Jizan gasification costs spiral to an estimated $10bn

18 November 2013

Massive power plant complex now at risk after contract bids come in far higher than initial cost estimates

Saudi Aramco could be forced to radically change proposals for its planned gasification project at Jizan in the southwest of the kingdom after seeing costs for the project spiral to as much as $10bn.

The figure dwarfs the initial $3bn-5bn estimate for the scheme, which is set to be the largest gasification project in the world.

“The bids have come in from contractors and they are massively over the initial budget,” says a Saudi-based source familiar with the scheme. “No one is quite sure where Aramco is going to go with this now because $10bn is a colossal figure for a power plant, even one as large as this.”

The scope of works for the entire project is the construction of an integrated gasification combined-cycle (IGCC) power plant, which will have a capacity of 4,000MW. The UK/Dutch Shell Group is providing the gasification and acid gas removal technologies and will also provide engineering services on the scheme.

Another oil and gas source familiar with the project told MEED that the budget has now been raised to $7.5bn and that Aramco is speaking to contractors to try to find a compromise solution.

“Aramco believed in this project and a 4,000MW would have solved the [Jizan] region’s power supply issues in one go,” the source says. “However, if the $10bn figure is correct, then it would take a very brave investment decision to make it progress. Aramco never usually U-turns on anything, but this could be one of the rare occasions where they look for a different solution.”

The US’ KBR is carrying out the front-end engineering and design (feed) as well as the project management consultancy (PMC) for the refinery and power plant.

The gasification process works by mixing hydrocarbons, such as coal or heavy oil, with oxygen to produce synthesis gas (syngas). This is then used to fire a turbine and create power.

Heavy oil is set to be used as a feedstock, but now other options, such as the coke produced at Aramco’s new oil refineries in Jubail, Yanbu and ultimately Jizan, could offer an alternative.

MEED reported in March 2012 that Aramco was to take over the major infrastructure projects at Jizan Economic City in order to speed up their development.

In early April 2013, it was reported in the kingdom that the Saudi Arabian General Investment Authority (Sagia) had dropped previous developers, the local Saudi Binladin Group and Malaysia’s MMC Corporation, “with immediate effect”.

“Saudi Aramco has made a massive commitment to Jizan and no one can doubt their motives when it comes to helping more remote regions,” says the Saudi-based source. “But the question is, where is the line going to be drawn in terms of exactly how much money will be pumped into the area?”    

Saudi Aramco was not available for comment when contacted by MEED.

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