Saudi Arabia’s oil and gas projects steal the spotlight in Q3 2019
Here are the key highlights from the US-Saudi Arabian Business Council’s (USSABC) Contract Awards Index (CAI)
Construction activities in Saudi Arabia — the Gulf’s largest and the most populous country — has witnessed a rapid growth, with gigaprojects including Neom, The Red Sea Project, Qiddiya, and Riyadh Metro among others, supporting the Kingdom’s Vision 2030.
These projects are further supported by contract awards that are the driving force behind the oil-rich nation’s plans to diversify from its reliance on oil-based revenues.
In the US-Saudi Arabian Business Council’s (USSABC) Contract Awards Index (CAI) for Q3 2019, the kingdom’s top contract awards in sectors such as oil and gas, real estate, industrial, urban development, transportation, water, and power have been highlighted.
According to the quarterly report, contracts worth $12.7bn (SAR47.8bn) were awarded in Q3 2019, rising 164% year-on-year compared to the corresponding figures in the third quarter of 2018. However, the value of awarded contracts fell in Q3 2019 compared to Q2 2019 by $4.6bn (SAR17.4bn), marking a 27% retraction rate.
The value of contracts in the first three quarters of 2019 spiked by 117%, which is equivalent to $23.3bn (SAR87.2bn), compared to the same period in 2018. The total value of awarded contracts in the first three quarters of 2019 reached $43.1bn (SAR161.8bn).
The kingdom’s oil and gas sector outpaced all the other sectors, with 34% of the overall contracts being awarded for oil and gas projects, followed by real estate sector with 25%, and the industrial sector with 20%.
Contracts were also given away for projects in other sectors including urban development, transportation, water, and power. According to the report, the value of the awarded contracts has risen above the $53.3bn (SAR200bn) mark for the first time since 2015.
At the end of Q3 2019, the USSABC’s CAI reached 236 points, with the index remaining above the 200 point-mark for the fourth consecutive month. The CAI grew by 111% y-o-y compared to the corresponding figures in Q3 2018. However, the CAI marginally dipped from Q2 2019’s 240.44 points. In terms of CAI’s position, as compared to previous months, it decreased from 242.21 points in August and 245.67 points in July. According to the report, the drop in CAI is attributed to the increase in the value of awarded contracts during June that touched $13bn (SAR48.7bn).
Saudi Arabia’s Eastern Province recorded 64% of the contract awards - the highest in terms of provinces - which amounted to $8bn (SAR30.1bn). Oil and gas contracts, dominated by Saudi Aramco — the world’s largest oil producer — accounted for $4.3bn (SAR15.9bn), marking 52% of all contracts in the Eastern Province. The industrial sector also contributed significantly to the province with $2.5bn (SAR9.4bn) worth of contract awards. The province’s year-to-date (YTD) contribution to total awarded contracts is 61% reaching $26.4bn (SAR98.9bn).
Findings from the report reveal that 17% of the total contract awards in Q3 2019, which accounted to $2.2bn (SAR8.2bn), were recorded in Riyadh. Two sizeable real estate and urban development contracts were awarded in KSA’s capital, which amounted to $1.7bn (SAR6.2bn) and $426m (SAR1.6bn), respectively. The kingdom’s Tabuk region recorded a total of $956m (SAR3.6bn), marking 8% of the total contract awards in the third quarter of 2019. The region’s real estate sector amassed the largest share with $640m (SAR2.4bn), with the largest contract valued at $320m (SAR1.2bn) being given away for the construction of mixed-use developments for The Red Sea Development Company (TRSDC).
Oil and gas contracts
Saudi Arabia’s oil and gas sector led all other sectors in terms of contract awards in Q3 2019. According to USSABC, the YTD value of awarded contracts in the sector reached $20.4bn (SAR76.6bn), marking a 485% surge compared to the corresponding figures in the same period last year — with the figures having climbed 439% more than all of 2018.
In Q3 2019, the largest contract valued at $1.5bn (SAR5.6bn) in the oil and gas sector was awarded in July by Saudi Aramco to Spanish contractor Tecnicas Reunidas.
The project covers the development of a gas plant located in the Tanajib area to process gas and non-associated gas from Marjan field as well as associated gas from Safaniya and Zuluf fields.
As part of the contract, the firm will work on Package 9 that covers construction of a number of facilities, including a gas compression and tankage substation, a natural gasoline storage unit, an off-spec products storage unit, propane and butane storage, and the installation of numerous inlet and related facilities. The project is expected to be completed by Q4 2023.
Aramco also awarded another $650m (SAR2.4bn) contract to Egypt’s Engineering for the Petroleum & Process Industries (Enppi) for debottlenecking the Safaniya field in the Eastern Province.
Work is expected to be completed by Q4 2022. Scope of work for Enppi includes construction of a new low pressure degassing tank (LPDT), substations, and related facilities. Italy’s Saipem also bagged Aramco’s $320m (SAR1.2bn) contract for Package 5 of Marjan oil field water transport project. Under the contract, Saipem will construct facilities to transport water from a well site to a new pump system in Tanajib, with the project set to be completed by Q4 2023.
Real estate contracts
The kingdom’s real estate sector recorded $3.2bn (SAR12.1bn), which is equivalent to 25% of the total value of awarded contracts in the third quarter of 2019, according to USSABC CAI.
The mixed-use subsector posted the highest value of contracts within the real estate sector accounting to $2bn (SAR7.6bn), followed by residential with $1.1bn (SAR4bn), and commercial with $130m (SAR490m).
Residential real estate contracts were mostly related to the government’s efforts to provide affordable housing facility within the Kingdom. Additionally, mixed-use contracts were awarded for TRSDC for The Red Sea Project.
In Q3 2019, one of the most significant contracts in the sector was awarded by Shomoul Holding to Nesma and Partners for the development of The in September.
The $1.7bn (SAR6.2bn) contract covers the construction of a shopping mall that will house hypermarkets, cinemas, retail shops, restaurants, and parking. This contract is part of the overall plan to also include two hotel towers, residential apartments, offices, and additional parking. The current phase of the project is expected to be completed by Q4 2023.
Saudi Arabia’s Ministry of Housing awarded a $760m (SAR2.9bn) contract to Aljazera Contracting for the development of Madinat Al Wurud in Taif that covers an area of 6.3km2. The project includes the construction of 4,775 villas, swimming pools, mosques, health centers, schools, play grounds, and associated facilities and is set to be delivered by Q1 2023.
The Red Sea Development Company awarded a contract to Al Majal Al Arabi in September for the development of the Coastal Village.
Expected to be completed by Q1 2021, under the $320m (SAR1.2bn) contract, The Red Sea Development Company will build residential facilities, corporate offices, restaurants, auditoriums, parking, as well as other associated facilities across the project.
According to USSABC’s report, the kingdom’s industrial sector witnessed three large contracts in the third quarter of 2019, which covered $2.5bn (SAR9.2bn) of the total $2.6bn (SAR9.6bn) in awarded contracts. The YTD value of awarded contracts in the industrial sector reached $3.2bn (SAR11.9bn), marking a 113% surge compared to the same period last year.
The National Tire Company awarded what it claimed to be the largest contract in the industrial sector in third quarter to Samsung Engineering for the development of a tire manufacturing facility in Jubail.
The $1.3bn (SAR4.8bn) project involves the construction of a power plant, training facilities, and a mosque, with the project expected to be completed by Q1 2022.
In another contract win, China Aluminum International Engineering Corporation Limited (Chalieco) was picked by GASAN Investment & Industrial Development for a $400m (SAR1.5bn) contract to develop calcined petroleum coke (CPC) plant on 25ha land plot in Jubail, with the project expected to be completed by Q4 2023.
The CPC plant will have a capacity of 607,813.8 metric tonnes a year of calcined coke, which is used in the production of carbon anodes for aluminium smelting cells and for steel making furnaces.
Despite the fact that the civil sector was not among the top three sectors in terms of contract awards, a significant contract was awarded for the development of botanical gardens in Riyadh in July 2019.
The Riyadh Municipality awarded a $426m (SAR1.6bn) contract to Zaid Alhussain Group for Phase 3 of the King Abdullah Botanical Gardens project. Set to be completed by Q4 2021, the project is considered to be the world’s largest botanical gardens spanning 8.1ha. The project includes a paleobotany garden, courtyards, restaurants, and 5,000 parking spaces.
With construction projects worth trillions of dollars in the pipeline, Saudi’s non-oil revenues continue to grow and so does its efforts to improve living standards for its citizens, as well as building better and sustainable infrastructure.