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Saudi contract awards prove the era of big oil projects isn't over yet

The future needs greener and leaner oil facilities, but the prognosis is good for EPC contractors wary of renewables

Neha Bhatia is the editor of Construction Week.
© ITP Media Group / Rajesh Raghav
Neha Bhatia is the editor of Construction Week.

Oil and gas projects are not scarce in the Gulf, but February was a particularly rewarding month for engineering, procurement, and construction (EPC) contractors. Moreover, recent contract developments in the GCC’s energy capital, Saudi Arabia, offer critical insights into the future for EPC contractors wary of renewables

Early last month, Saudi Arabia's Satorp awarded contracts to the US’s KBR and China’s Wison Engineering to respectively work as contractor and sub-contractor for a crude oil refinery in Jubail. Satorp is a joint venture of Saudi Aramco and France’s Total.

In February, US contractor McDermott also announced that it had won two EPC and installation contracts to work on Saudi Aramco’s Marjan oil field.

These contracts came at a time when Saudi Arabia is also attracting significant investments in renewable power projects as it pursues energy diversification to safeguard future growth. A day after Satorp’s contract award was announced, it emerged that the UAE’s Etihad Esco had joined Vision Invest – the parent company of Acwa Power – to establish an energy management company in Saudi Arabia.

February also saw Acwa enter a contract with Egypt’s government for a $2.5bn power plant in Luxor, and sign two separate agreements with China’s Silk Road Fund and Huawei to spur investment and digitisation.

Saudi Arabia’s ability to attract investments in traditional oil and gas projects, as well as the more ‘modern’ renewable ones, sheds light on the mid-term outlook for EPC contractors.

We need to connect the future people want with the ways our industry can enable it [...] like the houses we live in, the journeys we take, and the phones we rely on. Try doing that just with wind.

Amin Nasser, Saudi Aramco

Companies such as Japan’s Softbank and China’s Hanergy have committed investments in Saudi Arabia’s solar power sector, but EPC contracting heavyweights such as McDermott, Fluor, Halliburton, and Saipem also have considerable work commitments in the kingdom for the foreseeable future.

While the environmental and economic benefits of renewables are undeniable, their full-scale deployment is unlikely to match the quantity, volume, and scalability of oil in the near future, as the president and chief executive officer of Saudi Aramco, Amin Nasser, explained last week.

In what might be good news for EPC contractors, Nasser added that the “intermittent nature” of renewables meant oil projects were here to stay. 

“There is very little thought given to the massive global energy infrastructure that would need to be transformed in every corner of the world [for renewables, and it would cost] trillions of dollars,” he said.

“It will be increasingly difficult for governments to subsidise alternatives when the world moves to full-scale deployment [of renewables], especially with demand for energy growing.

“We need to connect the future people want with the ways our industry can enable it, including the things that truly matter to our lives, like the houses we live in, the journeys we take, and the phones we rely on,” Nasser continued.

“Try doing that just with wind.”

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Construction Week - Issue 734
Mar 21, 2019