Contractors concerned by bleak outlook for Kuwait energy sector tenders
Several key oil and gas tenders are experiencing lengthy delays
Contractors seeking work in Kuwait’s oil and gas sector are becoming increasingly anxious about the delays to key projects, according to industry sources.
“All of the projects in the tendering pipeline are seeing very slow progress at the moment,” said one industry source.
“So far, this year has been a poor one for the tendering of contracts in the oil and gas sector, and the outlook for the third and fourth quarter is not good.”
The biggest project not yet tendered and seeing slow progress this year is the Kuwait Integrated Petrochemical Industries Company (Kipic) $10bn petrochemicals complex, which is slated to be integrated with the Al-Zour refinery.
The $16bn Al-Zour refinery is under execution and is expected to come online in June 2021.
“We are seeing extremely slow progress on the Kipic petrochemicals complex,” said one source.
The list of prequalified companies that will be eligible to bid for the project’s main packages is yet to be released.
Delays to the list being released have been blamed on recent changes to the project scope.
Other smaller projects are also seeing major delays, usually attributed to restructuring within Kuwait’s oil and gas sector.
In April, MEED revealed that leadership teams within Kuwait’s Oil Ministry were discussing a plan that would merge many of the state-controlled companies in the oil, gas and petrochemicals sector.
Additionally, Kuwait recently introduced a new system whereby tenders and prequalified bidders are announced one month before the official invitation to bid.
“The system was designed to give contractors a chance to appeal and ask to be included on the prequalified list if they have been omitted,” said one source.
“However, it seems like the new system is having some teething problems – and its introduction has coincided with delays to a wide range of projects.”
Booster station delays
Projects that have seen delays prior to tendering this year include a contract to upgrade the booster stations known as BS-140 and BS-150.
The Kuwait Oil Company (KOC) contract is estimated to be worth $300m.
In April this year, Kuwait’s Central Agency for Public Tenders (CAPT) announced that it would tender the contract within 30 days, but the invitation to bid is yet to be issued.
Another contract that has seen significant delays is the project to upgrade BS-160.
The invitation to bid for this project, which is estimated to be worth $270m, was originally expected to be issued in June this year.
Three months later, it has not been approved by KOC’s internal procurement committee and it now seems unlikely that it will be tendered before the end of the year.
Production targets threatened
This flurry of delays to contracts prior to tendering is causing anxiety among companies that are looking to win contracts in Kuwait and has also sparked concerns that the country may not be able to hit production targets over coming years.
“If these key projects don’t start moving, we could see significant consequences,” said one industry source.
“The true impact is only likely to be felt in three to five years when the projects are not coming online as planned.”
Kuwait has already seen a decline in oil, gas and chemical project contract awards over the past three years.
In 2017, there were $252.2bn-worth of contract awards in the sector.
In 2018, this figure declined 21 per cent to $198.4bn and the outlook for 2019 is lower still.
In the first half of 2019, just $67.5bn-worth of contracts were awarded in the sector, about half the value of contracts awarded in the first six months of 2017.
Some industry insiders believe the value of contracts awarded could fall further in 2020 due to the slowdown in contracts tendered over 2019.
The outlook for invitations to bid on oil and gas project contracts in the third and fourth quarter of the year is poor, according to industry sources.
“As things stand, I don’t see any significant contracts being tendered for the rest of the year,” said one source.
Some contractors hope that a change in global market conditions, such as rising crude prices, could spur activity in the sector.
“While the outlook looks very slow for the rest of 2019, there is potential for things to start moving next year and the first quarter of 2020 could be a good one,” said one source.
Whether or not the frequent delays to tendering will be ironed out over the rest of the year could depend on the progress made on planned reforms within Kuwait’s oil and gas sector.
If the reforms require significant resources over a long period of time, or cause significant disruption to normal processes, this could have a negative effect on tendering procedures over the medium to long term.