Does the GCC energy market still represent the land of growth that it once did? Contax Partners might have the answer.
For many years, Contax Partners has been tracking year on year energy project CAPEX award in the GCC, and observing trends of increasing project CAPEX award from the early 2000’s up to 2009.
Between 2009 and 2012, as described in the previous CAPEX article, there has been a downward trend in GCC energy project award from US$92.6bn in 2009 to US$69.8bn in 2012 (Figure 1). Considering both energy and non-energy project CAPEX award, 2009 reveals US$155.1bn worth of award compared to US$126.2bn in 2012.
Here, we look at the impact that decreasing CAPEX spend year on year has had on project workload, and discuss whether the GCC market continues to represent a land of abundant opportunities for new contractors looking for new geographies to pursue projects in.
In 2008, as a result of rising project CAPEX award in the earlier years, energy project workload in the GCC reached a peak (Figure 2). The peak in workload was characterised by soaring project costs, schedule delays, lack of availability of labour and key commodities, and many contractors were stretched in terms of capacity. From the peak in early 2008, workload declined in the latter half of 2008 and during 2009.
As a result of the heightened project CAPEX award in 2009, workload started to increase again early in 2010, and gradually rose during 2011 and 2012 to reach another peak in 2012. Unlike the peak in 2008, this peak currently being experienced is more in line with the market’s capacity, and resources are more geared up in preparation for the workload of today.
In fact, since the competition in the energy contractor community is rife with the influx of contractors from the Far East and the cost advantage they bring compared to Western contractors, the market could probably absorb the award of even more projects based on current capacity.
As such, the current situation poses the question, ‘how is project workload likely to play out in the coming years, and will there be enough work to go around?’
Looking at the possible scenarios in 2013 and beyond, Contax Partners divided the outlook into three scenarios. The first is that all tier 1 projects (equating to around US$100 bn of project award in 2013) would be awarded. If this happens, workload would be on a downward trajectory during 2013 and 2014 (as shown by the red colour in Figure 2).
The second is that tier 2 projects could also be awarded as planned (equating to closer to US$170 bn of project award in 2013 being realised). If this happens, then workload would be on a huge upward trajectory, reaching heights of around 70% higher than the workload witnessed in 2008.
This scenario is highly unlikely, as is the scenario whereby all currently planned projects would proceed, resulting in a workload peak of more than double that witnessed in 2008.
The most likely scenario to happen is that a high proportion of tier 1 projects would take place and a few tier 2 projects may also proceed, resulting in a workload scenario similar to that shown by the red bars in Figure 2.
As such, workload is likely to stabilise around current levels for the duration of 2013 and 2014, thus indicating that there will be enough work to go around in the GCC for the coming years, but raising the question, ‘is there still room for new players to enter and compete in the GCC energy space’?
In order to assess if there is still room for more players to enter and compete in the GCC energy space, we considered the country and sector priorities that are likely to come up over the coming 2-3 years.
As discussed in the first article, momentum in Saudi Arabia and the UAE continues to be strong, and thus these markets still represent strong opportunities, but more so for existing players rather than new entrants.
One exception to this is where niche sectors develop in Saudi Arabia and the UAE, and thus require an influx of a specialist skill set. One example of this could be in the solar industry, where significant investment is expected in Saudi Arabia and the UAE during 2013 to 2015, thus opening these countries to new entrants.
Meanwhile, in Qatar, energy project related workload has declined in previous years since the huge LNG activity that has been observed in the past. Now, energy project activity is expected to be driven mainly by petrochemical plans during 2013 to 2015, which will represent an opportunity for the existing petrochemical players in the region, but less so for new entrants.
In Bahrain, project activity is also expected to continue at the low momentum that has been seen in the past, with the exception of the large Bapco Modernization Program in which Solicitation of Interest has gone out for PMC Services and a FEED Study, and which will represent an opportunity for contractors in the region to expand into Bahrain.
In Oman, energy project workload is likely to be boosted by the upcoming Duqm refinery project and the BP Khazzan & Makarem gas field development project. In general, activity in Oman will represent significant opportunity for contractors that have a robust reputation in Oman or the region, and for local Omani contractors, given the emphasis placed on local content here.
Finally, one country that does represent significant opportunity for existing players and potentially for new entrants into the market is Kuwait. Kuwait looks set to invest in numerous major projects including two large refinery related projects, a potential heavy oil field development project, some gas processing projects, potential petrochemical investment, and many power, water and infrastructure projects to support the energy related investments in the country during 2013 to 2015.
Contax Partners forecasts that energy project workload during 2013 to 2015 will continue at the current levels seen today, thus continuing to provide opportunity for contractors that are successfully operating in the region today. We observe that a high level of competition exists in the current GCC energy market, and that workload will remain at levels to keep the market in a competitive state. For new entrants eyeing the region, we see some specific areas of opportunity.
Namely, the projects that will develop in Kuwait as a result of the sheer volume of plans for a country that has had limited exposure to large amounts of project activity in the past, and projects in niche sectors that are being developed in the GCC, for example in the alternatives energy space.
Finally, since the GCC does not represent the huge land of opportunity that it once did for new players to enter the market, Contax Partners foresees that contractors looking for significant growth markets will be looking to some of the project development that will take place in Africa, particularly in countries like Mozambique, Tanzania, South Sudan and others, in the same way that Contax Partners is also taking an active interest in these countries which also represent growth potential for our business.
About the author
Ann-Marie Carbery Antoun is the director of business advisory at Contax Partners. To further discuss how the Business Advisory Team can help you understand the project landscape, the potential realisation rates and likelihood to proceed tiers for your projects, the full set of opportunities open to you and the best strategy/approach to ensure the opportunities are successfully secured, please contact Ann-Marie Carbery Antoun: Ann-Marie.Carbery@contaxpartners.com.
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Land of Growth
Does the GCC still represent the land of growth that it once did?
Does the GCC energy market still represent the land of growth that it once did? Contax Partners might have the answer.
For many years, Contax Partners has been tracking year on year energy project CAPEX award in the GCC, and observing trends of increasing project CAPEX award from the early 2000’s up to 2009.
Between 2009 and 2012, as described in the previous CAPEX article, there has been a downward trend in GCC energy project award from US$92.6bn in 2009 to US$69.8bn in 2012 (Figure 1). Considering both energy and non-energy project CAPEX award, 2009 reveals US$155.1bn worth of award compared to US$126.2bn in 2012.
Here, we look at the impact that decreasing CAPEX spend year on year has had on project workload, and discuss whether the GCC market continues to represent a land of abundant opportunities for new contractors looking for new geographies to pursue projects in.
In 2008, as a result of rising project CAPEX award in the earlier years, energy project workload in the GCC reached a peak (Figure 2). The peak in workload was characterised by soaring project costs, schedule delays, lack of availability of labour and key commodities, and many contractors were stretched in terms of capacity. From the peak in early 2008, workload declined in the latter half of 2008 and during 2009.
As a result of the heightened project CAPEX award in 2009, workload started to increase again early in 2010, and gradually rose during 2011 and 2012 to reach another peak in 2012. Unlike the peak in 2008, this peak currently being experienced is more in line with the market’s capacity, and resources are more geared up in preparation for the workload of today.
In fact, since the competition in the energy contractor community is rife with the influx of contractors from the Far East and the cost advantage they bring compared to Western contractors, the market could probably absorb the award of even more projects based on current capacity.
As such, the current situation poses the question, ‘how is project workload likely to play out in the coming years, and will there be enough work to go around?’
Looking at the possible scenarios in 2013 and beyond, Contax Partners divided the outlook into three scenarios. The first is that all tier 1 projects (equating to around US$100 bn of project award in 2013) would be awarded. If this happens, workload would be on a downward trajectory during 2013 and 2014 (as shown by the red colour in Figure 2).
The second is that tier 2 projects could also be awarded as planned (equating to closer to US$170 bn of project award in 2013 being realised). If this happens, then workload would be on a huge upward trajectory, reaching heights of around 70% higher than the workload witnessed in 2008.
This scenario is highly unlikely, as is the scenario whereby all currently planned projects would proceed, resulting in a workload peak of more than double that witnessed in 2008.
The most likely scenario to happen is that a high proportion of tier 1 projects would take place and a few tier 2 projects may also proceed, resulting in a workload scenario similar to that shown by the red bars in Figure 2.
As such, workload is likely to stabilise around current levels for the duration of 2013 and 2014, thus indicating that there will be enough work to go around in the GCC for the coming years, but raising the question, ‘is there still room for new players to enter and compete in the GCC energy space’?
In order to assess if there is still room for more players to enter and compete in the GCC energy space, we considered the country and sector priorities that are likely to come up over the coming 2-3 years.
As discussed in the first article, momentum in Saudi Arabia and the UAE continues to be strong, and thus these markets still represent strong opportunities, but more so for existing players rather than new entrants.
One exception to this is where niche sectors develop in Saudi Arabia and the UAE, and thus require an influx of a specialist skill set. One example of this could be in the solar industry, where significant investment is expected in Saudi Arabia and the UAE during 2013 to 2015, thus opening these countries to new entrants.
Meanwhile, in Qatar, energy project related workload has declined in previous years since the huge LNG activity that has been observed in the past. Now, energy project activity is expected to be driven mainly by petrochemical plans during 2013 to 2015, which will represent an opportunity for the existing petrochemical players in the region, but less so for new entrants.
In Bahrain, project activity is also expected to continue at the low momentum that has been seen in the past, with the exception of the large Bapco Modernization Program in which Solicitation of Interest has gone out for PMC Services and a FEED Study, and which will represent an opportunity for contractors in the region to expand into Bahrain.
In Oman, energy project workload is likely to be boosted by the upcoming Duqm refinery project and the BP Khazzan & Makarem gas field development project. In general, activity in Oman will represent significant opportunity for contractors that have a robust reputation in Oman or the region, and for local Omani contractors, given the emphasis placed on local content here.
Finally, one country that does represent significant opportunity for existing players and potentially for new entrants into the market is Kuwait. Kuwait looks set to invest in numerous major projects including two large refinery related projects, a potential heavy oil field development project, some gas processing projects, potential petrochemical investment, and many power, water and infrastructure projects to support the energy related investments in the country during 2013 to 2015.
Contax Partners forecasts that energy project workload during 2013 to 2015 will continue at the current levels seen today, thus continuing to provide opportunity for contractors that are successfully operating in the region today. We observe that a high level of competition exists in the current GCC energy market, and that workload will remain at levels to keep the market in a competitive state. For new entrants eyeing the region, we see some specific areas of opportunity.
Namely, the projects that will develop in Kuwait as a result of the sheer volume of plans for a country that has had limited exposure to large amounts of project activity in the past, and projects in niche sectors that are being developed in the GCC, for example in the alternatives energy space.
Finally, since the GCC does not represent the huge land of opportunity that it once did for new players to enter the market, Contax Partners foresees that contractors looking for significant growth markets will be looking to some of the project development that will take place in Africa, particularly in countries like Mozambique, Tanzania, South Sudan and others, in the same way that Contax Partners is also taking an active interest in these countries which also represent growth potential for our business.
About the author
Ann-Marie Carbery Antoun is the director of business advisory at Contax Partners. To further discuss how the Business Advisory Team can help you understand the project landscape, the potential realisation rates and likelihood to proceed tiers for your projects, the full set of opportunities open to you and the best strategy/approach to ensure the opportunities are successfully secured, please contact Ann-Marie Carbery Antoun: Ann-Marie.Carbery@contaxpartners.com.
Staff Writer
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s, when an unknown printer took a galley of type and... More by Staff Writer
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