SAUDI ARABIA - Saudi Aramco To Press Ahead With Yanbu' Refinery & Heavy Oil Development.

Saudi Aramco is determined to have its 400,000 b/d heavy conversion refinery built at Yanbu' even if no IOC becomes involved in this as a partner. This is because Saudi Aramco is pressing ahead with development of heavy crude oil from an offshore field in the Gulf, which is to produce 900,000 b/d by 2011.

Saudi Aramco has asked for submissions of interest on the next engineering, procurement and construction (EPC) phase of the refinery project. It follows news that Saudi Aramco and its JV partner, ConocoPhillips, took an initial decision to stop proceeding with the refinery, because of rising costs. Although a final investment decision on the JV has yet to be made, Saudi Aramco has asked firms to register their interest in six non-processed packages associated with the refinery, indicating it will go ahead regardless - and even if the plant is to cost more than $13 bn.

This indicates that Saudi Aramco is equally determined to have a similar refinery built in Jubail which, like the one for Yanbu', should process 400,000 b/d of heavy/sour crude into premium fuels. The Jubail project is a JV with Total, which so far has indicated it will go ahead with the $13 bn+ venture (see down14SaudiRefOct1-07).

Heavy crude oil, an unattractive option for most importing nations, produces fewer feuls, is harder to transport and is more expensive to refine than the lighter grades. At one of OPEC's meetings, Petroleum & Mineral Resources Minister Na'imi said: "Nobody wants heavy [crude] oil, there are no refineries that handle heavy oil".

Heavy crude oil is so difficult to sell that it is not uncommon for cargoes to sit in tankers awaiting buyers. Heavy crude oil is nearly always sold at a large discount to lighter grades in an effort to encourage refiners to buy it. Over the past five years, Arab Heavy (AH) has traded at discounts of $12-16 below the price of WTI. The problem for Riyadh is that the importance of heavy crude oil is only going to increase as its already ageing AL-producing fields begin to decline. If it cannot refine the heavier crude itself, it will run the risk of losing flexibility in the way it prices its exports.

The new packages for the Yanbu' refinery cover tank farms, product storage and blending facilities, cooling water and seawater systems, electrical power distribution, solids handling and a utility block element. Expressions of interest for the speciality packages were due on Oct. 4. Prequalification is expected in November, with invitations to bid due by the second quarter of 2008 and an award to be made by the fourth quarter. It follows prequalification for the four main process packages earlier this year. Saudi Aramco is expected to invite companies to bid on those units by the first quarter of 2008.

The Yanbu' and Jubail export refineries are designed to process AH from the 900,000 b/d offshore Manifa field, and must be operational by 2011 to meet its original objectives. These are two of several major refinery projects being hit by rising costs across the region. ConocoPhillips has also ended its involvement in a 500,000 b/d refinery project in Fujairah because of rising EPC costs.

Saudi Aramco has received just three bids for the project management and basic engineering contract at the world-scale $8 bn, 400,000 b/d East Coast refinery project in Ras Tanura. The low number of bids highlights the constraints on contractors in the Gulf, with two companies, KBR of the US and JGC Corp of Japan, withdrawing despite being invited to bid. A key issue is the backlog of work. The three bidders were Foster Wheeler of the US, Worley Parsons of Australia and SNC Lavalin of Canada. The contract for the facility is expected to be awarded in November with mechanical completion due by the end of 2011. This refinery, too, is to process AH into premium fuels.

MEED on Oct. 5 reported that at least eight companies were expected to submit bids by the new Oct. 20 deadline for a $500m contract to install a diesel hydrotreater at the existing Ras Tanura refinery. MEED said four South Korean companies - Hyundai Heavy Industries, Hyundai Engineering & Construction, Samsung Engineering Company and SK Engineering & Construction - were bidding along with Snamprogetti and Techint of Italy, Tecnicas Reunidas of Spain and JGC Corp. It said that bids, originally due in early September, were delayed until Sept. 30 and had now been put back again while Saudi Aramco dealt with a backlog of work. MEED said an award was due by late November.