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Burrowing underground.

AFTER NEARLY TWO decades of delay, Saudi Arabia is pressing ahead with an estimated $5bn-plus project to built a series of underground oil storage depots which will have a combined capacity of 30m barrels. Because of the scheme's strategic and political sensitivities, however, none of the parties involved is keen on publicity, and only the broad outlines of the project have emerged.

Intended to assure supplies of refined products to the kingdom's armed forces in times of crisis, the scheme involves deep caverns at an initial six sites - all of them near major military bases. The main contract is held by a Saudi-owned Swedish company, ABV Rock Group, which is using mainly Swedish expertise. Later, a series of smaller caverns will be built, to provide an integrated storage system able to supply all parts of the kingdom.

The project was initially mooted in the mid-1970s, when Saudi Arabia first established itself as the dominant Opec producer. At that time, however, it did not move beyond studies of potential storage sites on the Red Sea coast, prepared by Toronto-based Acres Consulting Services. For Riyadh, engaged as it then was in a determined drive to establish its basic infrastructure, other projects had higher priority.

The threats to the kingdom's security posed by the 1980-88 Iran-Iraq war prompted renewed Saudi interest in the oil storage scheme. In the mid-1980s the client, the Defence and Aviation Ministry, was holding negotiations with Swedish, South Korean and West German consortia, and by mid-1987 ABV Rock Group - a joint venture between Swedish contractors ABV and Skanska - had emerged as the clear front runners.

ABV Rock Group's prospects had been enhanced by the signature in January 1987 of an agreement under which technical advice for the estimated seven-year project would be provided to the client by two Swedish government agencies, the Board of Fortifications and the Civil Defence Board.

In 1986, however, world oil prices crashed, slashing the kingdom's revenues, and financing the storage scheme became a major headache. During 1987 talks centred on a possible oil barter deal, but ABV Rock Group was unable to find guaranteed outlets for the crude. Nevertheless, in mid-year the joint venture signed a main framework agreement for the project management and construction contract.

At about the same time it was reported that the Saudi Petroleum and Minerals Ministry had decided to allocate the project revenues from 200,000 b/d of crude oil sales. Shortly afterwards, a Saudi firm, Bajrai Trading Corporation, started work on a rock-boring contract related to the storage scheme.

In 1988, amidst much secrecy, Saudi interests quietly purchased ABV Rock Group via two Bermuda-registered firms, Ross Contracting and Trading and Eastbrook Ltd. Later, the Swedish daily Dagens Industrie disclosed that the vice-chairman of Ross was Haroun Rashid Kahlon, who was known to be close to Saudi Arabia's National Commercial Bank (NCB). The latter, controlled by Saudi Arabia's Bin Mahfouz family, enjoys a reputation as the banker to the royal family. Well-placed sources say, meanwhile, that the NCB had substantial dealings with Eastbrook.

The Saudi investment seemed to give the storage scheme new impetus, and in late 1988 Stockholm-based Jacobson and Widmark (J & W) won an estimated $30m contract to provide consultancy, design and geotechnical services for the project.

In August 1988, however, the Iran-Iraq war ended and, despite the impression created by the J & W award, the storage scheme was slipping down the Saudi government's agenda. There was little further movement until after Iraq's August 1990 invasion of Kuwait, which finally convinced Riyadh that further delay might be unwise.

Today, work is progressing in earnest at all six sites: Al Kharj, south of Riyadh; Khamis Mushait, in the southwest near the Yemeni border; Hafr al Batin, near the Iraqi border; Bahrah, near Jeddah; Medina; and Qassim, in the centre of the kingdom.

At Al Kharj, the first and biggest site, work is reportedly one third complete. Excavation has started at Jeddah, and site preparations are under way at Medina and Khamis Mushait. At the other two locations, site surveys have been completed.

The caverns at Al Kharj and Bahrah will probably be linked by pipeline to the 135,000 b/d refinery at Riyadh and the 90,000 b/d Jeddah refinery, while the Medina storage site could be linked to the 170,000 b/d refinery at the Red Sea port of Yanbu. The remote Khamis Mushait complex, in the south, could be supplied by tankers or pipeline from the port of Jizan.

While developing its underground storage capacity, the kingdom is doing little to expand its conventional, surface storage facilities. These are concentrated in the Eastern Province, which contains most of Saudi Arabia's oilfields, and they include a 33m barrel tank farm for refined products, crude and liquefied petroleum gas (LPG) at Ras Tanura and a 25m barrel farm for crude at Juaymah. A smaller farm is sited at Yanbu, where a new 1.5m barrel tank, now nearly complete, is the only significant current scheme to expand surface storage capacity.

The confidentiality which has surrounded the project from its inception has not abated with the start of construction. Bengt Levin, managing director of consultants Jacobson and Widmark, is the only member of the firm empowered to discuss the project, but he has declined to respond to telephone messages requesting comment. ABV Rock Group is similarly shy of publicity.

Because of the companies' reluctance to talk, it is unclear whether either or both are involved in another major post-Gulf crisis Saudi project - to build massive underground bunkers to store weaponry left in the kingdom by the US forces taking part in the liberation of Kuwait.

Although ultimately dependent on Washington for its security, as the Gulf crisis demonstrated, the kingdom opposes the permanent stationing of US forces on its territory, fearing that this would inflame nationalist and religious sentiment locally and regionally. The bunkers, costing an estimated $3.5bn and planned to have a full range of maintenance equipment, will allow a rapid mobilisation of US forces in the event of any renewed threat to the kingdom or its Gulf allies.
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Title Annotation:underground oil storage facilities in Saudi Arabia
Author:George, Alan
Publication:The Middle East
Date:Feb 1, 1993
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