Aramco committed to Petro Rabigh expansion

But Sumitomo is not sure about the feasibility of the second expansion

Abdulaziz al-Judaimi, vice president of chemicals at Saudi Aramco.
Abdulaziz al-Judaimi, vice president of chemicals at Saudi Aramco.

Saudi Aramco is committed to a $6-8 billion expansion of its first integrated refining and petrochemical project, Rabigh Refining and Petrochemicals Company (Petro Rabigh), according to Abdulaziz al-Judaimi, vice president of chemicals at Saudi Aramco.

The company’s plant, on Saudi Arabia’s Red Sea coast, expects to double petrochemicals capacity to 3.7 million metric tons a year if it completes a planned expansion.

“Saudi Aramco is very committed to the expansion of Petro Rabigh,” al-Judaimi told arabianoilandgas.com. “The project represents a strategic integration with phase one. We already have a very large asset state-of-the-art asset, along with a huge potential for integration. Once complete, phase two of the Petro Rabigh project will synergize with the existing phase,” he added.

A problem for Saudi’s national oil company is that other investors may not be as enthusiastic. Japan’s Sumitomo, its partner in the Petro Rabigh project with a 37.5% stake, has struck a wary note, following poor economic performance.

“We hope to continue the expansion of the project, but we are not sure about its feasibility,” Reuters quoted a Sumitomo official as saying. “We are still in the middle of the evaluation process. We are conducting very complicated and difficult talks as we want to success in the project,” he added.

That Sumitomo is not sure about the feasibility of Petro Rabigh is not surprising. The company missed analysts’ expectations of a profit in the third quarter of 2011, widening their net loss for the period to 281 million riyals ($75 million) from 237 million riyals for the same three months in 2010.

Aramco also owns a 37.5% interest in the project, with the rest owned by public shareholders via Saudi’s Tadawul exchange. Aramco are hopeful of raising finance for the expansion through a placement of further shares. According to Bloomberg, shares are up 10.28% over the year, after taking a series of knocks after periodic results announcements, and at the time of writing stand at 25.20 riyals.

“Typically, the next step for mega projects like this is to look at the project’s economics and finalize decision for the investment,” he said.

Al-Judaimi didn’t give an exact deadline for when approval of an expansion to the Petro Rabigh project will be announced. “We are not far away, and we will make the announcement hopefully after we go through the internal approval from our partner,” he noted.

Petro Rabigh is a joint venture between Saudi Aramco and Japan’s Sumitomo Chemical. The two partners meet frequently to discuss the development of the project. “We have steering committee and we meet every four weeks,” Al-Judaimi said. “We have continuous commitment from both partners to look at the joint feasibility study and then deciding what be the right course of action for the project,” he added.

If approved, Phase 2 of the project will add about 17 new products, and is estimated to cost $6.67 billion. As part of the expansion, firms will consider increasing the capacity of the existing ethane cracker to take in an additional 30 million cubic feet per day (cfd) of ethane feedstock.

Japan's JGC Corporation conducted the feasibility study on Phase 2, and Al-Judaimi. “We are not reviewing the feasibility study,” he said. “The bids are out: we have received the bids, and it is only a matter of fine tuning the economics and investments. We will make the investments once we go through the internal review, and then decide.”

Petro Rabigh's facility includes a 400,000 barrel per day refinery, a 700,000 tonne a year polypropylene plant, a 600,000 tonne a year linear low density polyethylene unit, and a 200,000 tonne a year propylene oxide facility.

 

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