Mena energy spend to hit $1.1 trillion by 2020
Dubai, July 1, 2012
The energy industry in Mena will see a wave of capital projects worth more than $1.1 trillion in projected spending in the coming decade, approximately one-fourth of the industry’s total global investment through 2020, said a report.
This is a significant capital outlay that needs to be carefully managed. However, the region’s track record is mixed when it comes to executing large capital projects, according to the report from Booz & Company, a global management consulting firm.
The report highlights the root causes the root causes of inefficient development, management, and execution of capital projects that may impede taking full advantage of the anticipated capital outlay, and examined ways in which they can be overcome.
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, natural gas, liquefied natural gas (LNG), steel, and aluminium, the report said.
The industry has achieved this diversification by executing a number of ground-breaking new megaprojects across the Middle East.
For instance, Saudi Arabia has become one of the largest players in the bulk petrochemicals market, with its flagship company, Sabic, among the top five producers worldwide. This has been achieved by establishing massive industrial sites with world-scale petrochemicals complexes in Jubail and Yanbu.
Qatar has become the largest LNG exporter in the world during the past decade, by setting up 14 LNG mega trains through its two flagship companies: Qatargas and RasGas. In addition, Qatar also built in collaboration with Shell the largest gas-to-liquids project in the world.
Also, the UAE has been an early pioneer in developing LNG from the Middle East and is building highly complex sour-gas fields, along with a planned increase in oil production capacity.
During the coming decade, the Mena energy industry is expected to continue this massive investment program by executing projects worth approximately $1.1 trillion across the energy value chain.
According to the International Energy Agency, the Mena region is expected to represent about 25 per cent of global energy investments. Predictably, large resource holders such as Saudi Arabia, the UAE, Iraq, and Iran are expected to lead the way in spending.
“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. History suggests that the region’s companies have a mixed record of executing large capital projects,” said Raed Kombargi, partner with Booz & Company.
“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.”
He added, “Many of these problems, however, arise from within the industry itself. In our experience, the root causes include inadequate engineering and project management (E&PM) strategies, a lack of clear governance, inadequate checks and balances, insufficient standardization, and a shortage of local capabilities.”
Today, Mena energy companies have a rare opportunity to fundamentally review the way they develop, manage, and execute capital projects. Specifically, the industry will need to master seven key habits to build world-class project delivery capabilities, he said.
“Mena companies should develop a clear E&PM strategy to ensure that they are well-equipped to manage and execute their capital projects. This strategy will define which projects and activities will be performed by the company itself and which will be outsourced,” said Alain Masuy, principal with Booz & Company.
“To develop this strategy, companies should create a rigorous and transparent project classification framework. Projects are typically classified by risk, size, complexity, and nature.”
Asheesh Sastry, principal with Booz & Company, said: “Generally, direct management responsibility for the project varies depending on where it is in its life cycle. The business owner will be more heavily involved during the initial two phases (identify and assess, and select), while E&PM will manage the next two phases (define and execute). Finally, once construction is complete, the project will revert back to the control of the business owner for operation.”
Mena companies should also 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, the report said.
Masuy added, “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.”
“Best-practice companies can generally differentiate the required checks and balances and deliverables based on the project class to establish the right equilibrium between flexibility and control. Finally— and critically—the gates must be closely linked to the company’s key performance indicators (KPIs).”
“Through these major capital project programs, Mena companies have a unique opportunity to build and incubate the local private sector and play an essential national role in contributing to GDP and the economy as a whole. Perhaps most important, they can help build homegrown capabilities and reduce their dependence on outsiders,” concluded Raed Kombargi. – TradeArabia News Service
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