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Fri 14 May 2010 04:00 AM

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Is there a quick fix for KSA’s refining sector?

Saudi Arabian refining has suffered a lot since the beginning of this year. Three major development projects face an unclear future that may lead the government to review its generous subsidies for the sector.

Is there a quick fix for KSA’s refining sector?

Saudi Arabian refining has suffered a lot since the beginning of this year. Three major development projects face an unclear future that may lead the government to review its generous subsidies for the sector.

In January plans to privatise the Jizzan Refinery were scrapped, in favour of Saudi Aramco carrying out the project without any international partners. Because of this procrastination, the refinery is expected to be delayed by up to two years. Then, in March this year, Dow and Aramco revealed that they were considering shifting their integrated project from Ras Tanura to somewhere else - while some sources have speculated that they thinking of shelving it altogether. In April, ConocoPhillips sent a formal written notice to Aramco announcing its withdrawal from the new export refinery project in Yanbu, on the western coast.

While Saudi Arabia aims to meet the increasing demand on refined products, mainly diesel, the exit of ConocoPhillips is a blow for the Kingdom's efforts. There is no doubt in my mind that Saudi Arabia will execute all the announced projects, in spite of the challenges it faces. However, significantly increasing the price of gasoline and diesel and thereby decreasing local consumption, could be a quick fix for this critical issue.

Fuel prices in Saudi Arabia remain among the lowest in the world at 15 US cents a litre. This subsidised price encourages wasteful consumption, as well as smuggling to neighbouring countries. Increasing prices would force people rationalise fuel consumption.

The coming weeks will be critical for industrial drivers in Saudi Arabia, as a decision to increase prices looms on the horizon. That would be the quickest fix for the issue.

Abdelghani Henni is the editor Petrochemicals Middle East.

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