GCC Projects Overview A briefing to MEED Projects Customers Abu Dhabi, 19 November 2012 Headlines Baghdad approves $118bn draft budget for 2013 – MEED 5 Nov Saudi Arabia's king appoints new interior minister – BBC, 5 Nov UN: Iran not cooperating on nuclear probe – Daily Star, 5 Nov Bahrain bomb blasts kill two foreign workers – BBC, 5 Nov Syria opposition groups hold Qatar meeting – MEED, 4 Nov UAE approves deficit-free budget for 2013 – MEED, 31 Oct IMF warns GCC to cut government spending – MEED, 30 Nov Adviser lined up for NWC privatisation – MEED, 30 Oct Kuwait awards $2.6bn Subiya Causeway contract – MEED, 29 Oct Contractors submit bids for Doha Metro Red Line - MEED 16 Oct Kuwait approves $433m worth of road projects – MEED, 10 Oct The economic outlook (IMF) Real GDP growth forecast for 2012 and 2013 (%) - IMF • Regionally/globally, outlook is uncertain 10.0 • Global outlook worsened, although emerging economies 8.0 have performed well 6.0 • MENA disrupted by upheaval, but high oil prices boost oil exporters 4.0 • IMF forecasting MENA growth of 2.0 5.3% in 2012, downturn in 2013 • Oil price outlook - $110 barrel in 0.0 2012 and $94/barrel in 2013, up 2006 2007 2008 2009 2010 2011 2012 2013 from $104/barrel in 2011 and -2.0 $79/barrel in 2010 -4.0 • GCC growth = 5.3% in 2012 (3.9.% (oil), 6.4% (non oil)) -6.0 World Advanced economies Emerging economies • MENA oil exporters = 5.5% MENA GCC MENA oil importers • MENA oil importers = 2.2% UAE • Iraq = 10.2% (14.7% in 2013) Source: IMF World Economic Outlook, October 2012 The risks to the outlook (IMF) • Lower-than-expected oil prices BREAK EVEN OIL PRICES ($/barrel) 2010 2011 2012 • Increase government spending Algeria 95 95 105 means that long-term dip in oil prices will squeeze budgets Bahrain 92 100 115 raising prospect of fiscal deficits Iran 70 86 115 • Global recession due to Iraq 90 102 110 eurozone debt crisis, sluggish Kuwait 56 50 50 US growth and further shocks Libya 55 na na • Lack of growth and subsidy cuts Oman 58 74 80 needed to maintain fiscal Qatar 25 38 40 discipline adds to social tensions Saudi Arabia 75 80 75 • Greater economic divide Sudan 140 na Na • Banking sector problems – credit UAE 55 84 80 remains a challenge Yemen 130 150 240 The regional economic outlook The region as a whole and GCC in particular has a strongly positive macro environment Alarming headlines “The US will overtake Saudi Arabia and Russia to become the world’s largest global oil producer by the second half of this decade” “a drop in global oil prices would affect production , since tight oil requires a high market price to be economic” “US will be producing 11.1m b/d in 2020 compared with Saudi output of 10.6m b/d. Saudi Arabia will have regained top spot by 2030 pumping 11.4m b/d compared with the US’s 10.2m b/d” WEO 2012 – a closer look WEO 2012 – implications US oil output growth and softening of US demand means possible drop in oil price Governments must invest while they have surpluses to invest Speed of US oil output growth means oil-exporters only have a 5 year window in which to enjoy high surpluses Governments have a narrow window of opportunity Increasing importance of Iraq in the region, economically and probably politically Iraq to displace Saudi Arabia, UAE, Qatar as biggest projects’ market Universal natural gas demand means hydrocarbons investment focus must shift to gas production Emphasis on previously uneconomic unassociated gas and gas recovery Imperative for reduction in fuel subsidy in GCC/MENA without increase in tariffs, demands energy efficient buildings, transport, industry Public transport, water re-use, green buildings, alternative energy GCC, MENA Projects Market (1) GCC/MENA: Project markets by value of contracts awarded ($m) 2007 to 2012 (YTD) 350,000 300,000 GCC Water 250,000 $776bn) Transport 200,000 Power 150,000 $ million MENA Oil 100,000 $358bn Industrial 50,000 Gas - Construction Iran Iraq UAE Syria Chemical Libya Egypt Qatar Oman Sudan Jordan Kuwait Yemen Algeria Tunisia Bahrain Lebanon Morocco Saudi Arabia Landscape since 2004 has been dominated by UAE, KSA construction; last 3 years sees UAE contraction and KSA growth GCC, MENA Projects Market (2) GCC/MENA: Project markets by budget value of unawarded projects ($m) 2012 to 2017 500,000 Water 450,000 400,000 Transport 350,000 GCC Power 300,000 $1,081bn) Oil 250,000 MENA Industrial $ million 200,000 $747bn 150,000 Gas 100,000 Construction 50,000 - Chemical Iraq Iran UAE Syria Libya Egypt Qatar Oman Sudan Jordan Kuwait Yemen Algeria Tunisia Bahrain Lebanon Morocco Saudi Arabia South Sudan Big shift in this picture is due entirely to the inclusion of the Saudi nuclear and renewables programme. Iraq has potential to be at least as big as UAE GCC – recent history by country % of 40% 36% 11% 7% 5% 2% contracts awarded Arrow indicates trend over past 2 years: flat = Bahrain, Kuwait, Oman; growing = Qatar, UAE; slowing = KSA GCC – recent history by country % of inactive 5% 4% 6% 6% 13% 67% 4% 2% 5% 7% 9% 74% % of contract UAE accounts for 67% of the total number of awarded projects put on hold or cancelled since 2007, equivalent to 74% of the total contract value of those projects GCC – recent history by sector 61% 48% 40% 42% 42% 31% % contract value of non-Civil projects Civil Construction (Construction and Transport) consistently the largest sector, except in 2009 (financial crisis) GCC – recent history by sector 61% % contract value 48% 49% of non-Civil 42% 40% 42% projects 31% Civil Construction (Construction and Transport) consistently the largest sector, except in 2009 (financial crisis) GCC – Completions vs Awards 1000 GCC: Contract awards vs completing projects 900 2000 to 2012 800 71% 71% 67% 700 69% 60% 600 57% 53% 51% 500 52% 400 42% 300 35% 32% Countof awards/completions 200 100 8% 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Contracts Awarded Projects Completing Contracts Awarded (Qatar) Projects Completing (Qatar) In recent years Qatar has exhibited negative award to completion ratios suggesting that since the end of the LNG GCC award to completion ratio boom and the collapse of the real estate construction market, Qatar has been very conservative GCC – Contract awards by value band % of highest value projects awarded UAE 7% UAE 10% • KSA awards proportionately more GCC 7% GCC 8% big contracts than GCC • Count of contract awards actually 10 9 3 increased after 2009 but will drop 18 17 8 8 21 21 6 in 2012 • More contracts of $1bn or more were awarded in 2009, 2010, UAE 8% GCC 18% 2011 than in any other year GCC 8% UAE 7% • Most contracts awarded in 2009, 2010, 2011 were in the $50- $100m band 9 10 12 4 7 18 23 3 23 22 • Inference: biggest and smallest projects have been the least susceptible to market conditions 21% GCC UAE 10% • But in 2012, likely that the lowest UAE 16% GCC 8% value bands will see the biggest volume of awards 1 4 2 5 9 19 19 17 4 6 GCC – Key sectors: Transport $139,594m Biggest of the four Key Sectors at $140bn; energy efficient, West-East energy trade, GCC as a hub Cashflow Transport cashflow peak is reached in late 2016, but note that this accounts only for known masterplans. Rail accounts for half of all awards in GCC and roads/rail infrastructure for 80% of transport spending GCC – Key sectors: Renewables $89,925m Despite the early 2011 Fukushima disaster, Riyadh has remained firmly committed to nuclear. As part of its studies, Ka-Care drew up four different scenarios for its deployment, setting out various options for the schedule and size of the programme. The optimised scenario calls for the construction of 11 nuclear reactors with total capacity of 17,600MW by 2030, with the first due to be commissioned in 2020/21. The location of the first reactors will be finalised once Australia’s WorleyParsons completes in the third quarter of 2012 site investigation studies. Once finalised, Riyadh is expected to move swiftly in tendering the first batch of reactors given that it will need to award the initial contracts in 2013 if it is to hit its 2020/21 target. The kingdom’s solar plans are even more ambitious, especially as it has only limited solar experience and installed capacity of less than 20MW. Ka-Care is targeting 41,000MW of capacity within 19 years of the programme being launched. This, it estimates, would save the kingdom an estimated 523,000 barrels of oil equivalent a day of hydrocarbons. GCC – Key sectors: Gas $48,152m Few viable unassociated fields so investment is necessarily longer term Cashflow (Khazzan, Dorra, Bab, Hail) Immediate opportunities in energy capacity building limited to Oil Qatar North Field moratorium may be lifted in 2015 – new wave of LNG investment? GCC – Key sectors: Water $24,150m Double peak of transmission spending is Qatar (LRDP) and then longer Qatar projects supplemented by Riyadh sewerage Cashflow Transmission and treatment of sewage accounts for half of all spending between end 2010 and end 2020 Kuwait – 2012 Outlook Subiya causeway award in October changed No substantial Refinery projects and Lack of activity in all sectors the course of the weakest year of awards no movement yet on Clean Fuels or caused by political stalemate since 2009 KNPC Refinery Projects and uncertainty KOC talking about long term plans for the oil Subiya sector, to causeway increase award may output to now give 4m bpd by impetus to 2030 but other urban time dev projects running out in Kuwait to meet City and 2020 clean Subiya itself Fuels deadline Volume of awards will be about the same in 2012 vs prior years but top end expectation unlikely to exceed $10.5bn – equivalent to 2010 Saudi Arabia – 2012 Outlook Total value of awards in KSA was $32bn in Big awards = just 6% of total Lack of activity in upstream first 9 months of 2012, compared with number of contracts awarded in and midstream sectors (delays $55bn over the equivalent period in 2011 KSA, vs 18% in 2011 and 2011.