Aramco, ConocoPhillips delay Yanbu refinery construction

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Nov. 6 -- Saudi Arabia's Saudi Aramco and ConocoPhillips, citing uncertainties in financial and contracting markets, have agreed to halt the bidding process for construction of their planned 400,000 b/d export refinery at Yanbu.

"Although the original schedule for the Yanbu export refinery project will change, [Aramco] remains strongly committed to completing this important project with ConocoPhillips," said Pres. and Chief Executive Officer Abdallah S. Jum'ah.

"We believe that a delay at this time will allow both the contracting and financial markets to better accommodate the project and will prove to be advantageous for the project company," Jum'ah said.

The companies had requested bids to be submitted during Dec 2008 but expect that the project will be rebid in second-quarter 2009. Meanwhile, to ensure project continuity, the firms will maintain joint engineering, start-up planning, and other preparatory activities.

The Yanbu refinery, which had a price tag of $6 billion when it was announced in 2006, was one of four plants Aramco planned to increase its refining capacity. But equipment and labor shortages have pushed costs up globally in the energy sector, casting doubt on whether the projects would go through as planned.

Uncertainty in Aramco
The decision regarding Yanbu follows earlier reports suggesting uncertainty in the Saudi national oil company regarding the effect that the current global financial crisis would have on its projects.

Earlier this week, an Aramco executive director said the firm is reviewing some of its long-term projects following the sharp decline in oil prices and a dramatic slowdown in demand growth for crude.

"We are going back to our partners and discussing with them the new economic circumstances," said Khaled al-Buraik, an executive director at Aramco. "We are not talking about delays, we are talking about reviewing."

Al-Buraik said a decision on the projects would be made based on the re-evaluation process, and that Saudi Arabia and other countries would be conducting their own reviews in the wake of changing dynamics.

"People would like to go and re-evaluate, and maybe some projects were evaluated at $80 or $100/bbl—now we are talking about $65/bbl," he said.

Al-Buraik said he thinks the whole oil industry will re-evaluate new expansions: "It will be reassessed based on the current economic circumstances," he said.

Al-Buraik's view diverges sharply with remarks made last week by Khalid G. Al-Buainain, Aramco's senior vice-president of refining, marketing, and international activities.

Crisis' minimal impact
"When it comes to our new crude-oil increments and gas expansion projects, the impact of the present economic turmoil will be minimal," Al-Buainain said at a meeting of the Society of Petroleum Engineers.

"By and large, our upstream projects are self-financing, or 'corporate financed,' meaning that we are not reliant on the banks or credit institutions to finance our expansion programs," Al-Buainain said.

Softening demand means an extra cushion for project timetables and more flexibility in production, he added.

The company also is involved in several joint ventures with international partners, from export refineries to petrochemical projects, and Al-Buainain expressed optimism that they will be unaffected by the current global economic situation.

"I can tell you that our partners are still highly committed and anxious to see these projects move forward. I think it is realistic to say that financing these megaprojects through borrowing in a tight credit market will be a challenge," he said.

"However, because of the uncertain nature of the global financial crisis, it is really too early to tell what sort of fallout there will be for the funding of these projects." He added that the economic viability of the projects is not in question.

Advantageous position
The construction boom in the Middle East might cool off because of the slowdown in credit, putting Aramco in a more advantageous position.

"Declining commodity prices that are a byproduct of the global economic slowdown will help to reduce the estimated price tags of these projects, as the cost of materials like steel and copper falls sharply," he said.

Equipment and qualified personnel are also likely to be easier to obtain as other projects in the region are canceled or delayed, both in the industry and in the construction and infrastructure sectors.

"As a result, short-term project economics may actually benefit from the current financial turmoil, and companies with a lot of cash will come ahead," said Al-Buainain.

"The day-to-day noise generated by the markets doesn't matter very much when it comes to [Aramco's] project portfolio," Al-Bunainain said.

Contact Eric Watkins at hippalus@yahoo.com.

Related Articles

ConocoPhillips revises down $2 billion from budget

01/29/2015 ConocoPhillips has shed an additional $2 billion from its capital expenditures for 2015, decreasing total spending to $11.5 billion from the previo...

Chevron, BP, ConocoPhillips join to explore, appraise Gulf of Mexico leases

01/28/2015 Chevron Corp. subsidiary Chevron USA Inc., BP PLC unit BP Exploration & Production Inc., and ConocoPhillips Co. have pledged to work together t...

Conoco's Lance calls for repeal of US crude oil export ban

01/26/2015 The US crude export ban that was imposed in 1975 should be repealed 40 years later to ensure the US oil and gas renaissance continues, ConocoPhilli...

For the US economy, a falling oil price has drawbacks, too

01/05/2015

Cheer in the US about an economic lift from falling oil prices needs qualification.

ConocoPhillips slashes 2015 capital budget

12/22/2014 ConocoPhillips has elected to reduce its 2015 capital budget to $13.5 billion, down 20% compared with this year's budget. The news comes on the hee...

ConocoPhillips slashes 2015 capital budget

12/08/2014 ConocoPhillips has elected to reduce its 2015 capital budget to $13.5 billion, down 20% compared with this year’s budget. The news comes on the hee...

BLM issues final SEIS for Greater Mooses Tooth project in NPR-A

10/30/2014 The US Bureau of Land Management released its final supplemental environmental impact statement for the proposed Greater Mooses Tooth (GMT1) oil an...

Western gulf lease sale attracts $110 million in high bids

08/20/2014 Gulf of Mexico western planning area Lease Sale 238 drew 93 bids from 14 companies over 81 blocks covering 433,823 acres, totaling $109,951,644 in ...

ConocoPhillips, Enap sign deal to study unconventional oil, gas in Chile

08/06/2014 ConocoPhillips and Chile’s state oil company Empresa Nacional del Petroleo (Enap) have signed a technical agreement to jointly conduct geological, ...
White Papers

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected