Unstable oil prices lead project owners to reconsider their project pipeline for 2016

Posted on 30th May 2016 in Articles

GCC governments are taking precautionary measures to cope with volatility in oil prices.

Recent budgets reflect the GCC governments’ efforts to instill fiscal discipline and cut wasteful expenditures.

In their latest report, GCC Construction Industry Outlook 2016, construction projects tracking service Ventures ONSITE, sheds light on the trend in contractor awards for the building, infrastructure and energy construction projects in the GCC from 2014 to 2017. Further findings from the report show key trends, market restraints, and market drivers for the GCC construction industry and the most important construction projects to be awarded in upcoming months.

The last 12 months witnessed over US$30 billion worth of projects put on hold, of which the Integrated Facilities Expansion project in UAE, Darb Al Sunnah project in Saudi Arabia, Oman Rail, Madina Monorail Project, and Tank Farm in Fujairah are among the most notable. This is in addition to the billions worth of projects that have been cancelled. Though there has been a fall in numbers, Q1 2016 has clearly been a busy period for the GCC's construction industry. “Over US$45 billion worth of contracts were awarded to contractors during the Jan-April 2016 period in the GCC. This is 27% decrease from the US$62 billion awarded during the same period last year”, said Mibu John, Partner and Research Director at Ventures ONSITE.

While the oil and gas sector remains the major contributor to the regional GDP, the national economic policies and the vision of the GCC countries are increasingly aimed towards economic diversification. These plans and visions are likely to contribute to increased construction activities albeit at a slow pace in 2016 across the GCC. The unstable oil prices have led project owners to reconsider some of their planned pipeline of projects and activities for the future. However, despite cutbacks in overall expenditure, most GCC economies have retained spending on key sectors such as education, affordable housing, hospitality to promote tourism, and healthcare.

The GCC construction contractor awards are expected to be still resilient in 2016, however, if prices do not recover in the near future, it is likely to affect the GCC construction industry in 2017. With Expo 2020 and FIFA World cup around the corner, the industry cannot afford to remain weak for long, no later than 2018. Kuwait and Saudi Arabia are also likely to remain attractive for investors, Saudi Arabia especially thanks to the approval of Saudi Vision 2030 and National Transformation Plan 2020.

Alba Sixth Potline Expansion, LNG Import Terminal in Al Zour, Sohar 3 - Ibri Independent Power Plant (IPP), Jurassic Oil & Gas Reserves Expansion, and the Royal Atlantis Resort on the Palm are among the major projects awarded to contractors till date in 2016. Some of the high valued contracts expected to be awarded to contractors in the next couple of months include Taibah Integrated Solar Combined Cycle (ISCC) Power Plant, Dubai Metro - Route 2020, Saadiyat Island - Lagoons District, Qatar Power Transmission System Expansion - Phase 13, Al Zour North IWPP - Phase 2 - Power Plant, and Umm al Hayman Wastewater Treatment Plant (WWTP) Expansion among others.

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