Tendering activity is moving swiftly on two landmark Saudi offshore oilfield expansion projects, while a major onshore gas scheme is likewise delivering lucrative work for contractors, writes Clare Dunkley
What: Saudi Arabia remains among the most attractive markets for services companies, with upstream development plans gaining momentum.
Why: Riyadh is intent on expanding oil and gas production capacity. Greater oil output would offer improved flexibility and ease reliance on ageing supergiant fields, while demand for gas is quickly growing.
What Next: Further opportunities are likely to be forthcoming, particularly given that Aramco is considering bids from companies keen to join its exclusive LTA pool.
Saudi Aramco has kicked off the tendering process for two major packages of offshore work on two planned multi-billion dollar oilfield expansion projects. The jobs have been restricted to the five signatories of the firm’s so-called long-term agreements (LTAs), which offer exclusive qualification.
Other contracts on the landmark schemes are being offered more widely – reflecting the substantial additional onshore processing facilities required and in recognition of the huge volume of offshore work either under way or scheduled for award this year.
Meanwhile, a flagship onshore project at the world’s largest oilfield aimed at increasing supplies of scarce natural gas has provided a fresh batch of lucrative jobs.
As the oil price recovery began last year, and shortly after Aramco proclaimed plans for capital investment of US$414 billion over the next 10 years, the company launched major expansion projects at the Berri, Marjan and Zuluf offshore oilfields. These were the first offshore developments aimed at increasing rather than merely maintaining crude capacity since the 900,000 bpd Manifa field was brought on stream in the first half of the decade.
Such schemes have now been accorded additional justification by OPEC’s Saudi-driven agreement in late June to loosen production curbs that have been in place for the preceding 18 months – amidst fresh fears of a global supply shortage born of new US sanctions on Iran and Venezuelan output decline.
The kingdom’s spare capacity has thus come into renewed focus.
According to Riyadh, a nominal cushion of 2 million bpd exists – with current production running at just over 10 million bpd. However, investigations undertaken by NewsBase Intelligence (NBI) in 2014 showed that Saudi’s spare capacity at that time was just 500,000 bpd, a figure in line with UK Ministry of Defence and US Department of Defense estimates, and seemingly verified by subsequent output patterns.
Indeed, even the US’s own Energy Information Administration (EIA) contradicts Saudi claims about its spare capacity. The EIA defines spare capacity specifically as production that can be brought online within 30 days and sustained for at least 90 days. Meanwhile, Riyadh has said that it would need at least 90 days to move rigs to drill new wells and raise output to 12-12.5 million bpd, against current rates.
“Simply, the Saudis do not have 2 million bpd of spare capacity, as it would imply production of 12 million bpd,” said Gary Ross, head of global oil analytics at S&P Global. “They can likely produce a maximum of 11 million but even that will be running their system at stress levels,” he added.
In any case, any Saudi ‘spare’ capacity will be utilised as Aramco delivers the bulk of the additional 1 million bpd promised in the cartel’s latest accord.
It is therefore little surprise that the Berri and Marjan schemes are being moved forward swiftly.
Bids were due by the end of July for two engineering, procurement, construction and installation (EPCI) contracts tendered among the exclusive LTA quintet – comprising Dynamic Industries and McDermott, both of the US, India’s Larsen & Toubro with Oslo-listed Subsea 7, Abu Dhabi’s National Petroleum Construction Co. (NPCC) and Italy’s Saipem.
The larger of the two packages, potentially worth US$1.5 billion, relates to the Berri Increment Project – which is targeting additional capacity of 300,000 bpd of Arabian Light Crude from the field as well as increased natural gas liquids (NGL) recovery. The deal covers 10 production deck modules (PDMs) for oil, one PDM for water-injection, and a tie-in platform.
Tenders for the onshore components, on which Canada’s SNC Lavalin is carrying out the front-end engineering and design (FEED) contract, are anticipated later in the year – and are expected to encompass a new 250,000 bpd gas-oil separation plant at the existing Abu Ali Gas Plant and the installation of facilities at the Khursaniya Gas Plant to process 40,000 bpd of condensate.
The field was brought into production in the late 1960s and produces around 250,000-300,000 bpd.
The second contract out to tender forms part of the estimated US$15 billion Marjan Crude Increment Programme – designed to raise output at the eponymous field by around 250,000 bpd – and covers three water-injection PDMs and a tie-in platform.
Meanwhile, prequalification is under way for two larger offshore packages at Marjan, worth an estimated total of up to US$5 billion – encompassing a gas-oil separation platform capable of handling 475,000 bpd of crude and 750 mmcf (21 mcm) per day of gas, and a cap gas production network.
Solicitations of interest were issued earlier in the year to Aramco’s wider ‘general bid slate’ of eligible companies and a tender is expected by the end of the third quarter.
Among those understood to have thereby been accorded the rare opportunity to secure a slice of offshore work are Daewoo Engineering & Construction and Hyundai Heavy Industries, both of South Korea, Malaysia Marine & Heavy Industries and Sapura Energy, both Malaysian, China’s Offshore Oil Engineering Co. (COOEC), the UK’s Petrofac and London-listed TechnipFMC.
Many of these submitted bids in early June to join the LTA list, being expanded by Aramco to reflect the scale of both greenfield and brownfield offshore work planned.
Solicitations of interest were also issued earlier in the year for five onshore packages for the development phase. Australia’s WorleyParsons won project management and FEED contracts for the offshore elements in July last year, while the UK’s Wood Group was selected in the preceding January for a five-year engineering and project management services contract on the entire scheme.
Offers were also due from the LTA quintet by the end of July on an EPCI package covering three PDMs at the Zuluf field – where a greenfield project is also planned to lift production by 600,000 bpd.
However, the scheme is at an earlier stage of development than those at Berri and Marjan, with the US’ Jacobs Engineering only having commenced work on an engineering and project management services contract in January, and the new package could relate to the ongoing redevelopment work under way across the ageing Gulf fields.
Berri lies in shallow water off the central east coast near the Ras Tanura oil-processing hub, while Marjan and Zuluf are located in the north-east of the kingdom’s maritime territory.
The bulk of the LTA contractors’ work relates to the supergiant Safaniyah field – which produces around 1.2-1.3 million bpd – and a series of packages of work at the key asset worth well over US$1 billion are reported to be close to being awarded to NPCC.
While Aramco’s plans for renewed oilfield expansion have taken off only over the past year and a half, investment in projects to boost the kingdom’s relatively modest and increasingly stretched gas supplies continued throughout the oil price slump from 2014 onwards – albeit with greater cost-consciousness.
The second-phase development of the Hasbah offshore sour gas field got under way in mid-2016, contract awards were made on a landmark project to tap onshore tight gas reserves in the north, and a two-stage expansion of the Master Gas System nationwide pipeline network to raise throughput to 12.5 bcf (354 mcm) per day is well advanced.
Meanwhile, the main engineering, procurement and construction (EPC) contracts were assigned in November on the multi-billion dollar so-called Gas Compression Programme. This aims to lift gas-processing capacity by 1.3 bcf (36.8 mcm) per day at the southernmost zones of the supergiant Ghawar oilfield in the Eastern Province.
The project calls for the installation of new gas compression facilities at the Haradh and Hawiyah areas of the world’s largest oilfield, and the expansion of the 16-year-old Hawiyah Gas Plant (HGP).
Spain’s Tecnicas Reunidas (TR) won three packages worth in excess of US$2 billion for new compression plants, while Saipem picked up the largest single contract, covering the HGP’s expansion by around 1.1 bcf (31 mcm) per day to 3.9 bcf (110 mcm) per day. China Petroleum Pipeline Co. (CPPC) was selected to install 450 km of pipelines carrying gas from Haradh to the enlarged gas plant.
In mid-July, Aramco was reported to have awarded three further packages of pipeline work to interconnect the new gas Haradh compression plants – each corresponding to one of TR’s contract areas.
CPPC won the contract for the work at North Haradh, Saipem took the South Haradh package and Turkey’s Tekfen was said to have been allocated the ‘Satellite Haradh’ pipelines deal. The Italian firm confirmed the award in an update accompanying interim results on July 25. Completion of the entire project is planned for 2021.
Burgeoning domestic demand coupled with a government desire to facilitate further expansion of the kingdom’s petrochemicals capacity are driving the gas push – the perceived urgency of the need was evident in public contemplation last year by Energy, Industry & Mineral Resources Minister Khalid al-Falih of the possibility of having to resort to imports.
According to BP’s annual statistical review, published in June, Saudi Arabia produced and consumed 111.4 bcm of gas last year (305 mcm per day). Aramco’s stated intent is to more than double gas production capacity to 23 bcf (651 mcm) per day by around the middle of next decade.
Riyadh’s drive to increase output of both oil and gas will continue to offer very attractive contracting opportunities, ensuring that the kingdom will remain a hotbed of activity for services firms.