Saudi Aramco is planning a major expansion of its power generation facilities to meet its growing electricity needs.
The move to develop a series of power stations solely for the state oil company’s use is understood to have been prompted by concerns within Saudi Aramco about the capacity of the kingdom’s electricity generation agency, Saudi Electricity Company’s (SEC), to provide the required level of power supply.
Aramco has appointed the UK’s HSBC to act as financial adviser on the development of six power plants, which are expected to cost a total of around $1bn. Three of these could be expansions of existing plants owned by Aramco’s current power supplier, the Tihama Power Generation Company, a joint venture of the UK’s International Power and Saudi Oger. Initial meetings between Aramco and HSBC about the development have already begun.
Tihama currently has four plants in operation at Ras Tanura, Juaymah, Shedgum and Uthmaniyah and produces 1,076MW of power for Aramco. It is not yet clear if the new plants will be tendered as one project, or three separate projects, or if the remaining three plants will be developed as expansions of Tihama sites, or just developed adjacent to the existing plants.
“Aramco is concerned about SEC’s ability to provide it with a consistent power supply, so is taking this step to meet its growing needs,” says a Riyadh-based source.
Aramco had also considered creating a new company to hold its power assets and floating it on the Saudi Stock Exchange (Tadawul), continuing the kingdom’s political objectives of giving the public a share in the country’s oil wealth.
The possibility of an initial public offering (IPO) of a new power company was included in the request for proposals sent to banks in September. However, this is idea is understood to have been dropped due to the complex shareholder negotiations that it would have required.
Aramco does not own the Tihama plants, and would have had to buy the plants from Tihama, or get the existing shareholders to agree to the flotation, along with whoever is selected to develop the new plants.
Oil industry sources in the kingdom confirm that Aramco is looking to secure its own power supply in order to ensure that its massive downstream expansion plans have a guaranteed energy source.
“Aramco likes to ensure that when it plans a project it retains control of that project,” says an oil company source. “When you look at how many billions of dollars the company is spending on adding value to its hydrocarbons by increasing its downstream capacity, then there is no way it is going to take any chances on power supply.”
Aramco has extensive experience of building and operating power plants as many of their projects require a standalone energy source due to either the project’s large size or remote location. An oil and gas contracting source says that many companies view Aramco as a vital source for power plant projects already.
“Many [Aramco] projects call for a medium or large power station,” says an oil and gas contracting source. “The power plant package for the Aramco Dow project is going to be one of the most contested in the kingdom [in 2011].”
The independent water, steam and power project (IWSPP) package at the $15bn Aramco Dow petrochemicals project planned for Jubail is one of the largest packages on offer. The exact value is not known, but sources have estimated a budget of $2bn-$3bn.
Aramco did not respond to requests to comment on its planned power projects.