick in project spends in 2019. While about USD 5-7bn of the spends would be a rollover from 2018, we expect another USD 55bn worth of projects to be awarded in 2019, a majority of which will be in Saudi Arabia, UAE and Qatar. The offshore sector will be a key focus in both Saudi Arabia and Qatar, while UAE’s spends are majorly focused on its gas developments.

For more information on how to consolidate your position and take advantage of a slowing energy market, contact Ann-Marie Carbery at This email address is being protected from spambots. You need JavaScript enabled to view it.

-Vineet Israni, Senior Consultant
Contax Partners

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