Motiva shutdown may call for Aramco FDI review

By 2005, Saudi Aramco had concluded that oil refining should go side by side with petrochemical production to compensate for the high operational costs or even losses of producing only refined oil products.
This major shift in Aramco's investment planning was reflected on all but one partnerships and joint ventures.
Locally, Aramco established a joint venture company with Sumitomo Chemical, named Rabigh Refining & Petrochemical Company (PetroRabigh), to operate a 400,000-barrel capacity refinery in Rabigh city on the western coast of Saudi Arabia, which produces naphtha, kerosene, gasoline, diesel, fuel oil and many other petrochemical polymers.
In what may send a strong signal of feasibility and profitability, Saudi Aramco and its partners awarded another PetroRabigh phase 2 contract to South Korea's GS Engineering & Construction in June.
Another local mega petrochemical project, called Sadara Chemical Company, is also under way as a $20 billion 50-50 joint venture between Saudi Aramco and Dow Chemical Company. Sadara Chemical Company is building one of the world's largest chemicals complexes in Jubail Industrial City in the Eastern Province.
The complex will consist of 26 chemical manufacturing plants to produce about 1.5 million tons per year of ethylene and about 400,000 tons per year of propylene. It will also produce a variety of chemicals, which could stimulate other downstream investments in many economic sectors.
Saudi Aramco has plans to convert all local and joint venture Asian refineries to complexes of venture refineries and chemicals.
Only in North America, the company participated in 2007 in a huge expansion project in its joint venture refinery in Port Arthur, Texas.
The Port Arthur refinery is one of three refineries in the Gulf of Mexico region owned by Motiva Enterprises, LLC, which is another 50-50 joint venture between Saudi Aramco and Shell Oil Company. Its expansion took 5 years and $10 billion to complete.
One may look for justifications for the huge sum of dollars invested in this specific project within the contents of the expansion. The expansion gives Motiva the flexibility to run lower-cost heavy oil supplies from South America, Saudi Arabia and potentially from Canada, if the delayed Keystone XL pipeline is built. Bob Pease, chief executive officer of Motiva Enterprises, said the refinery could process all types of oil from light to heavy to even US shale oil.
In his own words at the opening ceremony of the expansion on May 31, he said, "Whatever crude is out there, Motiva Port Arthur can manage it, which gives us flexibility to choose feedstock based on availability and economics, not on capacity limitations."
But with the bad news of shutting down the expansion project on June 9, nine days after the opening ceremony, due to fire and unexpected extensive corrosion in the new distillation unit, the company executives declined to answer questions about the duration of the shutdown, causes of the problem, expenses of the repairs and losses of potential revenues.
Some sources expected the project to be shut for a year or so. Based on Reuters' calculations, the daily costs for the Motiva partners due to the shutdown is around $1.54 million.
The project faced with many technical and financial setbacks since day one of its launch back in 2007. Most notable was the suspension of the project in 2009 for a year to find a way to control increasing costs.
Most American economic and energy analysts are mainly concerned by the impact of the shutdown on the local US products market, the export capacity of the United States of refined petroleum products and the exports of Saudi crude to the US, Saudi Aramco and Saudi analysts should concentrate on the analysis of future feasibility when they continue venturing in "products only" refineries.