Saudi Oil Minister Ali al-Naimi, says two planned export refineries at Yanbu and Jizan will proceed with prominent international partners, despite growing doubts over the cost and attractiveness of the projects to oil majors.

Speaking at the third Opec Summit in Riyadh on 13 November Al-Naimi, who is also chairman of Saudi Aramco, said both would proceed as scheduled despite the surging costs.

The feasibility of the proposed Aramco-led Yanbu export refinery and the domestic Jizan refinery have been called into question in recent months, with costs spiralling and international oil companies (IOCs) reluctant to commit to projects with uncertain margins.

“Work is under way on the Yanbu refinery,” says Naimi. “A project proposal and pre-engineering are under development, so I think it is a going concern.”

Despite being committed to the engineering element of the Yanbu refinery, Aramco has not made a final investment decision on the scheme, which is being carried out in partnership with the US’ ConocoPhillips. The two companies are believed to be concerned at the rising development costs of the 400,000-barrel-a day refinery, which are now thought to be as much as $13bn, well above initial estimates (MEED 14:9:07).

Problems have also surfaced at the Jizan refinery, which is being promoted by the Petroleum Ministry. Only a small number of IOCs are thought to be interested in submitting a bid, from an initial shortlist of 43 firms (MEED 3:7:07).

However, Naimi insists Jizan will also proceed. “Jizan is still putting together proposals and when we go out for the invitation to bid, we will find out who is interested and who is not.”

While the kingdom has not been immune from cost inflation, which has threatened the viability of energy projects, Naimi says Aramco has the capacity to absorb such shocks and proceed on schedule.

“Everyone recognises investment costs have gone up,” he says. “The revenues have also gone up, so the fact that costs have gone up has not dissuaded us from continuing our expansion programme.

“The cost of production, materials and manpower has impacted the cost but it has not impacted the schedule of our programme. We will be at the production capacity of 12.5 million barrels a day by 2009.”

Naimi adds that the emergence of alternative fuels would not impact on demand for crude oil, with fossil fuels continuing to supply up to 60 per cent of global energy for the next 20 years.

“We welcome any development in new sources of energy. But we do not see these developments as a threat,” he says.