The GCC Projects Forecast & Review 2017 The authoritative report on the region s projects market 2013 MEED Insight
Table of Contents Section Page 1 Preface 5 2 Executive Summary 7 3 Macroeconomic context 9 4 The Historical Context 20 5 Top Clients and Contractors 34 6 2016 Performance 42 7 Future Outlook 53 Copyright 2016 MEED Media FZ LLC All rights reserved. No part of this publication may be reproduced, stored in any retrieval system, or transmitted in any form, by any means, electronic, mechanical, photocopying, recording, or otherwise without prior permission of the copyright owner. While every care has been taken in completing this report, no responsibility can be accepted for any errors or omissions that may occur. 1
Figures & Tables Figure/ Table Title Page Figure 1 US average annual crude oil prices 1970-2016 10 Figure 2 Cushing, OK WTI spot price FOB, 2015-16 11 Figure 3 World Bank and IMF oil price forecasts 12 Figure 4 GCC fiscal breakeven oil price 13 Figure 5 GCC government revenues 14 Figure 6 GCC nominal GDP 15 Figure 7 GCC government expenditure 16 Figure 8 GCC current account balance 17 Figure 9 GCC government lending/borrowing 18 Figure 10 GCC net debt 2013-20 19 Figure 11 GCC total contract awards, 2003-15 21 Figure 12 Number and average size of GCC contracts 22 Figure 13 GCC contract awards vs. the oil price 23 Figure 14 GCC contract awards, 2008-15 24 Figure 15 Number and average size of GCC contracts by country 25 Figure 16 Value of GCC contract awards by sector 26 Figure 17 Number and average value of GCC contracts by sector 27 Figure 18 GCC country and sector country awards, 2010-15 28 Figure 19 GCC contracts by selected geographical area, 2010-15 29 Figure 20 GCC civil construction sector contract awards breakdown, 2010-15 30 Figure 21 GCC utilities sector contract awards breakdown, 2010-15 31 Figure 22 GCC hydrocarbons contract awards by subsector, 2010-15 32 Figure 23 GCC contract awards by client ownership, 2010-15 33 Figure 24 GCC contract awards by ownership type and country, 2010-15 33 Figure 25 GCC top civil contractors by value of work under execution 35 Figure 26 GCC top utilities contractors by value of work under execution 36 2
Figures & Tables Figure/ Table Title Page Figure 27 Top GCC hydrocarbons contractors by value of work under execution 37 Figure 28 Top GCC civil construction clients by work under execution 38 Figure 29 Top GCC utilities clients by work under execution 39 Figure 30 Top GCC hydrocarbons clients by work under execution 40 Figure 31 Top awarded GCC projects 2010-15 41 Figure 32 Value of GCC contract awards Q1-Q3 2016 43 Figure 33 Comparison of 2015 vs. 2016 GCC contract awards 44 Figure 34 Comparison of 2015 vs. 2016 GCC sector contract awards 45 Figure 35 Top awarded GCC projects 2016 46 Figure 36 Delayed GCC 2016 projects 47 Figure 37 Selected new GCC projects announced in 2016 48 Figure 38 GCC contract awards by selected urban area Q1-Q3 2016 50 Figure 39 Top awarded Dubai 2016 projects 52 Figure 40 MEED s 2017 GCC contract award forecast by country 57 Figure 41 MEED s 2017 GCC contract award forecast by sector 58 Figure 42 MEED s 2018-21 GCC contract award forecast by country 59 Figure 44 Bahrain contract award forecast, 2018-21 60 Figure 45 Kuwait contract award forecast, 2018-21 61 Figure 46 Oman contract award forecast, 2018-21 62 Figure 47 Qatar contract award forecast, 2018-21 63 Figure 48 Saudi Arabia contract award forecast, 2018-21 64 Figure 49 UAE contract award forecast, 2018-21 65 Figure 50 GCC contract award forecast, 2018-21 66 Figure 51 GCC contract awards vs. cash flow, 2010-17 67 Figure 52 Selected top Bahrain projects scheduled for award in 2017 68 Figure 53 Selected top Kuwait projects scheduled for award in 2017 69 Figure 54 Selected top Oman projects scheduled for award in 2017 70 3
Figures & Tables Figure/ Table Title Page Figure 55 Selected top Qatar projects scheduled for award in 2017 71 Figure 56 Selected top Saudi Arabia projects scheduled for award in 2017 72 Figure 57 Selected top UAE projects scheduled for award in 2017 73 Figure 58 Value of planned and un-awarded GCC contracts 74 Figure 59 Value of planned and un-awarded GCC contracts by sector 75 Figure 60 Comparison of actual contract awards 2012-16 vs. project pipeline 2017-21 76 Figure 61 Top future civil construction clients by project pipeline 77 Figure 62 Top future utilities clients by project pipeline 78 Figure 63 Top future hydrocarbons clients by project pipeline 79 4
1 Preface 5 5
Preface It has been a miserable year for the GCC projects market. After an excellent performance in 2015, the hope was that the market could still prosper even with lower oil prices. Unfortunately, with the notable exception of Dubai this has not been the case; the market is likely to record its worst annual performance since at least 2004. Just $85bn worth of contracts were awarded in the first three quarters of 2016 compared with $135bn in the same period last year. Overall, we expect the GCC to record between $110bn and $120bn worth of deals for the year as a whole, which will be considerably lower than 2015 s total of $177bn and the $188bn posted in 2014. The impact of this much lower spending has been felt by companies across the board. Many have been facing declining order books and job losses as the market contracts. More will be looking for an improvement in 2017 when the hope is that the market will pick up as governments release the funds for the much needed capital infrastructure programmes. This report is aimed at providing clarity to firms preparing for the year ahead. Whether it is guidance on setting their budgets or strategies, or information on the value of projects to be awarded in the short and medium terms, the report provides the necessary data to enable companies to be better informed and prepared during these challenging times. This report is based on data captured in November 2016 and has been prepared by MEED Projects, MEED s project tracking service. Providing real time project tracking on more than 13,000 active projects across the MENA region, MEED Projects is an essential tool for identifying project opportunities and undertaking analysis and research on the region s project market trends. 6 Ed James, Director of Content & Analysis, MEED Projects, Report Author Dubai, November 2016
The Oil Price Any macroeconomic or projects market analysis of the GCC must start with the oil price context. During the boom years, when oil averaged more than $100 a barrel, the governments of the GCC posted record revenues. Today oil hovers between $40 and $50 a barrel and the GCC states have face real restrictions on their spending as a result. 100 90 US average annual crude oil prices 1970-2016 ($ barrel) 2009 financial crisis hit oil price hard but only briefly 80 70 60 50 40 30 The Arab oil embargo saw crude rise above $10 a barrel for the fist time Oversupply resulted in a price slump for more than 15 years in the 80s and 90s 20 10 0 Boom times for the GCC as oil hits a record $147 a barrel due to massive demand growth 7 7 Source: Inflationdata.com 2014 MEED Projects
Fiscal breakeven points Despite years of diversification efforts, the GCC states are still heavily reliant on oil sales revenues. Saudi Arabia, Bahrain and Oman are most exposed to oil price fluctuations, requiring crude to be priced a between $80 and $100 a barrel to balance their budgets. As the oil price has fallen, so governments have reduced spending requirements to ensure the can meet their expenditure requirements. Even then, they have had to resort to borrowing and other means to raise funding 140 120 Bahrain is the most exposed to the oil price fall GCC Fiscal Breakeven Oil Price ($ a barrel) 100 80 Kuwait is least exposed to the oil price fall 60 40 20 0 Bahrain Kuwait Oman Qatar Saudi Arabia UAE 2014 2015 2016 2017 8 8 Source: IMF 2014 MEED Projects
Historical awards The region went through an explosive projects boom after oil prices started rising in 2003. Then in 2008 the global financial crisis took hold and the construction market almost collapsed, although spending on oil and gas projects in 2009 reached a record high. The market started to recover in 2013, hitting a record of $187bn in 2014 200,000 180,000 160,000 GCC total contract awards, 2003-15($m) Total = $1.6 trillion Average contract size = $124m 140,000 120,000 100,000 80,000 60,000 The collapse of the regional real estate market saw a fall in awards in 2008 40,000 20,000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 9 9 Source: MEED Projects 2014 MEED Projects
Historical contract awards by country Saudi Arabia and the UAE have historically been the largest of the GCC projects markets by some margin. The latter, particularly in the Dubai suffered badly from the 2009 real estate crisis but has since recovered. Saudi Arabia has been particularly hard hit by the oil price fall, while Qatar and Kuwait actually experienced record years in 2015 despite the crude price 80,000 GCC contract awards 2008-15 ($m) 70,000 60,000 50,000 2015 total = $177bn 2008-15 total = $1.2 trillion 40,000 30,000 20,000 10,000 0 Bahrain Kuwait Oman Qatar Saudi Arabia UAE 2008 2009 2010 2011 2012 2013 2014 2015 10 10 Source: MEED Projects 2014 MEED Projects
Top utilities contractors In contrast, the regional utilities sector is dominated by international firms, particularly those from South Korea which fill the top three spots. This highlights the challenge GCC firms have with being able to lead and complete world-scale power generation and desalination projects. On the flip side, transmission and distribution schemes have a much more regionheavy presence Harbin Electric International Company Limited Valoriza Agua Al Arrab Contracting Alfanar Group Mitsubishi Heavy Industries Saudi Services for Electro Mechanic Works Abengoa Tecnicas Reunidas Jazan Gas Projects Company General Electric Saipem Doosan Heavy Industries & Construction National Contracting Company Shandong Electric Power Construction Corporation Larsen & Toubro Siemens SEPCO III Electric Power Construction Corporation Hyundai Heavy Industries Hyundai E&C Samsung C&T GCC top utilities contractors by work under execution ($m) 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 11 Source: MEED Projects
2016 YTD performance Frankly speaking, 2016 has been disastrous for the GCC projects market. Just $85bn worth of contracts were awarded in the first three quarters of the year compared with $135bn for the same period last year. Qatar and Saudi Arabia have been particularly disappointing as project activity slowed to crawl. Only Dubai and Bahrain have performed well in the year to date. Little surprise, therefore, that many companies have been suffering this year. 35,000 Value of GCC contracts awarded Q1-Q3 2016 ($m) 30,000 25,000 20,000 Total = $85bn Total at same point in 2015 = $135bn 15,000 10,000 5,000 0 Bahrain Kuwait Oman Qatar Saudi Arabia UAE 12 Source: MEED Projects
2015/16 comparison (2) This disappointing performance has been translated into individual sectors, with no one sector doing better than last year. Scale-wise, however, each sector is doing as expected, with construction remaining the largest sector followed by transport in keeping with previous years 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Comparison of 2015 vs. 2016* GCC sector awards 2015/2016 ($m) 2015 2016 13 Source: MEED Projects *2016 figure is for Q1-Q3 only
What s gone wrong in 2016 Aside from the obvious impact of low oil prices, there have been a number of other major challenges facing the market, ranging from the macro-economic and the political to the logistic and financial. Together they have combined to create a perfect storm of negative forces which have hampered the market in 2016. 14 14 Public-dominated Delays in prioritising projects market, with their spending with less the private sector cash unable to step in 2 3 Governments simply 1 4 don t have the money Lower oil prices results in lower impetus for oil and gas spending especially with global demand growth falling Government attitude towards the sector as it has not prioritised the release of payments or the maintenance of its spending programmes Negative factors 8 5 7 6 Project bottlenecks and logistical challenges in delivering existing under construction projects Failure of PPP and alternative means of financing projects to really get going in the region Economic slowdown plus job losses have dented confidence 2014 MEED Projects
Future project pipeline by country The overall pipeline of known planned and un-awarded projects in the GCC stands at just over $2 trillion. The largest market is Saudi Arabia, which is unsurprising given it has the largest economy and population. UAE is ranked second at more than $600bn, primarily due to the ambitious plans of Dubai, while Oman, Qatar and Kuwait all have similar-sized future ambitions. Naturally, this data is indicative as not all projects will proceed. Value of planned and un-awarded GCC projects ($m) 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Bahrain Kuwait Oman Qatar Saudi Arabia UAE 15 Source: MEED Projects
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2013 MEED Insight