Flexibility is key to Saudi Aramco's refinery awards

Saudi Aramco has played a smart game during the economic downturn. It was one of the first national oil companies to correctly identify that tumbling raw materials prices gave it a unique opportunity to negotiate cheaper deals on its refinery projects.

A host of other oil firms in the region have reacted by freezing bidding activity on their largest projects.

Aramco has instead staggered the bidding process for constructing its two export refineries at Jubail and Yanbu, which are being developed with France's Total and the US' ConocoPhillips respectively.

Aramco and Total have made no secret of their requirement for contractors to provide knockdown prices on the main process packages for Jubail in order to meet the $10bn budget. The firms have achieved this by playing to contractors' strengths. Recognising there was strong interest from Asian contractors in bidding for Jubail, it offered to triple its up-front payments to contractors in a bid to ease their cash flow concerns.

Aramco argued the advanced payment scheme enabled foreign contractors to benefit if their local currency depreciates against the dollar throughout the term of the contract.

With Korean firms now poised to win four separate contracts on Jubail, it appears to have been a successful strategy.

It has also played hardball when needed.

Aramco toyed with France's Technip, that expected to win one of the largest packages, by instead tendering it to the market in early May.

It then cancelled the deal several weeks later in favour of negotiating a cheaper price with the Paris-based firm.

Contractors have been left in no doubt they need to be more flexible and cost conscious than ever to win major Aramco contracts.

That trend looks set to continue when bidding opens on Yanbu in the next few months.