The state oil majors involvement in Jizan Economic City means the development, which has faced several setbacks since it was first announced in 2006, is finally gathering pace
When Saudi Aramco released the first tender in April for the integrated gasification combined-cycle (IGCC) power plant at Jizan Economic City (JEC), it was a clear signal the state oil firm was fully backing the troubled industrial zone. The plant will be the largest IGCC in the world and will have a capacity of 2,600MW.
JEC has experienced a tumultuous gestation since the local Saudi Binladin Group (SBG) and Malaysias MMC Corporation took on its development in a $27bn deal signed in 2006.
The industrial zone was part of Riyadhs plans to roll out a number of economic hubs away from traditional areas of industrial activity in order to bring prosperity to far-flung regions of Saudi Arabia. Jizan Province is one of the kingdoms poorest areas and it has a remote location close to the border with Yemen. JEC was intended to be a metals hub, as well as the site of the kingdoms first independent oil refinery. A major power plant was also to be built to fuel the site.
However, in the wake of the global economic crisis, many of the key schemes planned for JEC were either put on hold or cancelled. Much of the infrastructure development for the zone also stalled.
The major problem for JEC is its remote location makes it a far greater risk for development than more traditional industrial cities such as Yanbu or Jubail, says a Saudi Arabia-based source from an international engineering consultancy. In 2009, there was basically no chance at all for most companies to secure billions of dollars of finance for an aluminium smelter or an independent oil refinery.
An aluminium smelter was planned to be the anchor tenant of a hub similar to the complex that is nearing completion at Ras al-Khair in the Eastern Province. Aluminium Corporation of China (Chalco) entered into a partnership with SBG and MMC to develop the $4bn smelter, but the deal faltered amid concerns over financing and feedstock. Another anchor tenant was meant to be an independent oil refinery that would be awarded following a tender process by the kingdoms Petroleum & Mineral Resources Ministry.
Despite some early interest from four consortiums, it was soon apparent the feasibility of building an independent refinery was not going to fit with such a remote location as Jizan. Costs began to spiral, leading Saudi Aramco to announce in 2010 that it would assume control of the project.
Even in early 2012, it was apparent that Aramco had some serious decisions to make regarding Jizan
Oil and gas executive working in the kingdom
The oil giant has since taken on increasing responsibility for the industrial zone in order to prevent its development from floundering. MEED reported in the second quarter of 2012 that Aramco had extended its remit to include the construction of the power plant, taking over the project from Saudi Electricity Company (SEC), and also that it was in discussions to take control of the port facilities from SBG and MMC.
Saudi Aramco would otherwise have been in a position where it had to rely on a large-scale power plant being constructed, as well as a marine terminal and channel to allow the transit of large crude carriers to bring oil to the refinery.
The refinery will have a capacity of 400,000 barrels a day (b/d) when completed in 2017. Due to the more than 1,500 kilometres between the oil fields and Jizan, crude and refined products will not be transferred by pipeline, but will enter and leave exclusively through the marine terminal.
It was becoming very clear that unless Aramco took control [of the power plant and port], then it was highly unlikely that either would be finished at the same time as its refinery, says a Saudi oil and gas executive working in the kingdom. Even in early 2012, it was apparent that Aramco had some serious decisions to make regarding Jizan.
Aramco took on the construction of the power plant project in early 2012 and immediately started planning the IGCC facility.
The construction of the refinery is now well under way after engineering, procurement and construction contracts were awarded in October 2012. The bids that were received were higher than for similar schemes under execution in Jubail and Yanbu, reflecting the fact that mobilising tens of thousands of workers as well as procuring plant equipment and materials for Jizan is more costly than for more populous areas. Much of the equipment has had to be sent from Jeddah and additional costs, such as higher insurance premiums and accommodation costs for workers, had to be factored in.
The IGCC plants capacity of 2,600MW is much higher than the 500MW needed for the refinery and further highlights Aramcos backing for JEC; surplus power will be available to other industries.
The gasification process works by hydrocarbons such as coal or heavy oil being mixed with oxygen to produce synthesis gas (syngas). This is then used to fire a turbine and create power. The UK/Dutch Shell Group is providing the gasification and acid gas removal technologies and will also be providing engineering services on the scheme. The plant will be built adjacent to the refinery complex, which will also allow the sulphur treatment plant, essential for processing heavy oil, to be integrated into both facilities.
Contract awards for the IGCC plant are eagerly anticipated and a decision is expected by the end of 2013. The cost estimates for the project range between $3bn and $5bn. With a 36-month construction period, the plant will be ready at the same time as the refinery.
The progress made by Aramco on its refinery and power plant was followed by Saudi Arabian General Investment Authority (Sagia), the public body charged with developing the kingdoms economic zones, deciding to drop SBG and MMC as the developers of JEC.
It was clear that the position of SBG and MMC had become untenable really, says the Saudi oil and gas executive. Aramco was leading the way and it was right to give them a clear path to achieve what they had started.
In May, Aramco released the tender for the port dredging works. The scope will include dredging a channel to the port, building a 12km breakwater and a jetty, as well as large-scale reclamation. The amount of dredging required is estimated at about 30 million cubic metres. Completion is expected in June 2015. Once the port works and IGCC power plant contracts are awarded, JEC is expected to settle into a major construction phase that will last until the refinery and power plant are completed in 2017.
It is also hoped that additional investment will come to JEC in the form of new industries. Attracting potential new industries to the city is proving to be slow. There has, however, been some success with other metals projects at JEC.
The local Solb Steel started production in 2012 at its JEC plant, which has a capacity 1 million tonnes a year (t/y) of billets and 500,000 t/y of rebar.
The rebar is being used in the construction of JEC, and the initial success of the first phase meant that the second phase was immediately launched. Another 500,000 t/y capacity of rebar will be added in 2014.
Other plans being discussed for steel production at JEC include a 6 million t/y pelletising plant, as well as a new meltshop and direct-reduced iron plant.
Solb Steel proves that heavy industry can be a success at JEC, says a Middle East steel industry source. The process is not as energy intensive as aluminium smelting and almost all of the production will be absorbed locally.
Other metals projects include the local Cristal Global, which is constructing a titanium dioxide and pig iron plant. The facility will have a capacity of 500,000 t/y of titanium dioxide slag, as well as 235,000 t/y of high purity pig iron. Startup is scheduled for 2014.
With Saudi Aramco now the key stakeholder, JEC has as strong a patron as it is likely to get in Saudi Arabia. Despite its remote geographical location within the kingdom, Jizan lies in an advantageous position externally. It is close to international shipping routes linking the East and West and is easier to access than ports in the Gulf, making it an attractive site for export industries.
It is also likely that the Red Sea contains substantial reserves of oil and gas, so JEC could become a strategic point between the Red Sea fields lying off the northwest coast and the Gulf fields lying onshore and offshore in the Eastern Province.
JEC was almost the site for the kingdoms first major shipbuilding yard, but it lost out to Ras al-Khair on the Gulf coast. If the Red Sea does become a major oil and gas production hub, then a sister yard that services the west coast could be a viable option.
JEC has not got off to the best start and has been overshadowed in recent years by more successful industrial cities in the kingdom such as Ras al-Khair. Under Saudi Aramcos patronage, however, it has finally found its momentum.
The IGCC power plant at Jizan Economic City will be largest in the world
IGCC=Integrated gasification combined-cycle. Source: MEED
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