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Wed 28 Jul 2010 12:31 PM

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Saudi Aramco signs multi-billion dollar deals for Yanbu

South Korean, Spanish and Indian firms awarded deals for new refinery.

Saudi Aramco signs multi-billion dollar deals for Yanbu
YANBU DEALS: Industry sources reveal deals for new refinery on Saudis Red Sea coast. (Getty Images)

Saudi Aramco has signed contracts with international firms to build a multi billion dollar refinery at Yanbu on Saudi Arabia's Red Sea coast, the state run company said on Wednesday.

The 400,000 barrels per day (bpd) refinery accounts for just under a quarter of Saudi's plans to add 1.7 million barrels per day of refining capacity.

It was to have been built by US oil firm ConocoPhillips and Aramco in Yanbu Industrial City, but Conoco pulled out of the plans in April.

Under the deals signed on Wednesday, South Korean firms Daelim and SK Engineering & Construction Company were awarded contracts to build three of the main processing units.

Other winners included Spain's Tecnicas Reunidas, Dayim Punj Lloyd (Saudi Arabia), a unit of Punj Lloyd, and Egypt's Engineering for the Petroleum and Process Industries (ENPPI), a Saudi Aramco statement said.

In addition, Saudi Arabia's Rajeh H Al Marri and Saudi Services signed infrastructure deals.

Saudi Aramco in its statement did not reveal the value of the contracts. Tecnicas said its contract was worth $770 million and industry sources said the total value of Daelim's two contracts was $1.7 billion, while SK's was for $560 million.

ENPPI's contract was for around $400 million and Punj Lloyd's was for $100 million, the sources said.

The total cost of the refinery has been estimated at $10 billion, down from cost projections of around $12 billion when oil prices were at their height in 2008.

The complex refinery is slated to process heavy crude from Saudi Arabia's project to pump 900,000 barrels per day from the Moneefa oilfield.

It is a sister project to another 400,000 bpd refinery Aramco is building with France's Total at Jubail on Saudi Arabia's east coast.

Oil majors have retreated from the refining business in many parts of the world.

But margins have begun to recover after the oil price crash of late 2008 and economic recession and strong future demand is expected in Asia and the Middle East.

Conoco and Aramco asked contractors to submit revised bids in January to take into account the lower costs of raw materials after the global economic slowdown.

Following Conoco's withdrawal in April, Saudi Aramco asked engineering firms to extend the validity of bids by 60 days.

Profitability has also been improved by cheaper construction costs.

Saudi Aramco's statement gave no details of the timeframe, although one industry source said he expected construction to begin by the end of next year.

One source said: "It's a fairly good deal and the clock has started ticking now."

The new refinery is expected to start operations in 2014, a delay of three years from the original start up date.

One contract to build a unit to handle solids has yet to be awarded. Bidding for that unit closed on July 6. (Reuters)

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