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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.

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Indrajit Sen

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    QatarEnergy’s North Field liquefied natural gas (LNG) expansion programme requires the state enterprise to pump large volumes of gas from the North Field offshore reserve to feed the three phases of the estimated $40bn-plus programme.

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    NFPS first phase

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    In addition, in April 2021, QatarEnergy LNG awarded Saipem two options for additional work within the EPCI package, worth about $350m.

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    Indrajit Sen