Middle East Launches $32.7 Billion in Energy Projects in 2012, but Careful Management is Needed

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Researched by Industrial Info Resources (Sugar Land, Texas)--Prospects for the energy sector in the Middle East-North Africa (MENA) region countries are coming under close scrutiny as the global energy map shifts from the West to the East in industrial potential.

The International Energy Agency (IEA) sees the region representing about 25% of global energy investments over the next decade. The holders of the largest resources (such a Saudi Arabia, United Arab Emirates (UAE), Iraq and Iran) will lead in capital investment.

"However, the next wave of capital projects will be larger and more complex, and will represent a significant capital outlay that needs to be carefully managed," said Raed Kombargi, a Booz & Company (B&C) partner. "History suggests that the region's companies have a mixed record of executing large capital projects."

Cost overruns, schedule slippages, and inconsistent quality have become recurring concerns for senior management. Some of these problems come from market-related issues, such as a surge in commodity prices in the middle of the last decade, Kombargi said.

"Many of these problems, however, arise from within the industry itself," he added. "In our experience, the root causes include inadequate engineering and project management strategies, a lack of clear governance, inadequate checks and balances, insufficient standardization, and a shortage of local capabilities."

MENA's oil-exporting countries have made impressive strides in consolidating their position in oil markets and crafting a leadership position in new adjacent industries, such as bulk petrochemicals, liquefied natural gas (LNG), steel and aluminum, a B&C report said.

During the coming decade, the MENA energy industry is expected to continue this massive investment program by executing projects worth about $1.1 trillion across the energy value chain.

Saudi Arabia has become one of the largest players in the bulk petrochemicals market with its flagship company Sabic, which is among the top five producers worldwide.

During the past decade, Qatar has become the largest LNG exporter in the world by setting up 14 mega-LNG trains through its two flagship companies, Qatargas and Rasgas.

MENA companies also should establish best-in-class processes to master project development and execution. These processes can be split into three areas: core delivery, support, and checks and balances.

"Additionally, some of these companies have adopted peer reviews at different gates to augment the project governance structure and act as an independent auditor for the project team," said Asheesh Sastry, principal with B&C.

Ventures Middle East reported that the Middle East energy sector has witnessed a surge of fresh investments in 2012, with 97 new power and water projects worth $32.7 billion having stated construction in 12 countries since the beginning of the year.

In the UAE, 10 power and water projects are due to begin construction in 2012. Morocco is investing $4.4 billion in seven projects this year, with a strong emphasis on renewable energy. Kuwait has given the go-ahead to 19 power and water projects worth $4.2 billion, and Saudi Arabia has 15 new projects in the sector that are worth $8.8 billion.

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