Annette Fernandes, Director at Fifth Ring in Dubai, attended a British Business Group hosted event in early February presented by Ed James, head of MEED Insight. The event evaluated current trends and sought to identify areas of interest within the immediate future for UK energy companies based in Dubai and the Northern Emirates.

The presentation revealed that the sector has largely been unaffected by regional political turmoil with both size and number of large-scale projects having surged in recent years.

Investment within the sector remains strong with nothing to suggest that this will change in the near future. Saudi Arabia, the UAE and Kuwait continue to lead the way within the GCC and new players like Iraq and Kurdistan are also establishing a significant presence in the region.

All the leading international EPC contractors are active, with Western and Japanese contractors traditionally the market leaders. Clients are mostly blue chip and dominated by NOCs.

Aggressive bidding has seen Korean contractors become the dominant force since 2009 and lump-sum turnkey contracts are the favoured procurement model, with the risk heavily on the contractors. However there is a growing degree of local capability on the subcontractor and supply levels.

The GCC hydrocarbons sector has been through an exceptional period with new contract awards reaching a record high in 2009, but falling back to the recent historical average in 2010; 2011 looked to be performing marginally better than 2010, but fell away in quarter four.

With the exception of 2009 and 2010, Saudi Arabia has been the biggest market for major hydrocarbon awards in the GCC; it has propped up the overall value of awards in the region in 2011, accounting for 57% of all hydrocarbons awards.

Oil and gas production projects have been the largest segment of the hydrocarbons market, followed by processing and petrochemicals. Gas production accounts for $38bn of the overall total. UAE represents 44% of production, 21% of processing, 41% of Transmission 28% of Petrochemicals.

Hydrocarbons projects made up the largest segment of the GCC projects market (by contract value) from 2000 to 2005 when it was superseded by civil construction. After the onset of the financial crisis in 2008, Hydrocarbons again became the biggest sector. Bar 2008, it has been consistently the largest sector or second largest (behind Construction) every year since 2000.

The value of projects due to be awarded between now and end 2012 for the GCC Hydrocarbons sector demonstrates that there will be a steady flow of contracts over the next 11 months. There are 58 projects in the GCC each with a value of over $1bn, due to be awarded between now and the end of 2013 (27 in 2012, 29 in 2013).

Priorities going forward

• Expanding gas production to meet increased demand from the industrial, oil and power sectors with the focus being on more difficult gas plays
• Increasing refining capacity to meet domestic demand as well as more stringent international product specifications
• Raising oil capacity in Abu Dhabi, Oman and Kuwait, while maintaining it at current levels in Saudi Arabia and Qatar
• Increasing petrochemical capacity through refinery conversions and speciality chemical production
• Developing local engineering and contracting capabilities especially in Saudi Arabia and Oman

In Summary

• New project activity is set to recover in 2012 after the decline in 2011
• Areas of highest activity are expected to be offshore, refining and gas processing, with Kuwait and Saudi Arabia potentially the biggest markets
• Growing pressure on EPC contractors to go ‘local’
• Koreans will remain a major force as they seek to maintain market share
• The more multi-disciplined EPC contractors will look to offset the decline in GCC energy projects by targeting the regional power sector
• Developments in Iraq could well impact the regional EPC market from 2013 onwards