| 22 Sep 2008 |
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Delays Start to Plague Giant Saudi Downstream Projects as Ras Tanura and PetroRabigh Plants Slip Behind
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Two of Saudi Arabia's largest ongoing petrochemical projects, the US$10.1-billion PetroRabighPetroRabigh
joint venture (JV) with Japan's Sumitomo and the Saudi Aramco and Dow ChemicalDow Chemical US$25-billion project at Ras Tanura, are facing mounting costs and delays, Middle East Economic Survey (MEES) reports. The scale of the projects, as well as global constraints on parts, materials, and experienced workforce are the main culprits, the report says, although the threat of a dearth of global project finance has also been highlighted. KBR, which last year was independently awarded the front end engineering and design (FEED) contract for the giant Ras Tanura project, has now been relieved of around 2 million man-hours of work from its vast contract due to overstretch, in a move to retake the initiative, although the resulting award process is likely to aggravate delays initially. The Ras Tanura petrochemical project was initially budgeted at US$22 billion. PetroRabighPetroRabigh
is also experiencing delays, although it is now in the last phases of construction: its planned start-up was moved from late October to the first quarter of 2009. A proposed second-stage capacity-doubling project has been discussed, but any decision seems to have been put off until the worldwide market upheavals subside and the future becomes clearer, MEES said.Significance: Saudi projects could be regarded as safe, as the financial muscle of state-owned giant Saudi Aramco virtually guarantees the financing of these politically important projects. Nevertheless the delays and soaring costs will add significant inconvenience to all parts in a market where growth is evaporating and future demand levels, as well as investments, become increasingly uncertain. Both Saudi projects are part of the job-creating strategies of the government, aiming to be centrepieces for industrialisation in the country. Hence they are aiming to attract private investment using their products as feedstock, a plan which--if project finance continues to dry up--could fail. This uncertainty is likely to lower the Saudi pace on starting new projects, despite the kingdom's capacity to fund them fully from its own deposits.
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