Spending Trends

Kalpesh Ramwani explains the emerging energy trends in the GCC

Renewable energy plans received the largest volume of project announcement through the first eight months of 2012. (GETTY IMAGES)
Renewable energy plans received the largest volume of project announcement through the first eight months of 2012. (GETTY IMAGES)

Kalpesh Ramwani explains the emerging trends in the GCC energy project landscape

As the GCC Energy market picks up steam with major announcements by governments and project owners, we explore the trends that shaped the industry in the first eight months of 2012.

Between January and August 2012, US$ 125bn worth of new projects were announced in the GCC while US$ 57bn worth of projects were awarded (Figure 1). Saudi Arabia and the UAE combined accounted for c.81% and c.83% of all the new announcements and project awards made in the year respectively.

Within Saudi Arabia and the UAE, the sectors of oil and gas production and petrochemicals accounted for over c.50% of all project awards in 2012.

Kuwait on the other hand saw 63% of its awards made in the power generation sector. The largest project awarded in 2012 was the US$ 3bn Jazan Power and Desalination Plant in Jazan, Saudi Arabia.

Looking deeper into the projects announced in the two dominating markets, we notice that Saudi Arabia has primarily (c.46%) focused on projects within the oil & gas production sector while the UAE has announced the majority (c.80%) of its projects within the alternative energy sector.

The largest project announced in Saudi Arabia was Saudi Aramco’s US$ 25bn Red Sea Off-Shore Development Project, whilst the US$ 35bn Solar Park announced by DEWA (Dubai Electricity and Water Authority) was the largest project announced in the UAE in the first eight months of 2012.

Most of the new projects announced in 2012 are in line with the long-term plans that the GCC governments have set for themselves.

A closer look at the award dates of the announced projects reveals that only c.30% of the announced projects are likely to be awarded in either 2012 or 2013, while most of the large scale projects are expected begin development in the next 3-4 years.

A sector wise breakdown of announced projects shows that alternative energy, followed by oil & gas production and power will account for 70% of all projects (Figure 2).

While the oil and gas production sector and power have historically been the focus sectors within the GCC, alternative energy has gained prominence within the region over the last few years.

Secondary sectors that will see a fair share of investments in the coming years include: metals and water and waste, which account for 7% and 5% of announced projects respectively.

As commodity prices increase world over, GCC countries have started investing in mining activities in order to source metals locally while investments in waste and water facilities is part of the GCC’s broader strategy to combat water shortages and provide safe drinking water in an energy efficient way to its ever increasing population.

A comparison of projects announced and projects awarded shows that while projects within alternative energy account for the largest share (c.34%) of the announced projects, the sector accounts for only c.5% of the projects awarded in 2012. Projects within the oil and gas production and petrochemicals sectors account for c.51% of all awarded projects, followed by power at c.17%.

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It is noticeable that across the board, all GCC countries are shifting focus towards higher margin products within the petrochemicals sector while also investing heavily in meeting their power consumption needs.

Comparing the same time periods in 2011 and 2012, we see that projects announced in 2012 have reduced by c.50% (Figure 3). Whilst approximately US$240bn worth of project CAPEX was announced in the first eight months of 2011, only US$ 125bn were announced during the same time period in 2012.

This might be due to the poor realisation rates of historical project announcements and governments focusing on awarding historical projects as opposed to announcing new ones.

In 2011, Saudi Arabia and Qatar accounted for c.75% of all announced projects in the first eight months, whilst in 2012, the UAE has overtaken Qatar as the second largest market for announcements.

In fact, Qatar has announced the second fewest projects this year representing only c.US$ 7bn in value compared to US$ 43.5bn by the UAE. Other sectors of focus between 2011 and 2012 have not shifted much.

Alternative energy still represents the largest sector in terms of announcements in 2012; however, projects announced are down c.130% compared to 2011. Other sectors that saw a substantial drop in projects announced in 2012 compared with 2011 include: petrochemicals (-c.475%) to US$ 3.3bn and power (-c.240%) to US$ 13bn.

Sectors that have seen a sharp rise in project announcements as compared with 2011 include: Fertilizer (+c.2000%) to US$ 3.5bn, Refining (+c.365%) to US$ 6.7bn and Industrial (+c.125%) to US$ 5bn.

The data described here has immense significance for contractors and service providers pursuing opportunities in the region, and highlights the question: Are you focused on the right sectors and markets and how are you preparing yourself to take advantage of the upcoming trends?
Having a good understanding of the historical awards and announcements would help companies better plan their business development and resource allocation


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