Saudi Arabia plans huge refinery investments

As well as its status as the biggest oil producer in the region, Saudi Arabia also ranks as the largest refiner in the Middle East and is a growing exporter of refined products particularly liquefied petroleum gas and naphtha. Multi-billion dollar refinery expansions will make this growing capacity increasingly important to global oil markets.

Apart from rising oil prices global energy markets are also facing a shortage of refined products due to an almost total embargo on new refineries in the US and Europe because of strict environmental rules. Pressures have increased due to the year on year increase in world demands for oil especially from China and India.

The scale of Saudi Arabia’s commitment to meeting market needs is shown by plans for a new export refinery at Yanbu on the Red Sea to produce 400,000 bpd of clean fuels involving a $5 billion-$8 billion investment.

The planned refinery at Yanbu could supply the US east coast market with high-quality gasoline while low-sulphur diesel could be exported to Europe and naphtha to East Asia.

A number of US, European and Asian companies have expressed interests in becoming a joint venture partner to operate the refinery. Saudi Aramco vice president Isam Al-Bayat has also disclosed intriguing plans for an initial public offering of shares in the new export refinery.

Saudi Aramco already has two joint venture partners in Saudi-based refinery operations, The 320,000 bpd Sasref refinery at Jubail is operated with Royal Dutch Shell while ExxonMobil is the partner in the Samref already established refining complex at Yanbu. In addition, Saudi Aramco operates five wholly-owned domestic refineries at Ras Tanura, Rabigh, Yanbu, Riyadh and Jeddah which are used to supply domestic needs.

Saudi Arabia’s combined capacity from domestic refineries is around 2.05 million bpd. In addition, Saudi Aramco maintains 1.6 million bpd of refining capacity overseas. The company continues to move ahead steadily with multi-billion dollar investments for construction, upgrading and integration of its domestic refineries.

Saudi Aramco and Japan’s Sumitomo Chemical Company have formed a joint venture to upgrade the Kingdom’s Rabigh refinery to turn it into a major world scale integrated refining and petrochemicals complex at an eventual cost up to $8 billion.

At Ras Tanura a refinery improvement programme is changing the shape of hydro skimming units to a full conversion refinery. The upgrade is costing $1.3 billion and is part of the Kingdom’s long-term strategy to make all domestic Saudi refineries pacesetters by moving operations towards more environmentally friendly and more profitable operations.

Over the last two decades, Saudi Aramco has developed from principally an oil and gas producer to an integrated company with significant refining, shipping and distribution assets. The process has been led through a diversification and integration of operations via strategic joint venture alliances with leading refining and marketing companies in a variety of markets.

As a result, the company is a major participant in four refining and marketing joint ventures located outside the Kingdom . These ventures are with Star Enterprise in the US, SsangYong Oil Refining Company in South Korea, Petron Corporation in the Philippines and Motor Oil (Hellas) in Greece. Saudi Aramco also has equity stakes in other refineries around the world.

Saudi Aramco may also take a share in 200,000 bpd Qingdao refinery that is due to be commissioned in 2007. The Kingdom’s involvement in China which now ranks as the world’s second largest oil importer, is growing. . Saudi Arabia provides some 300,000 bpd of crude to China and is the country’s main foreign oil supplier.

In partnership with ExxonMobil, Saudi Aramco has also concluded an agreement with Sinopec to distribute oil products in China’s Fujian province from a refinery in Fujian in which the two companies will each hold a 25% stake. The $3.5 billion Fujian refinery upgrade will mean that it is better equipped to process heavier Saudi crudes.

Sinopec, China’s main state-owned refiner, has also held talks with Saudi Aramco on the latter taking a stake in a planned $1.2 billion 200,000 bpd refinery complex in China’s coastal city of Qingdao.