Downstream sector benefits from lower costs

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Gulf governments are quickly awarding their long-stalled contracts in the downstream sector to take advantage of the bottomed out construction costs.

Leading the way are gas and oil majors - Qatar and Saudi Arabia - who seem particularly eager to award long-pending downstream projects. Oman and Bahrain, which do not have plenty of hydrocarbon resources, are using the opportunity to have their infrastructure projects readied at lower costs.

Qatari national oil company Qatar Petroleum (QP)Qatar Petroleum (QP) is expected to approach contractors for its $6 billion (Dh22bn) Al Shaheen refinery project by the end of July. On the other hand, the gas-rich emirate has pressed ahead with the $5bn Barzan gas development in the North field.

Bahrain recently awarded contracts worth $500bn to General ElectricGeneral Electric. The US machinery and technology giant is to supply equipment to the country's independent Al Dur Water and Power project.

CEOs of two General ElectricGeneral Electric (GE) subsidiaries told Emirates Business that they see several opportunities emerging in the government funded projects in the Gulf. "We see opportunities in the region. Particularly in the projects that are funded by the government ," said the GE Fanuc President and CEO Maryrose Sylvester.

Electricity and water authority in Oman has appointed an advisor to speed up stalled contract award process of its south coast located Salalah project.

These developments come close on the heels of Saudi Arabia awarding several contracts totalling $7bn as a part of its 400,000 barrels a day capacity Jubail refinery project.

Jacques Souplet the Managing Director (Middle East) with TotalTotal (which partners Saudi AramcoSaudi Aramco in the project) said work on the project has already begun.

The project was originally estimated at $12bn.

Samir Al Tubbayyeb, the Chairman of Saudi Aramco Total refining CompanySaudi Aramco Total refining Company earlier said the company wants to keep the cost of the project under $10bn.

Analysts said the scramble among Gulf majors to allocate contracts asserts the fact that they do not expect the prices to drop further.

The timing of the award of these projects coincide with the largely expected rise in demand for steel.

On June 23, both steel giants Posco and Arcelor Mittal said they would increase production due to higher steel demand.

The comments were the first signs of improving commodity demand and come after the "green shoots" of economic improvement seen over the past few months.

Senior officials from two steel manufacturers in the UAE recently said they expect the steel prices to rise in July. Apparently both the demand and the prices of long and flat steel products has increased in the Middle East.

A MF Global report expects prices of several metals to rise.

By Shashank Shekhar

© Emirates Business 24/7 2009