Leading cable companies reveal the trends expected to shape O&G demand in 2013 and beyond
The global financial meltdown and subsequent economic slowdown over the past few years has prompted some valid concerns over the short-term viability of the cable industry in the Middle East region.
But a lean few years could be giving way to tangible spread of confidence in the market once more, as projects that had been stalled or shelved begin to roll-out.
Make no mistake, the plethora of large-scale upstream oil and gas projects represent a massive opportunity for cable manufacturers. The sheer demand for power to offshore production facilities since 2000 was the key reason for the rise in cable consumption in the last decade, and remains a multi-million dollar sector.
However, a tightening in investment, rising commodity prices, and an increased number of firms vying for the same contracts means it is a more competitive sector than ever before. Standing out from a packed market is the key to future success and survival.
Something that Mike Smith, vice-president sales at MacLean manufacturing group (including Noskab) explained: “Not content in only trying to supply what is being requested, Noskab are continually offering the best solution – whether technically or commercially – by being aware of new developments in cable technology, which sometimes bring distinct advantages over some traditional cables.
A good example of this was the introduction of a more flexible marine cable, which improves on time and installation in areas of oil and gas offshore facilities.
Cables quite often are one of the last products to be ordered within a project and Noskab with their vast capabilities to source around the world can not only offer key quality cables but also with reduced lead times,” he said.
Sherif Maher, UAE general manager of Elsewedy Cables highlights a general upturn in demand in the region, with around $50 million of business in 2012 allied to the upstream energy industry, and a notable increase from the sector compared to 2011.
Elsewedy clients include numerous electricity authorities such as ADWEA, SEWA, DEWA and FEWA as well as oil & gas companies such as ADNOC companies, Adco, Zadco, Gasco, Takrir, Adma and Opco.
However, for the UAE market, trading sales have been ‘dramatically decreased in 2012’ due to the lack of demand and the project status. Turnover for trading activities in 2012 decreased by 55% at $30 million against $65 million in 2011.
Despite struggles this year, the company claims to have an annual growth rate in the region of 18%, and still identifies the UAE as a leading market. “The UAE is leading our cargo in terms of availability, transit time and prices.
Yes, we expect a slight increase in the UAE market and our vision might change upon the award of Expo 2012, while we are expecting a huge increase in the Saudi Arabian market in the coming years,” said Maher.
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Not all firms experienced such a decline in sales. Earlier this year, the UAE-based cable manufacturer Ducab announced it had recorded sales of $1.33 billion for 2011, representing a 39% increase over the previous year.
Significant growth areas included 25% in the utilities sector and a huge 250% increase in sales to the oil and gas and petrochemical sector. Ducab’s cable sales were almost $820 million for 2011.
“There was a lower level of market demand in 2012, but through our marketing we have taken a larger market share. A lot of projects that we assumed would be in this year didn’t come through, the Etihad rail project, the award of the new road between Abu Dhabi and Dubai,” said Colin McKay, Ducab’s general manager for sales and marketing.
“We have also seen a marked slowdown in oil and gas work, but we are offsetting that by taking a more proactive approach in Korea, we are spending a lot more time in Seoul with oil and gas contractors.”
Ducab manufactures lead sheathed and special instrumentation cables for the oil and gas industries. Lead sheathed cables are designed to facilitate land-based activities in the oil, gas, petroleum and chemical industries where the spillage or seepage of corrosive liquids and vapours pose a threat to circuit integrity.
Such a unique physical environment forces firms to evolve their product-base in an attempt to keep ahead of the game. Smith explained that Noskab has assisted in the development of lighter weight cables, which is a constant requirement when the need to lift heavier modules onto offshore platforms and drilling rigs.
‘Without compromising on safety and performance, the lighter weight materials have given savings of 30% and upwards, many developments have come from our knowledge of cable technologies not associated with the petrochemical and marine industries, but brought together to offer best solutions,’ he said.
Evolving technology to keep up with other firms is not the only challenge. “A lack of demand and increase of supply, an increase of raw materials prices, and the fierce competition,” said Maher. Meanwhile, Smith agrees.
“Low cost, inferior products and the lack of continuity are our most challenging aspects that we have to address on a daily basis.
Operating companies are always under pressure to identify where they can reduce costs but there is a fine line between offering ‘fit for purpose’ and the longevity of quality cable. ‘If a cable is found to be 20% or less than the average, then it is more than likely to be using inferior materials, what you pay for is what you get.”
As previously mentioned, raw material costs in the cabling sector are a fundamental factor in the sector, with base metal costs subject to global market trends. As Smith adds, this must be considered in any work, but is the nature of the cable industry.
“The raw material costs associated with cable manufacture is a constant issue, having to rely on copper, steel and many other associated materials to complete any cable is a pressure we all have to suffer,.However at Noskab we never compromise on quality by saving costs on materials.”
“Unsurprisingly, there are negative repercussions of such large, sometimes fluctuating costs. Sadly this (compromising on quality) has become a common alternative by the supply chain, but that ends up with failures, inferior composition, poor electrical and data performance, in such important facilities where safety and performance is critical. Substituting costs over quality is not a consideration.”
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Smith added that all specifications are thoroughly read to ensure that the correct standards have been applied and that before any order is committed to manufacture, cable data sheets are endorsed by the buyer to avoid any discrepancies when the cable is delivered.
Quality is the most important factor of any cable supply – incorrect or inferior manufacture can be the cause of project delays and unnecessary additional costs, all too often the first cost is not necessarily the last.
Moreover, as the Arab Spring clearly demonstrated, there is the daily threat of political and social upheaval, which all companies must be acutely aware of operating in the region. So whilst there are a multitude of opportunities, the benefits must not outweigh the risk.
Smith agreed, and said “The Maclean Group see the region as a whole of great potential, with emerging markets such as rebuilding Iraq, new opportunities in Oman, Qatar and the UAE currently dominating our attention. Providing the security issues throughout the region become more stable, there are many countries where new developments will take our attention.”
Thankfully, this threat of unrest has not prevented the industry from moving forward. Upstream projects are being given the green light and throughout the region, contracts are being awarded for a host of major oil & gas schemes.
In September, EMAS AMC, the subsea division of EMAS, a provider of integrated offshore solutions to the oil and gas industry, was awarded a contracts by ABB, for the installation of subsea power cables. The award forms part of ABB’s second contract with Statoil, to supply subsea HVDC Light transmission systems to the Troll A platform in the North Sea.
The Troll A concrete deepwater structure is the world’s largest natural gas productionplatform at 473 meters tall and weighing 1.2 million tonnes. It is also the tallest structure ever to be moved by mankind. The platform can produce as much as 120 million cubic meters of natural gas per day and contains approximately 40 percent of the natural gas reserves on the Norwegian Continental Shelf.
The scope of work for EMAS AMC is to install one HVAC subsea cable and two circuits of HVDC subsea cables from Troll A to the land station, Kollsnes. The platform has received power from shore since 2005.
The increase in power provided by the new cables will provide power to run two compressor drive systems, which will improve production capacity and extend theplatform lifespan.
There are also reports that Saudi Aramco will invite firms to bid on its Maintain Potential Programme (MPP), which has been delayed for some months. The MPP covers maintenance schedules for all of Aramco’s offshore facilities and the contracts is currently held by Worley Parsons, and has done so for the last nine years.
The work included 40 new platforms, 85 platform upgrades and 100 km of submarine cables.
Moreover, in early December, the Jeddah-based Bahra Cables signed a $106.6 million contract for the supply of low and medium voltage cables to SEC.
There is no doubt that since 2008 the region has faced some of its toughest years from a financial, investment perspective, with capital and confidence drying up completely. But there are quantitative and qualitative signs of recovery. For those firms that are still operating in the region, there will be opportunities.
“Our physical presence in the region has brought increased success, people buy from people after all, the client confidence increases through being available to discuss requirements face to face.
The energy sectors that the Maclean Group focus on have seen phenomenal growth over the past 10 years and every indication is that this will continue to be one of the regions of the world that investments will just continue to flourish.”
