Adding projects: Rising investment levels carry the industry forward

A surge in planned spending on energy projects in Gulf nations has characterised 2012, and Abu Dhabi has been no exception to the trend. While precise estimates vary, there is a consensus among industry observers that the value of the engineering, procurement and construction (EPC) contracts in the emirate’s oil and gas sector is set to see a huge increase in 2012 over 2011 levels.

According to data from Middle East Economic Digest (MEED), in 2011 $2.7bn worth of EPC contracts were signed in Abu Dhabi. This figure is projected to swell to $8.4bn over the course of 2012. Even among the major developments in the emirate’s neighbouring energy-giant countries, Abu Dhabi ranks high. According to Contax Partners, an oil and gas consultancy, the UAE is expected to see the Middle East’s second-highest levels of spending on energy projects in 2012, after Saudi Arabia. Abu Dhabi Gas Industries estimates that total actual and planned spending in the UAE in 2010-14 stands at $40bn, putting the nation first among all Gulf Arab nations in terms of spend. Abu Dhabi is the recipient of nearly two-thirds of this total sum.

Caveats do exist for this bullish outlook. It is possible that announced projects will not be awarded on schedule. In 2011 only around $75bn of projects in the GCC originally amounting to $173.5bn were awarded, Contax said. It is also worth noting that even if the full $8.4bn in projects planned for Abu Dhabi are handed out according to schedule, this value remains significantly lower than of the staggering $30.2bn reached in 2009 and $13bn seen in 2010. Some contractors also hold a more restrained outlook for the sector in 2012.

OFFSHORE UPSTREAM: The bulk of the work to be awarded in 2012 will be for offshore developments. The National Petroleum Construction Company (NPCC) announced in May 2012 that roughly $7bn of offshore work would be awarded before end-2012, mostly derived from large-scale expansion projects being tendered by the Zakum Development Company (ZADCO) and the Abu Dhabi Marine Operating Company (ADMA-OPCO), the two major offshore operators near the country.

One of the biggest sources of EPC work in the next few years will be ZADCO’s expansion project on the Upper Zakum field, which seeks to raise recovery rates at the field to 70%, boosting production from 550,000 barrels per day (bpd) to 750,000 bpd by 2015. While construction work on the artificial islands at the Zakum complex has been in progress since 2010, there is much left for completion. Of the 13 projects to be awarded by ZADCO in 2012 and 2013, seven are associated with the Zakum developments. The Upper Zakum project will be developed under two separate contracts, EPC-1 and EPC-2. In July 2012 NPCC and France-based oil services company Tecnip won the EPC-1 contract for around $800m. This phase of the project focuses on the construction of platforms, flare towers and connecting pipelines to onshore facilities. The two companies will also be bidding for the much higher-valued EPC-2, estimated to be worth $4.2bn, to be awarded later in 2012.

About 20 km west of the Zakum field is Zirku Island, which is the major industrial centre for processing, storing and exporting the oil produced at Upper Zakum, Satah and Umm Al Dalkh. Already a site for expansion associated with the Satah full field development, the island will see more activity over the coming years, with ZADCO expected to award two EPC contracts for construction at Zirku by the second quarter of 2013. One is for the construction of a crude oil storage tank, the second for a water treatment plant, although at time of press values for the projects had yet to be released.

In early 2012 the other main offshore operator, ADMA-OPCO, issued tenders for projects on the full field developments at the Umm Al Lulu and Satah Al Rasboot fields. Valued at $1.55bn, according to MEED, two EPC packages have been tendered and should be awarded by end-2012. They consist of work on wellheads, pipelines and processing facilities for the Umm Lulu field. Two more contracts are to be awarded for pipelines, flares, bridges and infrastructure at Satah Al Rasboot.

ONSHORE: While most of the activity in 2012 is planned for the offshore segment, a number of new packages are emerging in the onshore downstream subsector. As part of a $10bn expansion project for the Ruwais refinery, Takreer, the state-owned refining company and Abu Dhabi National Oil Company (ADNOC) subsidiary, selected Korea’s Samsung Engineering to undertake the project. Samsung netted the $2.5bn contract in June 2012 for the construction of a carbon black and delayed coker unit at the Ruwais facility, due for completion by 2015. Samsung has been highly active in the oil sector over the last five years, and the recent award follows the firm’s successful $2.7bn bid for the utilities and offsite package tendered by Takreer in 2009.

EMISSIONS PROJECTS: A second Takreer EPC package, for flare-gas recovery, is intended to address two issues: it will redeploy gas that is flared without economic gain and, in doing so, reduce Takreer’s carbon emissions. According to MEED, a wide range of technical bids were submitted in May 2012. As Abu Dhabi pushes to reduce its emissions, the world’s leading EPC contractors will be keeping a close eye on two of the emirate’s reduction projects. One project spearheaded by the Abu Dhabi Gas Liquefaction Company is designed to reduce the carbon dioxide and sulphur dioxide emitted from the Ruwais plant. While full construction packages have yet to be tendered, in April 2012 AMEC, a British engineering and project management firm, was awarded a contract for the front-end engineering design phase of the project, which is expected to last 10 months. The second project grabbing attention was initiated by ADMA-OPCO at the offshore oil and gas facilities on Das Island. Valued at around $50m, the project has attracted EPC bids from two international players, Greece’s Consolidated Contractors Company and France’s Tecnip, as well as the UAE-based Adyard. An award is expected by the end of 2012.

ENHANCED OIL RECOVERY (EOR): The push for emissions reduction projects in Abu Dhabi is manifesting in other ways, through the growing carbon capture and storage (CCS) industry. Masdar, the government-backed renewable energy company, issued a tender in 2012 for a CCS compression facility and pipeline between Mussafah and Rumaitha. The project is promising, given that it will help meet emissions goals, and the captured and re-injected carbon will boost crude oil output. However, despite the contract’s progress, hydrocarbons firms remain concerned about high start-up and operating costs for CCS technology (see analysis).

“The future success of the emirate’s oil and gas industry relies on embracing new technologies that aim to extract more out of mature reserves,” José Pereira, the Middle East representative for Partex Oil and Gas, told OBG. “At present, target recovery factors in the sector is between 40% and 45%; higher recovery factors can be achieved, but at a price.” As of early 2012, five firms had submitted proposals for management consultancy of projects, though there had not yet been any EPC tenders. With the government backing EOR development, firms will find Abu Dhabi ready to welcome them.