Is a U-turn at Jizan possible?

21 November 2013

As the costs for the Jizan gasification plant soar, speculation is mounting that oil giant Saudi Aramco might be forced to rethink its plans

The city of Jizan is large, with some 1.5 million people, according to the 2010 census, and is located close to Saudi Arabia’s border with Yemen.

“The risks of working in such a remote location with limited access are reflected in the high bids”

Jizan is also thousands of kilometres away from any of the kingdom’s hydrocarbons resources and, after decades of decline, now needs billions of dollars of investment to provide jobs and prosperity. Due to its proximity to Yemen, Riyadh believes there is a real risk of its young people becoming radicalised and wants to ensure they are afforded the same opportunities as people in other cities in the kingdom.

Leading the development of Jizan is Saudi Aramco. The oil giant has made a commitment that few other companies would be prepared to take on by investing in a $7bn refinery as well as a setting aside $5bn for a 4,000MW gasification power plant. 

However, sources estimate the figure for the gasification complex could be twice the budgeted amount. If these predictions are accurate, it will force Aramco into a position where it has to ask itself how much money it is prepared to spend in Jizan. How much is enough?

Aramco is undoubtedly committed to the development of both natural and human resources, and Jizan is an example of this policy. But the fact remains that the costs for Jizan are spiralling out of control. Contractors are not prepared to bid as aggressively as they would on similar schemes in Jubail or Yanbu. The risks of working in such a remote location with limited access are reflected in the high bids.

The gasification plant will be the largest of its type in the world and 4,000MW is enough to provide power for the whole region. However, $10bn is an extraordinary price to pay. Aramco’s reputation for following through on projects is legendary, but this could be the scheme that forces them into a rethink.

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