Executing capital projects in the MENA energy industry: Much to learn, more to deliver

Published: June 26, 2012

Executive summary

In the last two decades, the energy industry in the countries of the Middle East and North Africa (MENA) has seen significant capital investments across the value chain, from upstream oil and gas to downstream refining, to petrochemicals, and to power/renewables. The coming decade will see a wave of major capital projects in the energy sector among MENA countries — more than US$1.1 trillion in projected spending, or one-fourth of the industry’s total global investment through 2020. This is a significant capital outlay that needs to be carefully managed. History suggests that the region’s companies have a mixed track record when it comes to executing large capital projects. Cost overruns, schedule slippages, and inconsistent quality have become recurring concerns for senior management. In our experience, the root causes of inefficient development,management, and execution of capital projects include a lack of clear governance, inadequate checks and balances, insufficient standardization, and a shortage of capabilities.

Before the bulk of these projects begin, MENA energy companies have a rare opportunity to fundamentally review the way they develop, manage, and execute their capital projects, to ensure that future spending is managed well. Specifically, the industry will need seven key habits in order to build world-class project delivery capabilities: (1) develop a clear engineering and project management (E&PM) strategy; (2) develop and implement a governance model with clear responsibilities and accountabilities; (3) establish best-practice processes including appropriate checks and balances; (4) develop in-house centers of excellence in key E&PM areas; (5) develop strategic alliances to address local capability gaps; (6) establish dedicated project and commercial academies to improve learning and development; and (7) increase standardization levels across all areas.

Failure to take corrective action now will mean a quick return to the disorganized days of the past decade, a significant loss of time and capital, and a missed opportunity to develop the local skills and capabilities required for the industry’s future.

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Key highlights

  • Between 2011 and 2020, Middle East and North Africa (MENA) energy companies will invest more than US$1 trillion on infrastructure, in oil and gas, refining, petrochemicals, and power/ renewables, representing a fourth of all capital expenditures in the energy sector worldwide.
  • Historically, the region has a mixed track record in managing such largescale projects, leading to cost overruns, delays, and other problems.
  • In order to manage megaprojects more effectively, MENA energy companies must master seven key habits of successful project delivery, which include developing a clear engineering and project management (E&PM) strategy, establishing a staged-gate governance model, fostering accountability with clear checks and balances, and improving local E&PM skills and capabilities.

Conclusion

As a new wave of mega investments begins, now is the right time for MENA energy companies to fundamentally review the way they develop, manage, and execute their capital projects. They should master seven key habits to build world-class project delivery capabilities. In addition, through these major capital project programs, MENA companies have a unique opportunity to build and incubate the local private sector, to play an essential national role in contributing to GDP and overall economic development. Perhaps most importantly, they can help build homegrown capabilities and reduce dependence on outsiders.

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Executing capital projects in the MENA energy industry: Much to learn, more to deliver

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