The large number of projects in the pipeline augurs well for the segment

The engineering, procurement and construction (EPC) segment in Abu Dhabi is dominated by oil and gas. The largest EPC project currently under way in the emirate is the development of the offshore Upper Zakum oilfield, which was awarded to Petrofac Emirates – a joint venture between Petrofac and Abu Dhabi government investment firm Mubadala Development Company – and its partner, Daewoo Shipbuilding and Marine Engineering, for $3.8bn in April 2013. The project covers EPC, transportation and commissioning of surface facilities on four artificial islands being built at the fields, due to begin operating in 2016.

The most recent major EPC deal was a $2.25bn contract awarded in December 2014 to the Italian firm Tecnimont by Abu Dhabi Company for Onshore Oil Operations for the third phase of surface facilities at the Al Dabb’iya onshore oilfield. Al Dabb’iya is part of the larger Bab field, which is the biggest onshore field in the emirate by surface area.

Opportunities

The emirate is approaching the end of a major oil and gas EPC cycle, with many new projects focused on sustaining current production rather than expanding it, with the next major wave of big projects expected to start in 2016. However, Horizon Energy’s CEO, Mahra Rashed Al Suwaidi, told OBG the medium-term pipeline for oil and gas projects looks very promising. “The outlook for the oil industry is better than the sector previously expected, as production in coming years is set to surpass past estimates. Opportunities abound in offshore developments in particular, as well as for projects requiring new technologies, such as sour gas fields.”

Other Sectors

Despite the dominance of energy, infrastructure developments will also provide significant EPC contract opportunities in coming years, especially in Al Gharbia. “Abu Dhabi is currently one of the best places in the world for engineering and construction work, as there are an enormous number of projects in the pipeline in line with Abu Dhabi Economic Vision 2030,” Elias Sayah, the president and founder of Sayah Engineering Middle East, told OBG. “In terms of infrastructure, Al Gharbia will be a major driver of growth, with projects including sewerage systems, electricity distribution and roads.”

The petrochemicals sector is another potential source of opportunities. In December 2013 Abu Dhabi National Chemicals Company (ChemaWEyaat) – a chemicals firm created in 2008 by Abu Dhabi National Oil Company, Abu Dhabi Investment Council and the state-owned energy investment vehicle International Petroleum Investment Company – announced that it had signed a deal for the construction of the first plant under the Madeenat ChemaWEyaat project to create a 70-sq-km chemicals city near Ruwais. However, the scheme has faced significant delays.

Challenges

Some of the main challenges in the emirate’s EPC segment mirror those in the construction sector as a whole. These include the fact that the tenders are decided largely on price, with little focus on added value or the inherent risks of low-priced work; that hiring skilled workers and engineers in particular is increasingly a challenge; and that the project pipeline is cyclical rather than smooth, despite being largely managed by the government.

In terms of employment, firms say that filling some technical positions – especially in areas such as offshore structural engineering, project and process management, and process safety – is difficult and increasingly expensive, largely as a result of strong international demand for experts in these fields.

Competition on price is also intense. Figures in the EPC industry told OBG that firms are sometimes awarded contracts based on what they say are unrealistically low bid prices, complaining in particular that several Korean firms had won projects with such low bids in recent years. It is argued that this reflects the tendering process’s heavy focus on price to the exclusion of factors such as feasibility or a company’s experience and expertise. As a result, some firms have called for stricter pre-qualification requirements.