Saudi Aramco to Invest $1 Billion in Six Captive Power Plants

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Researched by Industrial Info Resources (Sugar Land, Texas)--State-operated Saudi Arabian Oil Company (Saudi Aramco) (Dhahran, Saudi Arabia) has announced an investment of about $1 billion to build six captive power plants in the country. The new projects are expected to increase the company's power generating capacity by 3,000 megawatts (MW). The facilities will use liquid fuels and crude oil to generate power. While there is no official communication regarding the individual capacity or investment on the power projects, sources have indicated that Saudi Aramco is considering augmentation of three existing power plants owned by Tihama Power Generation Company (Al-Khobar, Saudi Arabia).

Tihama Power Generation Company, which is a joint venture between Saudi Oger Limited (Riyadh, Saudi Arabia) and International Power plc (LSE:IPR) (London, England), takes care of electricity requirements for Saudi Aramco's domestic projects. Saudi Aramco has selected HSBC Holdings plc (NYSE:HBC) (London, England) as the financial advisor for the new power plants. The remaining three power projects could be greenfield power plants. Presently, Tihama Power Generation Company, which operates power plants at Ulhmaniyah, Ras Tanura, Juaymah and Shedgum, supplies 1,076 MW for Saudi Aramco's projects. Saudi Aramco also may approach the Saudi Stock Exchange (Riyadh) to form a publicly listed company that will supervise its energy assets.

New power projects have become critical to support Saudi Aramco's refining capacity expansion. The company is building three refinery and petrochemical complexes at Yanbu, Jazan and Jubail. Saudi Arabia is experiencing a surge in electricity demand due to its large-scale industrial and infrastructure development. The state-controlled Saudi Electric Company (SAU:5110) (SEC) (Riyadh) is struggling to keep pace with the growing demand. Saudi Aramco's decision to augment its captive power generation capability will reduce its dependence on SEC's supply. Saudi Aramco's total power generation capacity after the new projects are commissioned will account for about 8% of the country's total electricity-generating capability. In 2009, Saudi Arabia's installed generating capacity was about 45,000 MW.

Saudi Arabia is currently focusing on reducing its reliance on oil exports and diversifying into other business sectors. With growing energy demand from new construction and infrastructure projects, the Saudi government recently signed a $4.18 billion deal to build a water desalination and power plant. Abdullah Al-Hussayin, the Electricity and Water Minister, indicated that the $2.41 billion contract for the 2,400-MW power project was awarded to a consortium comprising Sepco III Electric Power Construction Corporation (Qingdao, China) and Al-Arab Contracting Company (Riyadh). Saudi Archirodon Limited (Jeddah, Saudi Arabia) and Doosan Heavy Industry and Construction Company (SEO:034020) (Gyeongsahngnam-Do, South Korea) have secured a $1.76 billion contract to build the 1.025 million-cubic-meter-per-day water desalination facility.

SEC also will begin bidding procedures for the Al-Qurayyah power project, which is to be located at Al-Khobar. This power plant is the third in the series of six projects planned under the independent power producers. The generation capacity of the $1.8 billion project will be between 1,800 and 2,100 MW. The plant is expected to utilize 300 million cubic feet per day of gas to generate electricity. SEC has selected 14 bidders, including Korea Electric Power Corporation (NYSE:KEP) (KEPCO) (Seoul, South Korea), Mitsui & Company Limited (TYO:8031) (Tokyo, Japan), the AES Corporation (NYSE:AES) (Arlington, Virginia) and General Electric Company (NYSE:GE) (Fairfield, Connecticut).

Saudi Arabia's power demand is forecast to grow 8% annually and reach 121,000 MW by 2012. By 2020, SEC will be investing nearly $80 billion to boost the nation's power generating capacity to about 70,000 MW. During this period, private investment in the country's electricity sector is expected to be about $24 billion.

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