Market conditions

Conditions in 2013 on the Onshore E&C market saw investments remain steady at levels comparable with 2012, with the award of a number of important EPC contracts in various segments (Upstream, LNG, Pipelines and Refining) and a surge of new project announcements in North America driven by the growing availability of raw materials from non-conventional oil and gas sources. Canada has been taking advantage of these opportunities, which have seen it become one of the top locations in terms of volumes of investments, with the year again bringing an increase in the value of projects awarded in the country. Meanwhile, a series of contract awards made in the LNG, Pipelines and Petrochemical segments in 2013 saw the US rank first in terms of global volume of investments. Thanks to its abundant resources, North America continues to be a focus of investment activity, as demonstrated by the significant increase in planned projects recorded in the last two years. The Middle East on the other hand, while continuing to attract interest on the part of E&C investors, has been showing signs of a downturn, due in particular to a drop in activity in Saudi Arabia in 2013, following the major investments made in the country in previous years. Investment levels in the area have however been sustained by recent contract awards made in Iraq (providing confirmation of the greater political stability achieved in the country over the last two years), in the United Arab Emirates in the Upstream segment and finally in Iran and Oman. North Africa saw a series of important contract awards made in Algeria in the Refining and Upstream sectors, with investments in the country picking up following a period of political instability. A general decline in investments was registered in the Asia-Pacific area. This was caused by a fall in spending levels in Australia (which, following the major project awards seen in the LNG sector in recent years, is now capitalising on the investments made), India, South Korea and Indonesia. Levels of investment in the area were sustained by China, with the pipelines segment in particular posting a strong performance, Vietnam, where a major EPC contract was awarded in the Refining segment, and Malaysia, which saw awards in the LNG sector.

Investments in the Upstream segment experienced an upturn, following the contraction in spending seen in 2012, which came on the back of the high levels of investments registered in previous years. 2013 saw a number of important EPC contract awards in the Middle East (UAE and Iraq), North America (Canada) and North Africa (Algeria). In Iraq, following a period characterised by political uncertainty, the favourable conditions that emerged during 2012 continued to prevail, with new awards made for the Badra and Akkas field development projects. In the United Arab Emirates, major EPC contract awards were made by ZADCO, ADMA-OPCO and ADCO. In Algeria, Onshore E&C activities picked up, with awards made for the development of the Alrar field and the construction of a gas treatment plant in Touat. In Canada, awards continued for the development of non-conventional oil sources, such as tar sands, underpinned by oil prices that were sufficiently high to make new projects profitable.

The Upstream segment continued to show good short to medium term growth potential driven by both ongoing gas and oil field discoveries and developments, as well as the need to maintain production levels in existing fields. With the abundance of available gas in North America underpinning the realisation of a large number of projects in both the US and Canada, the Pipelines segment posted another positive performance in 2013, with investments up compared with the previous year. Noteworthy projects included the Canadian ‘Prince Rupert’ gas transmission project and the NGL pipeline developments in the US backed by Enterprise Products Partners and Oneok. During the opening months of 2013, the segment saw the award in China of phase 2 of the third ‘West-East China’ gas pipeline. This is a project of significant dimensions which, together with new pipeline installation projects in Iran and Mexico, made a significant contribution to the good performance registered in the segment.

The abundance of available gas continued to be the driving factor behind the preference for gas pipelines over oil pipelines, particularly in countries looking to expand their distribution networks, such as the US, Canada and China.

The LNG market continued to grow steadily, registering a rise in investments compared with 2012. Thanks to its abundance of gas from non-conventional sources, North America and the US in particular saw the award of a number of important projects during the year. This included the award of contracts for five LNG trains by Cheniere – three at Corpus Christi (trains 1, 2 and 3), due to be built in stages, plus two at Sabine Pass (trains 3 and 4) – and two trains by Freeport LNG in Freeport (trains 1 and 2). The US LNG market has seen a growing number of companies show investment interest over the last two years. In the Asia-Pacific area, 2013 saw a fall in investments which was principally caused by a slowdown in major project EPC awards in Australia, following a four-year period characterised by high levels of spending. Despite the fact that some projects may suffer delays as a result of a gradual rise in production costs, there continue to be substantial opportunities in the area. In Malaysia, Petronas awarded two EPC contracts in Kertih and Bintulu, while in the CIS, investments picked up in Russia, with Gazprom awarding the first LNG contract in the Yamal peninsula.

Investments in the Refining segment maintained the positive trend seen during the first half of 2013, with a large number of EPC contracts finalised. Projects awarded in the Middle East included the Sohar refinery expansion project in Oman, phase 2 of Qatar’s Ras Laffan refinery project, as well as a project for Aramco in Riyadh, Saudi Arabia and a number of minor projects in Kuwait. Recently the project for the Karbala oil refinery in Iraq was awarded. In North Africa, Sonatrach made a series of major awards in Algeria for the Biskra, Ghardaïa and Tiaret oil refineries. In the Asia-Pacific area, Petrovietnam began construction works at Nghi Son in Vietnam. In Latin America, PDVSA embarked on phase 1 of its Batalla de Santa Inés refinery situated in Venezuela, while in the CIS area, Lukoil awarded the contract for the expansion and upgrade of its Volgograd refinery in Russia. There was also significant activity in Europe, with Socar awarding the project to build the Izmir refinery in Turkey.

Following a series of substantial investments in 2012, the Petrochemical segment registered a fall in spending. Overall spending for the year was however boosted by the award of important contracts in the US by Chevron at Old Ocean, Texas (construction of two polyethylene units) and by Dow in Freeport, Texas. Despite the contraction in spending, the segment is showing signs of buoyancy, with a number of minor EPC contracts awarded in various geographical areas.

Although failing to reach the high levels witnessed in the previous year, spending in the Fertilisers segment was nevertheless good, with EPC contracts awarded in a number of geographical areas. In the Middle East, a contract was awarded for the construction of an ammonia plant in Waad Al Shamal, Saudi Arabia; in West Africa, Dangote awarded a contract for a fertiliser plant in Nigeria; in the CIS, Socar awarded contracts for its Sumgayit (Azerbaijan) and Phosagro (Russia) projects; in North America, Incitec Pivot awarded the contract for its Waggaman, US, ammonia production plant; and in Indonesia, Panca Amara Utama awarded the contract for its Luwuk project.

The Infrastructure market maintained a positive trend in both civil and port infrastructures segments, particularly in emerging countries characterised by rapid economic development.