Dow and Aramco downsize Saudi project after switch to Jubail

Prompted by rising costs, Dow Chemical and Saudi Aramco are relocating their joint venture to Al-Jubail and cancelling their refinery expansion in Ras Tanura

US CHEMICAL giant Dow Chemical and State oil company Saudi Aramco are reconfiguring their planned joint venture (JV) petrochemical project in Saudi Arabia, after deciding to relocate it from Ras Tanura to Al-Jubail. The decision to move the project to Al-Jubail, where there is existing infrastructure, follows an escalation of costs.

REX FEATURES/GARETH JJ BURGESS

The revised project is expected to be located in the Jubail II plot at the new site, adjacent to a refinery under construction by Saudi Aramco Total Refining and Petrochemical (Satorp), a JV between Aramco and French energy giant Total.

The Dow/Aramco petrochemical project is also being reduced in scale, and is now expected to include one cracker, rather than two, says an engineering official.

The original Ras Tanura project would have been integrated with Aramco’s existing Ras Tanura refinery, based on naphtha and ethane feedstock. Aramco had planned to expand the refinery, but this has now been cancelled.

French engineering firm Technip confirms that the revised project will be relocated to Jubail II. “The Ras Tanura refinery expansion project, which was planned to provide the feedstock to the Ras Tanura petrochemical complex, has indeed been cancelled,” says a spokeswoman. “Therefore, the new site chosen for the petrochemical complex is now Jubail II.” She did not comment further.

Technip is coordinating the Satorp project, known as the Jubail Export Refinery, which will have a processing capacity of 400,000 bbl/day and will also produce paraxylene (PX), benzene and polymer grade propylene (PGP).

By relocating their petrochemical project, Dow and Aramco save on infrastructure development costs and Aramco avoids having to build additional refinery capacity. “At Ras Tanura, you would have to put in all the facilities from scratch,” remarks a source familiar with the project.

The proposed plant is likely to be based on ethane, supplied by the pipelines that feed Al-Jubail, the source adds. However, he notes that this does not fit with the Saudi government’s plans to diversify product slates by diversifying the feedstock slates, in a bid to create jobs.

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

The plan was ambitious, says Green. “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, there has been a banking crisis, a global economic downturn, the cost of executing projects has soared and oil prices have softened, Green continues. “These factors work against projects.”

MOUNTING COSTS
It was originally estimated that the proposed Ras Tanura project would cost some $20bn, (€16bn), but these costs have escalated as projects have become more expensive. Neither Dow nor Aramco has confirmed the decision to relocate the project. Dow CEO Andrew Liveris said during a financial results conference call in April that “Jubail has been assessed as an interesting alternative.”

Dow and Aramco have been examining the capital burden of the project. “We are basically within a few months of making final decisions on the feed,” he said.

The decision on feedstock “is obviously the big commitment to go to the next step or to long-term equipment and in fact start detailed design and in fact start site prep,” Liveris added. Earlier this year, Dow said the project could start up in 2014 or 2015. With the move to Al-Jubail and change in scope, the timing is expected to slip by several months, the engineering official suggested.

The JV with Aramco is Dow’s third attempt to invest in Saudi Arabia. Dow had considered partnering Saudi Arabian chemicals major SABIC in Petrokemya and partnering Aramco in PetroRabigh but neither of these proposed partnerships went ahead.

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

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