JEDDAH, 25 May 2006 — Saudi Aramco and ConocoPhillips yesterday signed a major agreement to establish a full-conversion refinery in the industrial city of Yanbu on the Red Sea coast at a cost of SR22.5 billion ($6 billion).
The refinery would be designed to process 400,000 bpd Arabian heavy crude and produce high-quality, ultra-low-sulfur refined products that meet current and future US and European product specifications. The refinery is scheduled to start operations in 2011.
This is the second such deal signed by Saudi Aramco within a week. The two refinery deals, valued at a total of SR45 billion ($12 billion), are part of plans by Saudi Arabia, the world’s largest oil exporter, to become an increasingly important supplier of gasoline and heating fuel to global markets.
Last Sunday, Aramco signed a landmark accord with France’s Total to build another 400,000 bpd, heavy crude refinery in Jubail on the Kingdom’s Gulf coast. The Jubail facility will also start operation in 2011.
Yesterday’s deal signed in Dhahran sets forth the agreement between the two oil giants regarding the parameters of the project, the project configuration, and a broad range of the major technical, commercial, legal and financial terms.
The project offers an opportunity for the world’s largest producer of hydrocarbons and ConocoPhillips to work together to construct a refinery to serve multiple markets with high quality refined products, Aramco said.
“For Saudi Arabia, this project would not only add value to the Kingdom’s petroleum product exports, it would also be a platform for increased industrial development in the Kingdom,” the oil giant said. In addition to attracting foreign investment to the Kingdom, the project is expected to expand its economy and provide increased job opportunities for Saudi nationals.
“For over 70 years, Saudi Aramco has been committed to providing the world with reliable energy to fuel its prosperity,” said Abdallah S. Jum’ah, Saudi Aramco president and chief executive officer. “This proposed venture with our industry colleagues at ConocoPhillips is a proud moment for us all, and will allow us to expand our role to downstream exports in addition to the upstream.”
Jim Mulva, chairman and chief executive officer of ConocoPhillips, who signed the deal with Jum’ah, said his company welcomed the opportunity to work with the Saudi Arabian oil company to add needed capacity to the international refining system.
“The Yanbu project fits well with the company’s overall strategy to invest in projects that expand our global refining presence, and would provide significant new supplies of refined products to help meet growing requirements around the world,” Mulva said.
Saudi Aramco and ConocoPhillips will form a joint venture company with equal ownership interests to own and operate the proposed new refinery. Subject to required regulatory approvals, the parties may offer up to 30 percent stake in the project to the Saudi public. Saudi Aramco would supply the project with 400,000 barrels per day of Arabian heavy crude oil.
“Saudi Aramco and ConocoPhillips would each be responsible for marketing one half of the refinery’s production,” the Aramco statement said.
Aramco, with its international partners, plans to spend $50 billion in the next five years to boost refining capacity at home and abroad. Saudi Arabia and other OPEC producers have said concern over oil product shortages due to a global refining crunch has fueled a rally that has taken oil prices to record highs.
The Organization of Petroleum Exporting Countries (OPEC) aims to add some four million bpd of refining capacity by 2010, gaining greater access to lucrative markets for gasoline and other high value products in the United States and Europe.
Saudi Arabia holds the bulk of OPEC’s spare oil output capacity, but most of its unused capacity consists of heavy sour crude that refiners find difficult to process into transport fuels.
The Kingdom is working to boost its crude output capacity to 12.5 million bpd by 2009. Analysts say a further expansion would depend on building refineries to handle the heavy crude.
