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Review: Top Ten Middle East CAPEX Facts In 2010
Contax Partners' digest of the 10 facts behind the trends of last year
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Fact Number 2: Dominant Forces: As in 2009, Saudi Arabia and the UAE led 2010s capital expenditure drive, awarding a combined total of $48bn worth of projects which represented 70% of the total award value. In addition, this year saw the UAE give up its 2009 top spot to Saudi Arabia ? which country will lead the 2011 project spend drive; will it be Saudi Arabia, the UAE or a newcomer?
Fact Number 3: Upstream vs Downstream: Awarded project Capex levels within the power and oil and gas production sectors together represented c.60% ($40.5bn) of the total award value in 2010. The power sector continued to retain its position as one of the top sectors on the leader board. However, in 2010, the Capex tap did not seem to trickle as far downstream as it did in 2009 when the refining sector saw a significant level of activity, but seemed to focus more on oil and gas production ? will the power sector make it a post economic recession hat trick in 2011? Will the hydrocarbon focus remain on the upstream or downstream sectors in 2011?
Fact Number 4: Good things in small packages: Small scale projects (those with an EPC contract value <$500m) continue to make up the majority of the project awards from a numbers perspective, with over 170 having been awarded in 2010, representing a 45% increase over the 2009 level. However, what has been interesting this year is the fact that although the number of large scale projects (those with an EPC contract value >$1bn) has remained the same as 2009, the value of the projects has decreased by c.50%, giving us a current average large scale project Capex value of c.$2500 ? has the mega-mega project era died, or are we expecting to see the sizes of projects return to 2009 levels in 2011?
Fact Number 5: Which year was normal? The GCC energy and energy related market saw a project Capex award realisation rate of 30% in 2010. This is just below the 2009 percentage, but in line with the 2008 rate and answers a question which Contax Partners has posed before ? is history repeating itself in 2010? I think we can safely say that it did in 2010 ? will we be faced with a similar scenario in 2011?
Fact Number 6: Premier Production: Claiming its second mention in the Top 10, the oil and gas production sector saw a project Capex award realisation rate of 45% which is 15% higher than the energy and energy related market average ? how will the oil and gas production sector fare in 2011? Which sectors will lead in the realisation rate rankings at the end of 2011?
Fact Number 7: Oman Opportunity? Despite Saudi Arabia and the UAE leading the pack from a Capex award perspective, Oman has achieved the highest project Capex realisation rate in 2010 ? 40%. Kuwait, despite making great strides this year in awarding $9bn worth of projects, which is 12.5% higher than the amount it awarded in 2008 and 2009 together, has seen the lowest realisation rate of 24% – will Kuwait be able to continue with its project award progress and if so, will we see an increase in its realisation rate in 2011?
Fact Number 8: $280 billion on the table: Looking forward, c.$280bn worth of projects are planned for award in 2011 with Saudi Arabia and Kuwait forecast to lead the investment drive with c.$121bn and $63bn worth of project Capex respectively planned for award ? given the industry average realisation rates above, will each of these countries be able to improve on their 2010 rates?
Fact Number 9: Is the market heading for stress again? On a realistic note, through the utilization of Contax Partners? ?likelihood of proceeding as planned? tiering methodology, Contax Partners forecasts that $78bn worth of projects have a higher than 70% likelihood of proceeding (Tier 1) in 2011. Should this occur, this level would be 13% higher than the 2010 level. If we also take into account the fact that all Tier 2 projects (those with a greater than 40% likelihood of proceeding) also go ahead as planned, Contax Partners forecasts that $135bn worth of Capex will be awarded. This level would be 95% higher than the 2010 level and 42% higher than the 2009 level ? what level will we find at the end of 2011? One that is higher than the 2009 level? If so, can the market really take this level of activity again?
Final Fact: Will KSA be king? Of the countries mentioned earlier that are expected to lead the investment drive next year, Saudi Arabia looks set to realistically fulfil a significant proportion of its plans, as it represents over 65% of the Contax Partners forecast Tier 1 Capex and 60% of the combined Tier 1 and 2 Capex. Kuwait, on the other hand, represents less than 2% of the Tier 1 Capex and 5% of the combined Tier 1 and 2 Capex ? will Saudi Arabia follow through with these plans and help to drive up the realisation rates in the region? Or will Kuwait surprise us all?