Engineering success in Qatar

Qatar

French multinational engineering and construction company Technip, in a joint venture with Japanese engineering firm Chiyoda, completed Qatargas’ Plateau Maintenance Project in Ras Laffan Industrial City in October 2014. Emmanuel Fontan, Technip’s country manager, discusses how proper front-end project design, reasonable project planning and portfolio diversification enable businesses to mitigate risks associated with engineering, procurement and construction (EPC) contracting.

How do you explain rising project costs in the oil and gas industry?
At the international level, oil and gas operators have expressed concerns about increasing construction costs. This was before commodity prices started going down in the summer of 2014. Rising costs for engineering and construction projects may be explained by advanced technology, and sometimes by the gold-plated materials used by contractors to meet their clients’ growing expectations.
To avoid adjustments and cost changes during the execution phase, we believe it is essential to first develop a solid front-end engineering design (FEED) at the beginning of the project. It is also necessary for contractors to get involved and work with their clients early in the design phase of the project before moving on to the EPC phase. These key steps allow for a clear project design and understanding between contractors and operators.

How can appropriate project design help operators and contractors mitigate the risks associated with projects?
The EPC business often involves risk linked to the project’s design, cost and timeline. As previously underlined, a solid FEED allows a company to properly assess the EPC project cost and schedule and ensure success in subsequent phases. Then, depending on the project, region and client, a reimbursable EPC-management (EPCM) contract, under which the contractor is paid for actual construction costs plus a fee, may then be more appropriate than a lump-sum contract that entails a fixed price for a defined scope of work and timeline. The first option allows for more flexibility during the project’s construction phase. Another way to better control the risk and cost of the overall project is by allocating the FEED and the EPC contracts to the same contractor or consortium of contractors as it can bring the best results through continuity in project planning and execution.

How can engineering and construction companies reduce their exposure to EPC-related risks?
Some engineering contractors have chosen to specialise in pure engineering, procurement or construction services without taking the risk of the whole EPC package. Others will still take the EPC risk, but diversify their activities. For instance, in addition to EPC, we decided to also work for our clients in different ways, through early engagement with concept and front-end studies to prepare the projects, EPCM, project management consultancy (PMC), or various reimbursable contract models. Contractors that diversify their portfolio of services and the projects they are involved in can better manage the overall risk for their activities. We also believe it is essential for contractors to target projects where they can bring value through their technology, licences, know-how and track record.

What types of projects are of specific interest in Qatar?
In Qatar we specifically target offshore development projects that match our expertise and capabilities such as pipeline infrastructure, both for brownfield maintenance and upgrades and new greenfield facilities. Onshore, we are looking at projects with specific technological content where we are able to build on our experience and licence portfolio, typically LNG, refining or petrochemicals facilities.
In a nutshell, portfolio diversification and project selectivity based on available technology and area of specialisation are the key for contractors to efficiently manage the risks associated with different types of projects.

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