SAUDI ARABIA - The Integration Factor.

Having carefully studied the advantages (for resource-rich nations) of refining integration with industries like plastics (as mentioned above), Saudi Aramco is yet to experience the risks - not only in view of rising project costs but also because of the cyclical nature of the latter business and the limitation of the GCC market for so many downstream products to result from such JVs. Having become a dominant force in base petrochemicals, Saudi Arabia wants to be a giant in the plastics industry; and this is where Saudi Aramco is moving in JV with Dow Chemical in a mega-project at Ras Tanura which is likely to cost $26 bn.

John Dearborn, head of Dow's India, Middle East and Africa division, believes National Geographic should cover this complex on its Megaprojects TV series, saying: "As far as we are aware, nothing like this has ever been done before in one go...It really is going to be massive" - one of the largest industrial projects ever undertaken".

Along with the $12-14 bn PetroRabigh JV with Sumitomo of Japan, and the Saudi Kayan Petrochemical Co.'s complex, Ras Tanura's points to Saudi Arabia's determination to become the world's leading plastics producer. The JVs will introduce to the Middle East more than 300 downstream products - ranging from engineering plastics and technical chemicals to performance materials and synthetic rubbers. PetroRiyadh is to diversify its existing production portfolio of base petrochemicals (see DT No. 15).

MEED on June 22 quoted Abdul-Wahhab al-Sa'doun, head of energy at Sagia, as saying: "We want to exploit the most...attractive differentiated opportunities to the full extent that the market can support...even if they might be less...viable". This is because Riyadh's aim is to create as many jobs as possible by setting up labour-intensive conversion parks feeding off its advanced chemical production. These clusters, like the one at Ras Tanura, will manufacture a wide range of plastic components for the automotive, construction, metals processing, electronics and packaging industries.

The question is whether such a move can work. MEED quoted an "international petrochemicals producer" as saying: "...while everyone wants to make polymers in the kingdom, no one really wants to produce downstream chemicals. There is no nearby market for them, the market risk is much greater and, of course, there is no real... advantage". Riyadh has a number of reasons for the downstream drive (see DT No. 15).

Addressing the "China Petrochemical Fuchs 2007" conference in Shanghai in June 2007, Saudi Aramco VP for development and co-ordination of JVs Adel al-Tabib said economic diversification was the motive behind the integrated mega-JVs within Saudi Arabia and abroad, including Japan. He said: "When all the new...[JVs] are fully commissioned, Saudi Aramco will become one of the top manufacturers of polyolefins in the world".

Apart from the $26 bn Ras Tanura JV with Dow, which will upgrade the 550,000 b/d refinery (see its profile in down14SaudiRefOct3-05) and have a 1.2m t/y ethane/naphtha steam cracker as a central element for plants to produce more than 300 different items, Saudi Aramco in June 2007 launched an $8 bn grassroots refinery at Ras Tanura. Named the East Coast refinery, this will process 400,000 b/d of AH. It will contain several process elements, including a 231,000 b/d vacuum unit, a 91,000 b/d diesel hydrotreater unit and a 123,000 b/d visbreaker, to increase the yield of more valuable distillates. It will house a 33 MCF/d hydrogen plant, a 35,000 b/d isomerisation unit and a 55,000 b/d crude catalytic reformer. Other process elements include a 195 t/d sulphur recovery facility, an 820 gallon-a-minute diglycolamine plant, a 225 g/minute sewer water stripper unit as well as utilities, control systems and downstream pipelines. An EPC contract award is expected in October. Mechanical completion of the refinery is due by end-2011, with the refinery to start up in January 2012.

KBR was in mid-2007 selected for the PMC covering the $26 bn integrated Ras Tanura JV. KBR beat Fluor Corp and Foster Wheeler to win the $140-150m PMC. It will involve at least 1m man hours of work, making it one of the biggest contracts of its type ever awarded. KBR's work will include the preparation of tender documents, evaluation of technical proposals and supervision of the execution phase. FEED will be jointly managed by Dow and Saudi Aramco, with KBR responsible for its implementation. The engineering work covers basic design of the complex, including the ultimate configuration, material requirements, product slate and overall project cost.

Saudi Aramco selected Dow in mid-2006 for exclusive negotiations to partner it on the JV. The final JV accord was signed in May 2007. Its downstream products will include propylene, benzene, paraxylene, purified terephthalic acid (PTA), polyethylene teraphthalate resins (PET), toluene di-isocyanate (TDI) or methyl diphenyl-di-isocyanate (MDI), SBR or ABS resins and acrylonitrile.

The JV will give Dow access to low-cost AH for its plastic products and provide it with a foothold in the Saudi market, while enabling the kingdom to bring foreign expertise into its chemical industry. The deal helps Dow, the largest chemical group in the US, to shift the focus of attention away from a bitter legal battle with two senior employees fired for allegedly plotting a buy-out of the company. Dow usually controls 50% of foreign JV but in this case, Dow's holding is lower because Saudi Aramco could decide to list a stake in the project on the stock market.

In April 2007, Dow signed a deal with Libya's state-owned National Oil Corp (NOC) to expand and run a plastics factory there (see down2LibRefJul9-07). Dow faces competition from rivals in oil-rich countries, whose plastics and chemicals can be produced at a lower cost due to the availability of cheap crude and natural gas.

Dow in May 2007 severed its last links with Pedro Reinhard, one of the two senior employees accused of holding talks with Middle Eastern investors over a buy-out. Reinhard, who denies the allegations and was suing Dow and CEO Andrew Liveris, stepped down from the board at the annual shareholder meeting, putting an end to a 37-year career with the company. Neither Reinhard, nor Romeo Kreinberg, an executive VP also fired in connection with the allegations and now suing, were present at the meeting.

A fire erupted at the Ras Tanura refinery on Sept. 20, 2006, killing one employee before it was extinguished. The blaze broke out at 4:50 a.m. and was brought under control in an hour. An accidental hydrocarbon leak which led to the fire was probed. But Saudi Aramco then said the fire did not interrupt operations at the refinery complex. Crude oil is transferred to Ras Tanura through a pipeline and can also be supplied by ship.

The most alarming incident in Saudi Arabia's Eastern Province occurred in February 2006 at Abqaiq, south of Dammam on the Gulf coast, when two Neo-Salafi suicide bombers attacked the facility - which processes two-thirds of the kingdom's crude oil exports. Two security guards were killed and eight foreign workers wounded in the assault which was claimed by the Saudi branch of al-Qaeda.

PetroRabigh, an integrated refinery and petrochemical complex at Rabigh on the Red Sea coast, is being built for a JV of Saudi Aramco and Sumitomo Chemcials of Japan at a capital cost estimated at $8 bn in 2005 (see down14SaudiRefOct3-05) but likely to reach $14 bn. In mid-2007, the JV was said to have decided on a second phase of its expansion to produce more chemical items. It was then reported that the expansion will focus on more than a dozen downstream products based on ethylene, propylene, benzene and NGL feedstocks.

The expansion is in line with the kingdom's strategy to develop downstream conversion parks through dedicated clusters - one of the kingdom's key aims as it seeks to create employment opportunities for its citizens. The rate of unemployment in Saudi Arabia has been alarmingly high, mainly because of education based on Wahhabi (Salafi) religious precepts, one of the reasons why many young Saudi males have joined al-Qaeda in recent years. Of the 19 hijackers in the 9/11 attacks in the US, 15 were young Saudi males.

The domestic refinery at Yanbu' is being expanded by 125,000 b/d to 360,000 b/d, under a $500-600m project announced in August 2007, in a bid to keep pace with spiralling local demand for fuels.The project includes a crude distillation unit, a diesel hydrotreater platform, a downstream process unit, offsite facilities, utilities and process automation. Expressions of interest were due by the first week of September, with mechanical completion of the upgrade expected in 2010. Saudi Aramco reportedly contacted Japan's Chiyoda Corp and JGC Corp, Techint of Italy, Technip of France, Hyundai Heavy Industries of South Korea, and Foster Wheeler, Fluor Corp, KBR and Bechtel.

In 2006, Saudi Aramco said it was evaluating an option to upgrade Yanbu' into an integrated refinery, olefins and aromatics complex, and was also considering synergies with existing plants and planned projects. Yanbu' is one of five wholly-owned domestic refineries which Aramco presently operates. The others are at Ras Tanura, Rabigh, Riyadh and Jeddah.

In addition, there are two major export refineries in Saudi Arabia, one at Yanbu' as a JV with ExxonMobil and another at Jubail as a JV with Shell. Both have been upgraded and expanded (see down14SaudiRefOct3-05).