meed-logo

line1 line2 line3
SIGN IN / REGISTER

Energy security facilitates upstream spending

1 March 2023

MEED's upstream oil & gas report also includes: Hydrocarbons exploration rebounds

 

Middle East and North Africa (Mena) oil and gas producers have stepped up to the challenge of meeting the world’s energy needs, especially since the outbreak of the Russia- Ukraine war in February 2022. Although state-owned and private energy producers alike are motivated by the profitability that high commodity prices bring, supply from the region is critical in addressing global energy security.

Regional hydrocarbons producers spent almost $19bn on upstream projects in 2022 as they sought to swiftly bring additional energy supplies online to offset the impact of the lack of Russian volumes on the global market, and particularly on Europe.

With the larger issue of an effective energy transition taking longer than projected, coupled with the prevailing supply shortage, Mena players have put in place major capital expenditure (capex) plans to boost their long-term oil and gas production potential.

The overall value of Mena oil and gas production projects in various pre-execution stages is more than $125bn, according to regional projects tracker MEED Projects.

Robust upstream spending

Qatar dominated spending on upstream projects for the second year in a row in 2022, accounting for more than a third of the $18.9bn of engineering, procurement and construction (EPC) contract awards in the Mena region.

With the goal of consolidating its position as the world’s largest supplier of gas, QatarEnergy is making progress with its North Field liquefied natural gas (LNG) expansion programme, estimated to be worth about $30bn. This will raise Qatar’s LNG production to 126 million tonnes a year (t/y) in two phases by 2027.

The two-stage North Field Production Sustainability (NFPS) programme will run in parallel, to help maintain gas production from the large offshore reserve in order to match the feedstock requirements of the LNG expansion scheme.

QatarEnergy’s biggest award in 2022 was a $4.5bn EPC contract won by Italian contractor Saipem. It covers the building and installation of two gas compression facilities as part of the second development phase of the NFPS project. 

The two gas compression complexes covered in the package will weigh 62,000 tonnes and 63,000 tonnes and will be the largest fixed steel jacket compression platforms ever built.

Saudi Aramco allocated a capex budget of $40bn-$50bn for 2022, an increase on the $31.9bn it spent in 2021. The firm came second to QatarEnergy, spending about $5.8bn on upstream EPC contracts in 2022. 

Aramco awarded contracts for 11 offshore engineering, procurement, construction and installation (EPCI) tenders during the year to contractors in its Long-Term Agreement (LTA) pool of offshore service providers.

Through these offshore structure refurbishment and modification works, Aramco intends to maintain and enhance the oil and gas production capacity of its Abu Safah, Manifa, Marjan, Qatif and Safaniya fields.

In the first quarter of 2022, Aramco also selected Japanese contractor JGC Corporation for the two main onshore packages of the Zuluf upstream project. Package one is estimated to be the bigger of the two onshore packages, with an approximate contract value of $2bn-$2.5bn. It covers EPC work to build hydrocarbons processing facilities. Package two, covering utilities and water injection facilities, is estimated to be worth about $1bn.

Healthy projects pipeline

With regional energy producers stepping up efforts to achieve their oil and gas output goals more quickly, the level of spending on upstream EPC project contracts this year is expected to increase to almost three times that of 2022.

Iran is still under the weight of economic sanctions and has failed to reach an agreement with Western governments regarding its nuclear programme. Despite this, the country appears to still be striving to increase its oil and gas production levels.

State-owned Pars Oil & Gas Company (POGC) is understood to be moving ahead with a programme to develop the offshore North Pars gas field, estimated to hold reserves of up to 55 trillion cubic feet. 

POGC has undertaken a $16bn EPC project, with offshore and onshore components, to start gas production from North Pars. With Tehran suffering from a lack of foreign investment in its energy sector, however, the actual size of the project could shrink significantly and there could be delays to its development timeline.

QatarEnergy, meanwhile, has progressed to the next phase of its North Field LNG expansion programme, known as North Field South (NFS). Contractors submitted commercial bids in February for the estimated $6bn package covering EPCI work on two main LNG trains.

Investing in growth

Abu Dhabi National Oil Company (Adnoc) has adopted a five-year business plan with a capex budget of $150bn for 2023-27. The firm has also said it now aims to meet its oil production capacity target of 5 million barrels a day (b/d) by 2027 instead of 2030.

Having brought its oil and gas production capacity targets forward, Adnoc is accelerating work on key projects. The firm plans to raise gas output by 3 billion cubic feet a day (cf/d) in the next few years, and the Hail and Ghasha offshore sour gas production project will be central to achieving this goal.

In January, Adnoc signed pre-construction service agreements with two consortiums of contractors for the offshore and onshore EPC work on the gas production project, which is estimated to be worth more than $10bn.

France-headquartered Technip Energies, South Korean contractor Samsung Engineering and Italy’s Tecnimont have formed a consortium for the Hail and Ghasha onshore package. 

Italian contractor Saipem, Abu Dhabi’s National Petroleum Construction Company and state-owned China Petroleum Engineering & Construction Company will work together on the offshore package.

Under the agreements, which are valued at $80m and $60m for the onshore and offshore packages, respectively, the contractors will perform initial detailed engineering and procurement services for critical long-lead items. 

The consortiums will also prepare proposals for the main EPC work on the project, which Adnoc will evaluate on an open-book cost estimate basis.

Production from the Ghasha concession, where the Hail and Ghasha fields are located, is expected to start in 2025, ramping up to more than 1.5 billion cf/d before the end of the decade.

Meanwhile, Saudi Aramco is striving to increase its maximum oil output spare capacity to 13 million b/d by 2027 from about 12 million b/d currently, and raise gas production by 50 per cent by the end of this decade.

To realise these targets, Aramco is expected to significantly raise capex on upstream EPC contracts this year. The company is preparing to award more than $3bn-worth of offshore EPCI deals to its LTA contractors before the end of the first quarter of 2023.

Later this year, Aramco is anticipated to award several more multibillion-dollar offshore EPCI jobs. This will include 10 packages of a project to incrementally increase oil production from the Safaniya offshore oil and gas field in Saudi Arabia – the world’s largest offshore oil field.

https://image.digitalinsightresearch.in/uploads/NewsArticle/10636457/main.gif
Indrajit Sen

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Saudi Arabia foregoes April nuclear bid deadline

    2 May 2024

    The 30 April bid deadline for nuclear technology providers to submit bids for a contract to build Saudi Arabia's Duwaiheen nuclear power plant project has passed without any clear indication of a new tender closing date, according to two sources familiar with the project.

    "The understanding is that the tendering process requires a level of [political] stability in the region. This seems like an automatic postponement for the project tendering process," one of the sources said.

    Companies that have been invited and are expected to bid for the contract include:

    • China National Nuclear Corporation (CNNC, China)
    • Korea Electric Power Corporation (Kepco, South Korea)
    • Rosatom (Russia) 
    • EDF Group (France)

    The project is in the so-called bid invitation specification stage, and there are no direct negotiations taking place between the client and the potential bidders at this stage, MEED reported in July 2023.

    Saudi Arabia plans to build a large-scale nuclear power plant facility as part of its energy diversification agenda. 

    However, the ongoing conflict between Israel, Gaza and other neighbouring countries appears to be a major contributing factor to the extended procurement timeline of the Duwaiheen nuclear plant project.

    In October, an industry source said the ongoing conflict in Gaza is not likely to help advance negotiations between the countries with a key stake in the project.

    It is understood that Riyadh is using its nuclear power plant project, along with its plan to enrich uranium sources as part of its industrial strategy, as a bargaining chip with the US government. The White House is pushing for the normalisation of relations between Israel and Saudi Arabia and opposed to uranium enrichment.

    A month before the latest conflict between Israel and Hamas started, it was reported that senior Palestinian officials were in Riyadh for talks with senior Saudi and US officials.

    According to a BBC report in September 2023, the Palestinians were negotiating for hundreds of millions of dollars and more control of land in the occupied West Bank in the event of a three-way deal between Israel, Saudi Arabia and the US.

    On 14 October, Saudi Arabia suspended the talks on potentially normalising ties with Israel, which it never officially recognised as an independent state.

    Consultants

    Duwaiheen Nuclear Energy Company last year received three bids for the project management consultancy package for the nuclear plant project.

    MEED understands the following companies submitted proposals for the contract:

    • Atkins (UK/Canada)
    • Worley (Australia)
    • Assystems (France)

    Two of the three bidders have had previous engagements with the Saudi nuclear energy project. 

    2.8GW project

    The Duwaiheen nuclear power plant is expected to be procured using a traditional design-and-build model. 

    In September 2016, MEED reported that Saudi Arabia was carrying out technical and economic feasibility studies for the first reactors, and was also looking at possible locations for the kingdom’s first nuclear project, a 2.8GW facility.

    A site at Khor Duwaiheen, on the coast near the UAE and Qatari borders, was subsequently chosen for the first project.

    In March 2022, Saudi Arabia announced the establishment of a holding company – understood to be the Duwaiheen Nuclear Energy Company – to develop nuclear power projects in the country to produce electricity, desalinate seawater and support thermal energy applications.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11729932/main.jpg
    Jennifer Aguinaldo
  • Saudi Arabia enjoys growth conditions

    1 May 2024

    Register for MEED's guest programme 

    Sources: IMF (April 2024), MEED Projects, MEED

    MEED's April 2024 special report on Saudi Arabia includes:

    > GVT & ECONOMY: Saudi Arabia seeks diversification amid regional tensions
    > BANKING: Saudi lenders gear up for corporate growth
    > UPSTREAM: Aramco spending drawdown to jolt oil projects
    > DOWNSTREAM: Master Gas System spending stimulates Saudi downstream sector
    > POWER: Riyadh to sustain power spending
    > WATER: Growth inevitable for the Saudi water sector
    > CONSTRUCTION: Saudi gigaprojects propel construction sector
    > TRANSPORT: Saudi Arabia’s transport sector offers prospects

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11730016/main.gif
    MEED Editorial
  • Bapco and Masdar plan 2GW wind projects

    1 May 2024

    Abu Dhabi Future Energy Company (Masdar) has signed an agreement with Bahrain’s Bapco Energies to jointly explore developing and investing in wind projects with a capacity of up to 2GW.

    The agreement for near-shore and offshore wind farms is Masdar’s first in Bahrain.

    At up to 2GW, the clean energy collaboration will support Bahrain in accelerating the decarbonisation of critical industrial sectors and open avenues to develop new market sectors.

    Bahrain aims to reduce emissions by 30% by 2035 and achieve net-zero emissions by 2060, as outlined in its National Energy Strategy.

    Bapco Energies Group chief executive Mark Thomas said the partnership with Masdar “demonstrates our commitment to diversifying the kingdom of Bahrain’s energy mix to include cleaner energy sources, underscoring our role as leaders in renewable energy development”.

    Masdar has codeveloped several wind projects, including the 400MW Dumat Al Jandal wind farm in Saudi Arabia, the 630MW London Array offshore wind project in the UK, and the 103.5MW UAE wind programme, which utilises innovative technology to capture low wind speeds at utility scale.

    Masdar aims for a renewable energy portfolio capacity of 100GW by 2030.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11729221/main.jpg
    Jennifer Aguinaldo
  • Developer appoints Luce Palm Jumeirah contractor

    1 May 2024

    Register for MEED’s guest programme 

    Taraf Properties, the real estate division of UAE-based investment group Yas Holding, has appointed Al Ashram Contracting as the main contractor to build the Luce Residences project in Dubai.

    Located on the east crescent of Palm Jumeirah, the beachfront development is a nine-storey residential building comprising 38 two-, three- and four-bedroom units.

    Local enabling contractor APCC Building Contracting won the enabling works contract for the Luce Residences in July last year.

    The piling works began in August last year. Abu Dhabi-based MZ Architects is the project consultant, and the project is scheduled to be completed by January 2026.

    Dubai real estate developments dominate the UAE’s construction market, with schemes worth over $323bn in execution or the planning phase.

    Growing demand for property in Dubai, combined with a resilient economy, has brought optimism to the emirate’s real estate market.

    As the market develops further, a broader range of opportunities is expected to emerge for both local and international contractors.

    This is in line with GlobalData’s forecast, which expects the UAE construction sector’s output to grow by 4% in real terms in 2024 and 4.2% in 2025, supported by developments in infrastructure, energy and utilities, and residential construction projects.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11728542/main.jpg
    Yasir Iqbal
  • Bids submitted for Sabic hydrogen project

    1 May 2024

     

    Register for MEED's guest programme 

    Bids have been submitted for a low-carbon hydrogen project that Saudi Basic Industries Corporation (Sabic) is due to develop in the industrial city of Ras Al Khair in Saudi Arabia’s Eastern Province.

    The project, known as the San VI Low-Carbon Hydrogen Complex, is estimated to be worth $300m.

    Bids for the project were submitted ahead of the deadline of 31 March 2024, according to information first obtained by MEED Projects.

    The following companies are understood to have submitted bids:

    • Larsen & Toubro (India)
    • JGC Corporation (Japan)
    • Samsung Engineering (South Korea)
    • Hyundai E&C (South Korea)
    • Toyo Engineering Corporation (Japan)

    When it was originally tendered in October last year, the project’s bid submission deadline was set for the end of December 2023.

    Sabic is also developing a second low-carbon hydrogen project, which is currently in the study phase.

    This project, known as the Horizon II Low-Carbon Hydrogen Complex, is also estimated to have a value of $300m.

    The scope of both projects is expected to include:

    • Construction of processing units
    • Construction of storage facilities
    • Construction of distribution units
    • Installation of hydrogen compressors
    • Construction of associated facilities

    The main contract tender for the Horizon II Low-Carbon Hydrogen Complex is anticipated to be issued by 2025.

    National oil company Saudi Aramco owns a 70% stake in Sabic.

    In October last year, Ashraf Al Ghazzawi, executive vice-president of strategy and corporate development at Aramco, said the company aims to produce 2 million tonnes of low-carbon hydrogen by 2030.

    MEED's April 2024 special report on Saudi Arabia includes:

    > GVT & ECONOMY: Saudi Arabia seeks diversification amid regional tensions
    > BANKING: Saudi lenders gear up for corporate growth
    > UPSTREAM: Aramco spending drawdown to jolt oil projects
    > DOWNSTREAM: Master Gas System spending stimulates Saudi downstream sector
    > POWER: Riyadh to sustain power spending
    > WATER: Growth inevitable for the Saudi water sector
    > CONSTRUCTION: Saudi gigaprojects propel construction sector
    > TRANSPORT: Saudi Arabia’s transport sector offers prospects

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11728618/main.gif
    Wil Crisp