What does the focus on the downstream segment and budget reallocation toward gas mean for the industry and how do EPC contractors position themselves?
The energy sector today is in a state of flux: current trends will have a far-reaching impact on oil and gas prices and projected investments. In recent years, the energy sector has witnessed a transition from a traditional business model driven by supply, demand, and price fluctuations to a far more complex and multi-dimensional business model impacted by new technologies, climate change, and sustainability. Change in the oil and gas sector is certain; it is risky to assume business as usual, do nothing and only react to market changes. Many oil companies are slowly reallocating their emphasis from oil to gas: this move is not only driven by gas prices versus oil but by government policies and the push for renewable and clean energy. Our strategy has been to anticipate market change and to plan ahead and quickly adapt to new market realities. For example, the construction of a state-of-the art fabrication facility in the UAE was in anticipation of local market changes. At the local GCC level, more recently, we have witnessed the implementation of a more focused approach driven by the impacts of In-Country Value (ICV) systems being implanted across the region in countries like Oman, Saudi Arabia, and the UAE.
How can an EPC contractor such as Arabian Industries navigate the current wave of changes affecting the oil and gas industry and remain ahead of the competition?
In order to remain competitive, Arabian Industries is continuously reevaluating its business model. Four years ago, Arabian Industries took the necessary steps to restructure its operations into four distinct companies each focused on a specific services delivery including maintenance (AITS), Engineering Technology (AIES), manufacturing (AIM), and EPC (AIP). The AIES segment in particular, specializing in the design and supply of process engineering solutions covering the four main upstream areas of Oil Separation, Gas Treatment, Produced Water Treatment and Sand Management, will enable us to deliver complete turn-key process packages to the Oil & Gas market across the globe and meet the ever-increasing requirement for contractors to supply fully integrated solutions for clients. Along with the restructuring, the company took further steps to decentralize its operations by creating standalone organizations focused on local markets in Oman, UAE, Bahrain, Kuwait, and Iraq. In the UAE, we have had a continuous presence since 2010 and have completed a number of key EPC projects. In December 2017, Arabian Industries inaugurated its fifth manufacturing facility, located in ICAD-II, Abu Dhabi, UAE. The new facility, built to support our EPC Division and to serve steel fabrication needs of our UAE clients, is state-of-the art and encompasses an area of 44,000sqm, bringing our combined fabrication area to 250,000sqm. Last but not least, we seek to diversify our portfolio to focus on innovative and new technologies, such as our recent involvement in the construction of the world's largest solar enhanced oil recovery project delivering 1,021MW of peak thermal energy, and our recent addition of a state-of-the-art Corrosion Resistant Alloy (CRA) cladding facility for manufacturing of cladded piping bulk components.
What is your assessment of ADNOC's restructuring and the introduction of the In-Country Value (ICV) program for its suppliers?
ADNOC's recent reorganization followed by the launch of an ICV program has had a profound impact on our UAE business. The ADNOC ICV program was launched to grow and diversify the UAE economy and to create opportunities for UAE nationals in the private sector. As a Tier I ADNOC Supplier and a local company, we believe this initiative reinforces our commitment to support local businesses in driving economic diversification and growth. However, as the system is taking its hold, we have witnessed some teething problems, which will undoubtedly be corrected through further development. Our ICV strategy will include an approach focused on long-term collaboration with suppliers abiding by the ICV requirements. Hopefully, given the new licensing strategy of opening up six new onshore and offshore blocks in Abu Dhabi, with the ICV system in place, work will filter down to local companies. Existing studies suggest these new blocks hold billions of barrels of oil and trillions cubic feet of natural gas; therefore, it is natural to assume it will bring both new opportunities for EPC contractors in the oil and gas industry and new jobs.
What does ADNOC's Downstream Strategy mean for the local EPC industry?
ADNOC is moving forward to increase its upstream capacity, it is also moving forward with downstream and taking full advantage of the rising demand for higher-value refined and petrochemical products. By creating the world's largest integrated refining and chemical site in the world, located in Ruwais, the UAE aims to increase annual production to 14.4 million tons by 2025. On the back of this fast-tracked strategy to implement its vision, the UAE energy sector will experience unparalleled growth. The shift to downstream will create an added revenue source to mitigate fluctuations in the oil prices. In the short term, this will create new opportunities for EPC contractors such as the construction of new gas pipelines. Local EPC and manufacturing companies will experience a significant increase in workload and will invest not only to increase execution or production capacity but also to increase efficiency and bring in new technologies.