Dow, Saudi Aramco move project to Al-Jubail due to costs

27 April 2010 17:58  [Source: ICIS news]

LONDON (ICIS news)--Dow Chemical and Saudi Aramco are reconfiguring their planned petrochemicals project in Saudi Arabia following a decision to relocate the project from Ras Tanura to Al-Jubail, sources familiar with the project said on Tuesday.

The companies have decided to relocate the joint-venture project to Al-Jubail, which is more developed than the Ras Tanura site, due to cost pressures, the sources said.

So far, neither Dow nor Saudi Aramco has commented on the decision to relocate the project.

A Dow spokesman told ICIS news earlier this month that the evaluation phase for the project was still on schedule.

The Ras Tanura project was originally estimated to cost some $20bn (€15bn), but this has escalated as project have become more expensive to implement in the current economic climate.

The project has also been downsized, with the expectation that there would be one cracker rather than two, an engineering official with knowledge of the project said. However, he added that the final list of units has not yet been made available.

Roger Green, vice president with consultancy Nexant, said: “Dow and Aramco have been thrashing out the details. It appears there is a determination to go ahead.”

Building two crackers in one go was always ambitious, Green said.

“It was massively ambitious, even in 2007, to be building on that scale. But at the time, the petrochemical market was booming, oil prices were very strong and petrochemicals in Saudi Arabia were very strong. So everyone was flush with cash and big investment projects were very much the vogue.”

Since then, Green said, there has been the banking crisis, global economic downturn, the cost of executing projects has soared and oil prices have softened.

“These factors work against projects,” he said.

Dow and Saudi Aramco signed a detailed memorandum of understanding to construct and operate the Ras Tanura project in May 2007.

They said the project would involve 30 worldscale petrochemical plants, which would have the capacity to produce 4m tonnes/year of upstream products and 7m tonnes/year of downstream products.

Earlier this year, Dow was estimating that the project could come on stream in 2014 or 2015. With the move to Al-Jubail and the change in the project’s scope, the timing is expected to slip by several months, according to the engineering official. 

The original project would have been integrated with Saudi Aramco’s Ras Tanura refinery and received a mixed feed of naphtha and ethane. The revised project at Al-Jubail was also likely to be based on a naphtha/ethane mix, sources suggested.

The joint venture with Saudi Aramco represents Dow’s third attempt to invest in Saudi Arabia.

Dow had considered partnering with SABIC in its Petrokemya subsidiary and with Saudi Aramco in its Rabigh Refining and Petrochemical Co (PetroRabigh) joint venture with Sumitomo Chemical, but neither of these proposed partnerships went ahead.

“For anyone involved in the ethylene chain, access to competitive feedstock is a key factor,” said Green. “Saudi Arabian ethane is the feedstock of choice globally.”

($1 = €0.75)

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By: Anna Jagger
+44 20 8652 3214

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