Energy: Patience has paid off for Aramco

Just six months ago, Saudi Aramco's twin export refineries at Yanbu and Jubail faced an uncertain future. In response to the global economic downturn, Aramco was forced to halt bidding on both facilities and re-examine investment costs with its respective joint venture partners: the US' ConocoPhillips and France's Total.

Unlike other pending megaprojects in the region, such as Abu Dhabi's Shah gas project, Aramco had already received investment commitments from both oil majors for the refinery schemes. But with costs doubling to $12bn from the original $6bn budget that it set in 2006, it made sense for both joint ventures to take a breather and wait for the market to settle.

For the Jubail refinery, the strategy looks to have been successful. Aramco and Total have signed off on the cost of building Jubail for $9.6bn, a 20 per cent drop on the projected cost this time a year ago. ConocoPhillips will now hope it can demand similarly competitive terms on its Yanbu refinery scheme. The US oil major has given contractors more than six months to prepare their construction bids.

But the Aramco-ConocoPhillips venture's long bidding period poses some risks. With oil back above $70 a barrel and steel, aluminium and copper prices also on the rise, the cost of building Yanbu may yet rise again. Conoco-Phillips must hope its window of opportunity to negotiate competitive prices lasts into the new year.