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Wednesday, November 14, 2018

Refinery capacity set to expand in Saudi Arabia

Product tanker operators will be interested in the two new export refineries which will form a major part of the Saudi Arabia’s plans to boost domestic refining from 2.1 mbd to 3.4 mbd by 2011. Saudi Aramco also has ambitious plans for overseas expansion, including a 0.325 mbd extension of its Port Arthur refinery in the U.S. pushing capacity there to 0.6 mbd, and a new 0.44 mbd refinery in South Korea.

Saudi Aramco and ConocoPhillips have signed a deal for the construction of a 0.4 million barrels per day (mbd) refinery at Yanbu on the kingdom’s west coast.Aramco earlier this week signed a memorandum of understanding with France’s Total for a grassroots refinery of the same size at Jubail on the east coast, with completion expected by 2011. 

The USD 6 billion Yanbu refinery, for which Conoco was short-listed in March, is expected to include a hydrocracker and vacuum distillation unit — aimed at producing gasoline, low-sulphur diesel, fuel oil and naphtha for export to the U.S., Europe and Asia. Its location on the Red Sea means it will avoid the critical Strait of Hormuz passage, through which a large proportion of crude from the Gulf is exported. The ownership of the Aramco-Conoco joint venture is expected to follow the structure of Jubail, in which Aramco and Total both hold a 35% stake, with the remaining 30% to be offered to the Saudi public. The new refineries are expected to receive discounted feedstock, priced between USD 2.50 and USD 3 per barrel below international market prices, to support the economics of the venture. 

According to International Oil Daily, the USD 6bn 0.4 million barrels per day Aramco/Total export refinery in the industrial city of Jubail on the kingdom’s east coast will process Arabian Heavy crude (rather than trying to sell it on the crude oil markets for shipment to other refiners) and will produce high-quality refined products aimed at meeting more stringent product specifications worldwide. 

Total was selected in March as Aramco’s partner for the grassroots refinery, after having been short-listed last year with Chevron. The announcement comes as French Finance Minister Thierry Breton visited the kingdom over the weekend on an official visit. Aramco and Total will each hold a 35% stake in the new joint venture company, with 30% of the equity to be floated on the Saudi stock market, subject to regulatory approvals. 

Total and Aramco will share the marketing of the products from the refinery, which is expected to come on line in 2011. The front-end engineering and design study is expected to begin shortly, Aramco said in the statement.  

A new Kuwaiti grassroots refinery, with an initial capacity of around 0.45 mbd, will also be built at Shuaiba, 50 kilometres south of Kuwait city. It will process heavy crude and produce low-sulphur diesel to be used as feedstock for existing and new power plants. According to Kuwaiti officials, the new refinery is expected to be up and running in 2008-09. Kuwait’s current total refining capacity is close to 0.9 mbd. 

The export of one million barrels per day of products instead of crude oil from Saudi Arabia will probably mean that the demand for VLCCs will be some 30 less, whereas the demand for product tankers will increase. (1 mbd AG-LOOP requires 38 VLCC, 1 mbd AG-Japan 22 VLCCs).  

Contact: Erik Ranheim