06 July 2009 17:08 [Source: ICIS news]
By Malini Hariharan
MUMBAI (ICIS news)--Project activity in the Middle East has not yet returned to pre economic crisis levels but some clear signs of recovery are visible.
Many refinery and petrochemicals projects that had been frozen at the height of the crisis are slowly being thawed with companies issuing tenders and in some cases even awarding contracts.
Saudi Aramco is leading the way having recently settled engineering and construction contracts for a refinery and petrochemical project at Al-Jubail and re-launched the bidding process for a refinery at Yanbu.
The deadline for bids for engineering and construction of the Al-Jubail refinery, a joint venture with Total, and for the Yanbu refinery, a joint venture with Conoco Phillips, was extended last year as Aramco and its partners sensed that it would be possible bring down costs.
And they have been successful. The 400,000 bbl/day Al-Jubail refinery, which will also produce paraxylene, benzene and propylene, is now expected to cost $9.6bn, 20% lower than the original cost estimate of $12bn.
Aramco was successful as it changed its contracting strategy to hold talks with bidders to bargain for higher discounts. “Normally, they do not do this,” says a source from a major European engineering and construction (E&C) company. And room is being kept for further cost reductions, he adds.
E&C companies appear to be stuck between a rock and a hard place. Demanding clients are continuing to push for cost reductions based on a weak global economy while sub contractors, especially construction contractors, are unwilling to lower their expectations.
A source from a South Korean E&C company argues that there is not much scope for reduction in labour costs as governments across the world are pursuing infrastructure projects in a bid to stimulate local economies. And equipment costs are also slowly rising. “The price of steel is now recovering as ?xml:namespace>
Costs could rise fast if a global economic recovery materialises quickly. This would be best time to invest and take advantage of lower costs, says the source from the European E&C company.
This awareness could be one of the reasons why project activity is picking up in the region. Besides the new refineries, Aramco is expected to push ahead with upstream oil and gas projects in the coming months while continuing to keep a close eye on costs.
In petrochemicals, PetroRabigh, Aramco’s joint venture with Sumitomo, recently selected JGC to conduct a feasibility study on an expansion of its refinery and petrochemical complex. The study would evaluate expansion of the existing cracker and construction of a new aromatics complex and plants for speciality and chemicals.
Another hub of activity is
The list includes Borouge’s third cracker and polyolefins complex at Ruwais. A $1.075bn lump sum turnkey contract for the ethane cracker was awarded to Linde last week. Tecnimont has been awarded a front end engineering and design (FEED) for polyethylene (PE) plants, utilities and offsite facilities. The project is due for commissioning at the end of 2013.
Preliminary work has also started on Abu Dhabi National Chemicals Co’s (Chemaweyaat), $10bn olefins and aromatics complex at Taweelah. Neste Jacobs has won a contract for carrying out FEED work on the project, which is scheduled for completion in 2014. Chemaweyaat is also expected to issue invitations to bid for construction of a naphtha cracker, capable of producing of 1.45m tonnes/year of ethylene and 690,000 tonnes/year of propylene, over the next couple of months.
Qatar, however, seems to be moving slowly with the focus being on first completing its mega liquefied natural gas (LNG) projects by 2010. Qatar Petroleum’s (QP) joint-venture cracker projects, one with the ExxonMobil and the other with Honam Petrochemical, are still said to be on hold although it is expected to proceed with its 250,000 bbls/day Al-Shaheen refinery project.
The main issue for
Many other refining and petrochemical projects in the region could also return to the drawing board if crude oil prices continue to rise. “Clients are waiting now; projects will move if crude oil remains at over $70/bbl,” says an E&C source from the
A sustained recovery of the global economy is still uncertain raising questions on how quickly surpluses in the refining and petrochemicals industries will be absorbed. Despite this confidence about future prospects is slowly returning triggering an interest in new projects.
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