After three years in relative hibernation, several energy construction projects loom for the UAE
Several projects are planned by the Abu Dhabi National Oil Company (ADNOC) following a profitable year for the UAE energy firm, providing a boost to the country’s insurance market for energy construction projects.
ADNOC is planning the world’s largest petrochemicals refinery, offering a contract to UK company Wood to design the complex, in the western region of the Emirate of Abu Dhabi. Integrated with existing infrastructure in Ruwais, ADNOC wants to process 600,000 barrels of crude oil per day at the new site.
“Construction in the sector has been fairly quiet regionally for three years,” says Stephen Hart, senior executive officer for the region at EC3 Brokers, based in the Dubai International Financial Centre.
“The oil and gas side of the business has been particularly quiet and that’s where the big value projects come from. Premiums are low in other construction sectors, so it’s hard to make money out of them,” he continued.
Since the start of 2019 he sees signs of the market improving – headlined by ADNOC projects.
“Since the beginning of this year it looks like it might be happening. The early signs are that there may be more energy projects in the market, with the ADNOC projects coming out on a tender basis,” said Hart.
“There’s a new petrochemicals plant, a new refinery, and a new artificial islands project for an onshore rig is coming too,” he added.
Signs of activity come after several underwriters of construction business have wound down or exited the market entirely – particularly in London.
“Construction is hardening at great speed. It’s a double pick up, because capacity has disappeared from the construction market and you’ve got a more general hardening of the market going on now,” said Hart.
“People have been pulling out of the class because they weren’t making money and rates had reached a ridiculous level. At the end of last year Lloyd’s pulled a lot of business plans [for underwriting construction business] because they didn’t make sense, so the Lloyd’s construction market virtually disappeared,” Hart added.
Better pricing for underwriters of marine cargo and hull is also available in 2019, while the energy and power market has flattened, although property remains “the cheapest of the cheap” in the region, Hart suggested. “Meanwhile, construction and marine rates are going up through the roof,” said Hart.
For marine underwriters, this comes after year after year of softening rates towards increasingly inadequate prices, Hart emphasised.
“Marine cargo and marine hull rates have been reducing year on year on year, and they can’t keep going one way. Regional ship owners have gone bust, so there’s been a reduction in fleets and in premium per fleet,” he said.
“It’s all driven by loss ratios, but if you have a vast number of players out there, then there’s always someone willing to take a chance, but the numbers have reduced, and particularly at Lloyd’s,” continued Hart.
This can allow local insurers in the UAE to win back business which may have gone to Lime Street in recent years. “We’ve lost a lot of business to the London market, so it’s a big opportunity to win back regional business that went to London because it was cheaper,” Hart added.