The UAE and KSA expected to dominate energy project spending with a combined forecast of US$542 billion by 2013, write Kathleen Bury and Nora Ismagilova of Contax Partners.
To many the GCC energy project market has become somewhat synonymous with the word ‘opportunity’. As oil prices began to rise and exceed previous pricing levels, GCC government liquidity and spending began to soar and ambitious development and diversification plans were formulated. Following in Qatar’s footsteps, the past few years has seen the UAE and Saudi Arabia invest considerable amounts of capital in developing their upstream, midstream and downstream energy and energy related industries.
Between 2008 and Q3 2010, these two countries, led by the UAE, have dominated the GCC project landscape, awarding close to three quarters of the total value of projects within the region. This spending has been predominantly concentrated on the establishment and development of its hydrocarbon related sectors such as oil and gas, refining and petrochemical projects. Spending on power projects, however, also rose significantly as a result of increased population levels and industrial developments.
Looking to the future, it is evident that the UAE and Saudi Arabia will continue to dominate the project landscape and offer the greatest share of opportunities. The position and pace of development of these two countries, however, looks set to change with Saudi Arabia taking the lead. Based upon the announced projects to date, Saudi Arabia plans to award c.$250bn worth of projects between Q4 2010 and Q4 2013, accounting for c.40% of the total planned GCC Capex for the period.
The UAE, however, plans to award $116bn worth of projects, accounting for 20% of the total planned GCC Capex, signifying a slowdown in award activity post 2011. Kuwait, which over the past three quarters has awarded c.$6bn worth of projects, which is equivalent to 75% of that which it awarded in 2008 and 2009 (c.$8bn), follows closely behind the UAE, with plans to award c.$109bn worth of projects by Q4 2013.
It should be noted that these figures reflect the current and announced award plans and do not take into account project realisation rates, which in H1 2010 stood at 34%, and have not been adjusted to reflect Contax Partners’ ‘project likelihood’ tiering methodology. Given this, there is a somewhat medium to high likelihood that a significant proportion of these projects will not be awarded as planned but may slip into future years or be cancelled.
Despite this somewhat negative trend, over the past three quarters the GCC market continues to show positive signs with the announcement of over $165bn worth of projects due for award by Q4 2013. These new project announcements account for c.30% of the total planned Capex due for award between Q4 2010 and Q4 2013. Given the fact that Saudi Arabia’s growth strategy and plans seem to now be in full swing, it is probably not a surprise that it alone is responsible for the majority, 44%, of these new announcements.
Oman and Kuwait are next in line and are jointly responsible for 28.5% of the new project announcements, 15% and 13.5% respectively. Interestingly, however, the UAE only accounts for 11.5% of the new project announcements. This further supports the hypothesis that this market could see a potential slowdown post 2011 following its spending spree over the past few years.
As previously noted the prime focus for the region over the past decade has been on the establishment and development of its oil and gas, refining, petrochemical and power projects. From these recent project announcements, it is evident that the majority of the GCC countries continue to place strong emphasis on the development of these ‘traditional’ sectors. Kuwait and Bahrain, however, are now also looking to develop other areas of the energy market; namely the alternative energy market and are announcing their plans accordingly.
It is clear that over the next three years, the GCC energy project market continues to offer a wealth of opportunities for those involved across the entire value chain; investors, contractors and suppliers. In 2011, Saudi Arabia, the UAE and Kuwait will most likely offer the majority of the region’s future opportunities. Of these markets, however, Saudi Arabia and Kuwait are the only countries that have a healthy pipeline of planned award activity in place post 2011.
Having awarded a large amount of Capex over the past few years, it appears as though the UAE may experience a significant slowdown in its project award activity post 2011. Having access to trusted market intelligence, a robust understanding of each of the country’s project realisation rates and insight into the likelihood of your target projects proceeding, is crucial to ensuring the optimisation of business development resources and significantly heightens the chances of project acquisition. Are you focused on the right projects and markets?
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 at AnnMarie.Carbery@contaxpartners.com. We look forward to speaking with you!
