Saudi Aramco's Delayed Yanbu Refinery to Start Production in 2014

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Researched by Industrial Info Resources (Sugar Land, Texas)--The state-owned national oil company of Saudi Arabia, Saudi Aramco (Dhahran, Saudi Arabia), has announced that the controversial export refinery project at Yanbu Industrial City will begin production in the third quarter of 2014, a year after the initial planned start.

The Yanbu refinery project has had a checkered history. Saudi Aramco signed a memorandum of understanding with ConocoPhillips (NYSE:COP) (Houston, Texas) in 2006 to carry out a detailed study for the 400,000-barrel-per-day refinery at Yanbu, some 350 kilometers north of Jeddah, on the Red Sea coast.

The refinery complex, estimated at that time to cost about $6 billion, would be designed to refine Arabian heavy crude to produce ultra-low-sulfur, high-quality refined products to meet the highest international standards.

However, the global economic crisis caused the two partners to re-examine the project, and estimates rose with raw material and commodity prices to a peak of $13 billion in 2008. Despite this, the two companies announced in May 2008 that they would continue with the project and called for initial bids.

The project received a setback in April this year when ConocoPhillips announced its withdrawal from the project as part of a global strategy to reduce the company's exposure in the refining and marketing sectors.

In July, Saudi Aramco decided to go alone and continue with the project on its own, forming a subsidiary, Red Sea Refining Company, to run the plant. In the same month, Saudi Aramco gave the final go-ahead to start construction, which was to begin early in 2011.

As raw material and commodity prices fell with the gradual recovery in the world economic situation, the current estimate for the project has been put at around $10 billion.

Saudi Aramco manages more than 100 oil and gas fields in Saudi Arabia, with reserves totaling an estimated 264 billion barrels of oil and 253 trillion cubic feet of gas. Among these are the Ghawar oil field, which is the world's largest oil field, and the world's largest offshore oil field, the Safaniya oil field.

The current price of crude oil continues to rise, and Saudi Aramco is well placed to take advantage of rising prices. With refineries strategically placed from the Arabian Gulf through to the Red Sea, the company produces a regular supply of more than 1 million barrels per day of refined products to serve both domestic and international requirements.

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