Saudi AramcoSaudi Aramco and Kuwait’s state-owned KPCKPC have breathed new life into the Gulf’s planned downstream expansion surge with announcements to proceed on two key projects, totalling over 1.1mn b/d of capacity. Capital investment in the two projects – Kuwait’s 615,000 b/d al-Zour refinery and the Aramco/TotalTotal 400,000 b/d Jubail export refinery – will total around $30bn, MEES understands. The two projects make up almost a third of the GCC’s investment in new refineries down to 2014.

Kuwait’s downstream arm KNPCKNPC on 11 May announced the award of construction contracts for al-Zour, which will become Kuwait’s fourth and the region’s largest refinery when completed in 2012-13. The contracts were awarded on a cost reimbursable basis, but KNPCKNPC ventured cost estimates for some. A consortium of Japan’s JGCJGC and South Korea’s GS Engineering won Package 1 – the main three-train crude distillation unit package – with an estimated cost of $4bn. Package 2 covering hydrogen and sulfur recovery units, with projected cost of $2.6bn, was won by South Korea’s SK Engineering and Construction, official news agency KUNA reported. Package 3, relating to offsite and utilities was not mentioned, but is believed to have been won by US engineering firm, Fluor. Korea’s Dailem won Package 4 covering storage facilities at $1.19bn. Korea’s HyundaiHyundai won Package 5 – the marine facilities with an estimated cost of $1.12bn.

While the utilities package has been estimated at around $2bn, giving a total cost of under $11bn, it is not clear whether the above includes all procurement costs. Al-Zour is budgeted for KD4bn ($14.99bn), and most industry sources say it will be lucky to meet this budget, given continued cost inflation and the reimbursable nature of the contracts structure which will fix costs on procurement later. KNPCKNPC says it wants al-Zour

operating by May 2012, and SK, for one, intends to mobilize by the end of this month. But given endemic delays throughout the industry, contractors will be doing well to complete construction by end-2012. By then Kuwaiti refinery capacity will be boosted from 936,000 b/d to over 1.4mn b/d, taking into account planned expansion and rehabilitation at the 466,000 b/d Mina al-Ahmadi and the 270,000 b/d Mina ?Abd Allah refineries as well as the probable future closure of the 200,000 b/d Shua?iba refinery (MEES , 12 May). Al-Zour was initially costed at only $6bn, but initial bids came in at $17bn, forcing KNPCKNPC to go back to the drawing board and restructure the project.

Jubail Export Refinery

On 14 May, Saudi AramcoSaudi Aramco and TotalTotal announced a final investment decision on their west coast Jubail export refinery project. The full conversion refinery will process Arab Heavy and maximize diesel and jet production, press releases said. Additionally, Jubail will produce 700,000 tons/year of paraxylene, 140,000 t/y of benzene and 200,000 t/y of polymer grade propylene, the partners said. Jubail start-up was initially planned for 2011. But costs soared from initial estimates of around $6.3bn, prompting a rework to the front-end design and subsequent delays. By late last year, costs indications had pushed the project to $13-14bn, but recent dollar weakness has forced estimates to around the $15bn mark, MEES understands. But now the partners are fast-tracking construction to try to achieve an ambitious new end-2012 start-up target. The construction package tenders will be launched in June, “with a view to awarding all packages during the first quarter of 2009,” said the firms. “Orders for long-lead items will be placed as soon as the third quarter of 2008. The project will be introduced to the lending community in the second part of 2008 with a targeted financial close in early 2009.”

Costs will be shared equally until a joint venture company for the refinery is formed in the third quarter of 2008. AramcoAramco will initially own 62.5% of this company, with TotalTotal holding the remaining 37.5% stake. The parties plan to offer 25% of the company to the Saudi public, with AramcoAramco and TotalTotal each retaining a 37.5% stake after the IPO. AramcoAramco and TotalTotal will share the marketing of the refinery’s production.

Challenges Remain

Now all eyes will be focused to see if AramcoAramco and ConocoPhillipsConocoPhillips proceed with their planned 400,000 b/d east coast export refinery project at Yanbu?. This project has suffered from similar cost escalation as Jubail and for that matter, al-Zour. Furthermore, the Yanbu? project, unlike Jubail which has access to the Saudi gas grid, will need a gas allocation from the ministry and, as of late March, this had still not been granted. With costs straining the project’s economic viability, ConocoPhillipsConocoPhillips has been weighing up whether or not to commit to the project.

AramcoAramco is revamping its existing 400,000 b/d SamrefSamref joint venture refinery with ExxonMobilExxonMobil (MEES, 24 March) and is planning to both revamp and expand capacity at its existing 235,000 b/d Yanbu? refinery by 125,000 b/d. At Ras Tanura it is building a brand new 400,000 b/d refinery (MEES , 21 January), in addition to the construction with Dow ChemicalDow Chemical of a $20bn-plus petrochemicals complex attached to its existing Ras Tanura refinery. The partners are poised to award the financial advisory mandate (see page 26). Also soon, the Saudi Oil MinistrySaudi Oil Ministry should be launching the request for proposals for the kingdom’s first privately owned domestic refinery in Jazan in the south west. The project’s distance from oil fields has thus far proved unattractive to most potential foreign partners (MEES, 7 April).

IPICIPIC Seeks New Partner

Abu Dhabi’s international investment arm IPICIPIC has cut the proposed size of its planned Fujairah refinery from 500,000 b/d to around 200,000 b/d following the exit of ConocoPhillipsConocoPhillips from the project last year. It is now in talks for a new foreign partner. “[Austria’s] OMV is in the mix, as is a US major and European integrated midcap,” a UAE-based industry source told MEES . The new configuration is simpler than that proposed earlier, but costs are provisionally estimated at $6-7bn, the source said. It is early days for the project. “The project has only just been resuscitated. The FEED is still many months off,” he added. On economic grounds it would make far more sense to copy the model for Takreer’s planned new refinery at Ruwais and develop it there in tandem, and this option has been discussed, MEES understands. But Fujairah has been preferred, given the benefits it would bring to one of the UAE’s few economic backwaters. Also, its location outside the Strait of Hormuz gives Abu Dhabi an option if a blockade or security incident should disrupt usual routes.

Overseas Expansion

Most GCC countries are looking at downstream expansion overseas. Engineering consultancy Jacobs is nearing completion of the feasibility study for IPIC’s planned 200,000 b/d Khalifa Point refinery in Pakistan. IPICIPIC, which will have a 74% stake, is confident the $6-7bn project will go ahead. Pakistan’s Parco has the remaining 24%. And IPICIPIC is considering building another grass roots refinery of a similar scale in Morocco, MEES learns. But this project is at a very early stage.

On 12 May, the Philippines government agreed to Saudi Aramco’s proposed sale of its 40% stake in Petron for $550mn to investment management group Ashmore (MEES , 24 March). But Asia-Pacific is still central to Aramco’s strategy. In 2007, Asia accounted for 4.7mn b/d out of Saudi liquids exports of 8.5mn b/d and the region “will account for an even larger share of our total hydrocarbon exports in the years ahead,” said Saudi Oil Minister Ali Naimi in a speech in Seoul on 15 May. “Looking ahead, Asia’s oil consumption is projected to increase by 20mn b/d, accounting for 60% of the projected increase in global oil demand by the year 2030,” added Mr Naimi. “Eighty percent of this increase in demand will principally be met from supplies from the Middle East.”

Together with partners ExxonMobilExxonMobil and Chinese state oil firm Sinopec, AramcoAramco is expanding the 80,000 b/d Fujian refinery by 160,000 b/d. And it is working on securing an agreement on taking a 25% stake in Sinopec’s new 200,000 b/d refinery at Qingdao in the northeast of the country. The kingdom has identified China as its key provider of security of demand, and, significantly, Riyadh’s new ambassador to Beijing is Oil Ministry veteran Yahya al-Zaid, previously co-ordinator of the Jazan refinery project. Saudi crude exports to China have rocketed over the past decade – from a mere 86,000 b/d in 1998, to around 550,000 b/d last year.

Kuwait is also looking to invest in the Chinese downstream, but has scored more luck in Vietnam where it recently signed a deal to take a 35.1% stake in the 200,000 b/d Nghi Son refinery project, expected on-stream in 2013 at an estimated cost of around $6bn. On 10 May, a groundbreaking ceremony was held for the project – only a month after the signing of the joint venture agreement (MEES , 14 April).

Planned GCC Refineries (‘000 B/D)

* Condensate refinery.

Source : MEES .