Saudi Aramco's Luberef Invites Bids for $1 Billion Yanbu Lubricating Oil Refinery Expansion

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Researched by Industrial Info Resources (Sugar Land, Texas)--Saudi Aramco Lubricating Oil Refining Company (Luberef) (Jeddah, Saudi Arabia), the only producer of lubricating oils in Saudi Arabia, is inviting bids for the front-end engineering and design (FEED) contract for the $1 billion expansion of its Yanbu refinery.

Tenders for the FEED contract were issued in December last year, with a closing date for bids of March 15 this year.

Among the companies anticipated to submit bids for the project are JGC Corporation (TYO:1963) (Tokyo, Japan), Saipem SpA (BIT:SPM) (Milan, Italy), Foster Wheeler Limited (NASDAQ:FWLT) (Clinton, New Jersey) and Jacobs Engineering Group Incorporated (NYSE:JEC) (Pasadena, California).

Following the FEED process, Luberef intends to invite bids for the engineering, procurement and construction (EPC) phase of the project, but not until 2011, according to Salih Thani, the supervisor of contracts and insurance at Luberef. Thani estimates that the expansion construction will take about five years, but declined to offer a startup date.

The Yanbu refinery, one of two producing lubricating oils for Luberef in Saudi Arabia (the second is at Jeddah), currently has a lubricating oil production capacity of 280,000 tons per year and, in total, the two refineries produce about 550,000 tons per year of lubricating oils. Both refineries are on the Red Sea coast in the west of the country, with access to the Suez Canal.

The expansion of the Yanbu refinery includes the construction of a lube hydrocracker, increasing the capacity of the vacuum distillation unit, adding storage tanks, and a general upgrade of the electrical facilities. At this stage, Luberef has declined to give indications of the capacity increase at Yanbu.

The expansion is aimed at producing type-3 lubricating oil, which is a base oil that is new to the region. The new oil is directed at high-quality automobile engines and has not previously been produced by any refinery in the Gulf region. It is expected to be popular in the Gulf and is aimed at the export markets of Europe, India and the Far East.

Luberef was established in 1978 as a 70:30 joint venture between Saudi Aramco (Dhahran, Saudi Arabia), the state-owned national oil company of Saudi Arabia, and ExxonMobil Corporation (NYSE:XOM) (Irving, Texas).

In 2007, ExxonMobil sold its 30% holding in Luberef to the Saudi closed joint stock company Jadwa Industrial Investment Company (JADWA) (Riyadh, Saudi Arabia), reportedly because Saudi Aramco was looking at expanding Luberef, which did not fit with ExxonMobil's plans at the time.

However, Saudi Aramco and ExxonMobil are equal partners in Saudi Aramco Mobil Refinery Company Limited (SAMREF) (Yanbu, Saudi Arabia), which operates the world's largest single-train crude oil refinery at Yanbu, processing about 400,000 barrels per day.

The two companies are partners in the Fujian Refining and Ethylene Joint Venture Project at Quanzhou in Fujian province in China, which is aimed at expanding the complex from refining 4 million tons per year of sour Arabian crude oil to 12 million tons per year.

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