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Contax Partners update on regional Capex trends

on Dec 26, 2012

Kalpesh Ramwani is a Senior Consultant at Contax Partners.
Kalpesh Ramwani is a Senior Consultant at Contax Partners.

Contax’s Capex Corner: Emerging trends in the energy project landscape within the GCC

As the GCC energy market picks up steam with major announcements by governments and project owners, we explore the trends that have 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 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 to 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 waste and water, 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.

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