Hydrocarbon project activity contracts sharply
The value of active oil and petrochemical projects in the Middle East has exhibited a steep decline over the course of 2020, while gas project activity has modestly grown
Hydrocarbon-exporting majors in the Middle East have recorded their biggest decline in oil and gas project activity in five years amid the ongoing Covid-19 pandemic, according to data gathered by MEED Projects.
Collectively, the value of oil, gas and petrochemicals projects in the six GCC nations, as well as Algeria, Egypt and Iraq, declined by $45.7bn or 6.9 per cent between the end of 2019 and 15 September 2020.
The total value of active projects was $618.5bn on 15 September 2020, compared with $664.1bn at the end of 2019.
Overall, six of the countries in the analysis recorded contractions in the total value of their combined oil, gas and petrochemicals project markets over the 2020 time period while three recorded expansions.
Oil leads regional contraction
This decline in project activity has primarily been led by the oil sector, which has declined by $39.8bn, or the equivalent of 12.2 per cent, amid dramatically lower oil prices.
The total value of active oil projects within the nine countries stood at $285.7bn by 15 September 2020, compared with $325.5bn at the end of 2019.
The decline is an acceleration of the existing trend in the market in 2019, during which the total value of active oil projects across the nine countries declined by 3.3 per cent from $336.5bn to $325.5bn.
The total value of active petrochemicals projects also declined between the end of 2019 and 15 September 2020, dropping 3.2 per cent from $199.2bn to $205.5bn.
This decline was also an acceleration of an existing trend, with the total value of active petrochemicals projects across the nine countries included in this analysis falling by 2.7 per cent over the course of 2019 from $143.3bn to $139.5bn.
Gas projects market continues to expand
The gas projects market differed from the other two hydrocarbon sectors as it saw growth between the end of 2019 and 15 September 2020, though the rate of growth was slower than in 2019.
Between the end of 2019 and 15 September 2020, the total value of active gas projects across the nine countries rose by 3.2 per cent from $199.2bn to $205.5bn.
Between the end of 2018 and the end of 2019, the total value of active gas projects across the region grew by 14.3 per cent.
The continued growth in gas project activity comes as international oil companies shift their portfolios towards the production of natural gas due to its growing role as a relatively cleaner alternative to oil.
Natural gas as also looks to be potentially harder to replace in certain applications, such as in its role in producing feedstocks for a range of industrial chemical processes.
Kuwait in crisis
Out of the six countries that saw hydrocarbon project market contractions, the worst hit was Kuwait, which saw a decline of $24.5bn or 37 per cent.
At the end of 2019, the value of active oil, gas and petrochemicals projects stood at $66.8bn.
By 15 September, this figure had been reduced to $42.3bn.
Kuwait has struggled to maintain momentum within its oil and gas projects market during the Covid-19 pandemic and there has been widespread disruption to both projects under execution and projects still in the planning stages.
The hardest hit sector was oil projects, which declined by 48 per cent over the period from $47.4bn to $24.7bn.
The total value of gas projects within the country also saw a significant decline over the period, falling by 18 per cent from $9.5bn to $7.7bn.
As Kuwait’s existing megaprojects reach completion, projects that are in the study or tender phases are stalling, meaning that opportunities for EPC contractors to pick up work in the region have declined significantly.
Gas drives Egypt’s decline
The second-worst impacted country was Egypt, which saw a decline of $18.3bn, the equivalent of 20 per cent.
At the end of 2019, the total value of the country’s oil, gas and petrochemicals projects stood at $89.5bn. This figure had declined to $71.2bn on 15 September.
The hardest hit sector has been the gas sector, which has seen the value of total active projects decline by a third from $37.6bn to $25.2bn.
The value of oil projects declined by 7 per cent to $10.5bn and the value of chemical projects declined by 12 per cent to $5.1bn.
Egypt’s biggest-ever petrochemicals project, the $10.9bn Tahrir petrochemicals complex (TPC), is one of the projects that has been impacted by fallout from the Covid-19 pandemic.
In September, MEED revealed that the project was experiencing financing problems due to lower global petrochemical prices and uncertainty caused by the pandemic.
Egypt’s Tahrir petrochemicals complex slows
Iraq hit by pandemic and political unrest
Iraq recorded a 9 per cent decline with the total value of its active oil, gas and chemical projects falling from $132.1bn to $119.2bn between the end of 2019 and 15 September 2020.
The petrochemicals sector was the hardest hit in percentage terms, declining by 27 per cent over the period, from $11bn to $8bn.
The oil sector was the hardest hit in nominal terms. The total value of active oil projects declined by $8.9bn over the period, dropping from $99.1bn to $90.2bn.
Since the start of 2020, Iraq’s oil and gas projects market has suffered from political instability and increased violence as well as the negative impact of the Covid-19 pandemic.
Iraq’s gas sector is its smallest out of the three sectors in dollar value and was also the most robust out of the three sectors.
The total value of active gas projects declined by 4.4 per cent to $21bn between the end of 2019 and 15 September 2020.
Algeria’s oil project market declines
In Algeria, the total value of active oil, gas and chemical projects declined by 24 per cent from $38.7bn to $29.4bn over the 2020 time period.
The hardest hit sector was oil projects, which declined by 40 per cent.
Projects were impacted by the fallout from the Covid-19 pandemic across all of the three sectors.
This included projects that were currently under execution as well as projects that were yet to see contracts awarded.
In September, MEED revealed that Algeria’s planned $3.7bn Hassi Messaoud refinery, for which contracts were awarded in January, had been delayed due to the Covid-19 pandemic.
The project was delayed by four months and there is scope for further delays.
Algerian refinery project delayed by four months
Saudi project activity slows down
The total value of oil, gas and petrochemicals projects in Saudi Arabia declined by 7.7 per cent over the 2020 period, falling from $102.9bn to $95.1bn.
Saudi Arabia’s gas project activity declined by 12.3 per cent over the period, falling from $39.9bn to $35bn.
Oil activity was also hit hard, declining by 11.3 per cent to $36.4bn.
The slowdown in oil and gas activity in Saudi Arabia is likely to be more dramatic than the numbers suggest with several significant oil and gas projects recording major delays.
Saudi Aramco extended the bidding schedule for the Jafurah unconventional gas plant project.
It also postponed the prequalification process for the offshore Zuluf oil field development megaproject and delayed progress on the Marjan and Berri upstream megaprojects.
Overall, Saudi Aramco plans to boost production capacity by 550,000 barrels a day of Arabian crude oil and 2.5 billion standard cubic feet a day of gas from the Marjan and Berri offshore oil fields.
The most resilient sector in Saudi Arabia was the country’s petrochemicals project sector, which recorded a 7.4 per cent uptick in the total value of projects from $22.1bn to $23.7bn.
Saudi Aramco and Sabic are continuing to discuss how to move ahead with their planned expansion of capacity at Yanbu.
At the same time, significant progress is expected from Satorp’s planned $9bn petrochemicals plant and derivatives megaproject in Jubail.
The Aramco-Total joint venture (JV) is currently in the feed stage with the ‘Amiral’ petrochemicals project, which will be integrated with Satorp’s existing Jubail refinery.
Satorp has also been able to secure a number of investors for the $4bn-worth associated derivatives complex.
Oman’s hydrocarbon project market shrinks
In Oman, the country’s petrochemical and gas projects markets contracted while the oil projects market expanded during 2020.
The total value of active petrochemicals projects declined by 18.6 per cent to $25.3bn.
At the same time, the total value of gas projects declined by 12.1 per cent to $22.3bn.
The total value of oil projects expanded by 5.4 per cent to $30.3bn.
The $7bn Duqm Refinery project is one of the key oil projects in the country that is currently under execution.
It is expected to enter the commissioning phase in late 2021 or early 2022.
In the petrochemicals sector, the Omani-Kuwaiti joint venture Duqm Refinery & Petrochemicals Industries Company (DRPIC) has started prequalification for the $7bn Duqm petrochemicals project.
Active gas projects include the $1bn estimated $1bn Sohar liquefied natural gas (LNG) terminal project.
This project is being developed by Total and recently saw commercial bids submitted.
Separately, Ghazeer, the second phase of BP’s Khazzan gas development megaproject, is expected to come online later in 2020 with an output of 500 million cubic feet a day.
Oman strengthens its downstream potential
Qatar records surge in the value of its active hydrocarbon projects
Qatar recorded the biggest surge in the total value of its active oil, gas and chemical projects between the end of 2019 and 15 September 2020.
Despite the ongoing Covid-19 pandemic, the total value of active hydrocarbon projects rose by 48.5 per cent from $42.1bn to $62.5bn.
This is mainly down to a large expansion in gas project activity.
Over the 2020 time period, the value of the country’s active gas projects more than doubled, rising from $25.2bn to $51.1bn.
One of the key areas of expansion has been Qatargas’ plans for extra LNG processing trains in Ras Laffan Industrial City.
Extra details have come to light over 2020 that show the scale of the planned scheme for the construction of four mega LNG trains is much larger than previously thought, with the main package estimated to be worth $20.0bn, double what many first thought it would be worth.
Currently the megaproject to undertake the construction of the LNG trains is at the bid evaluation stage, after prices were submitted on 15 September.
How long it takes for this project to move into the execution phase remains to be seen.
Due to the enormous scale of the main package, many industry insiders believe the project will see extensive delays in the current uncertain environment.
Qatar’s gas projects market has also expanded due to the announcement of new gas projects, which are currently at the study stage.
These include the Qatargas North Field South development, which is estimated to be worth $12bn.
Over the 2020 time period, Qatar saw the total value of its much smaller, petrochemicals project market rise by 8.1 per cent to $6.1bn.
The total value of active oil projects declined by more than half, dropping from $11.4bn to $5.4bn.
North Field contracts to be signed before 2021
Oil and gas plans drive UAE growth
Like Qatar, the UAE saw strong growth in the total value of its active hydrocarbon projects over 2020, which was driven by expansion in the gas sector.
Between the end of 2019 and 15 September 2020, the total value of active gas projects expanded by 26.5 per cent to $32.2bn.
The expansion was driven by announcements of plans for major new gas projects including the Jebel Ali gas reservoir project, which is estimated to be worth $5bn.
Abu Dhabi National Oil Company (Adnoc) and Dubai Supply Authority (Dusup) are planning to undertake the development over an area of 5,000 square kilometres between Dubai and Abu Dhabi.
Officials say the scheme could generate 80 trillion cubic feet of gas once the development reaches full speed.
Another recently announced gas project is the $1.6bn Adnoc Gas Processing project to upgrade the sales gas pipeline network.
Over the same 2020 period, the total value of oil projects also saw strong expansion, rising 12.3 per cent to $72.8bn.
These expansions in the oil and gas project markets helped the UAE to record an expansion of 12.2 per cent in the total value of hydrocarbon projects across the three sectors.
The total value of active oil, gas and chemical projects in the country was $111.7bn as of 15 September 2020.
The UAE’s smaller petrochemicals project market was the only sector that recorded a decline.
It contracted by 27.8 per cent over the period – falling from $9.3bn to $6.7bn.
While the total value of active projects has moved higher, there have been some setbacks for major projects in the UAE over 2020.
This includes delays to bid submission for the $15bn Hail and Ghasha offshore sour gas field development megaproject.
The delays to projects come amid efforts by Adnoc to reduce capital expenditure.
New ammonia facility boosts Bahrain
Bahrain, the smallest hydrocarbon projects market included in this analysis, also recorded a 25.4 per cent overall expansion in the value of its projects during the 2020 time period.
The growth was driven by the country’s petrochemical projects market, which expanded from $0.5bn to $2.7bn over the period.
The jump in the value of active petrochemicals projects in Bahrain was due to Gulf Petrochemical Industries Company announcing plans for a $2.2bn project to expand its ammonia and urea facility in Sitra.
At the same time, the country’s gas projects market contracted from $1.1bn to $0.8bn and the value of the oil projects market remained relatively stable at around $5.7bn.
If an effective vaccine is found and distributed, it could lead to a surge in project activity across the Middle East
The future of the Middle East’s hydrocarbon projects market depends on a wide range of factors.
These include environmental pressures, trends in consumption, US relations with China and the ongoing Covid-19 pandemic.
Key among these is the impact of the Covid-19 pandemic.
The ongoing pandemic has heavily impacted project activity in the region in two main ways.
The first is by disrupting economic activity around the world and supressing demand for oil, gas and petrochemicals.
Lower demand for hydrocarbons and ongoing uncertainty about future demand has meant that investors have become increasingly wary of developing infrastructure in these sectors.
Additionally, many of the oil-producing countries included in this analysis are reliant on revenues from hydrocarbons to fund their projects.
If lower global demand continues to weigh on oil prices, it is likely that these countries will come under increasing budgetary pressure and will be less likely to pump funds into ambitious megaprojects.
The second way that the Covid-19 pandemic is going to impact the future of the Middle East hydrocarbon projects market is by causing disruption to the execution of projects.
Currently, many projects in the region are seeing delays due to measures and restrictions that have been implemented to try to contain the virus.
If an effective vaccine is found and distributed, it could lead to a surge in project activity across the Middle East.
However, if nations continue to struggle to contain the virus, project activity is likely to remain lacklustre.