13: The number of refineries currently in operation in Saudi Arabia
$6.6bn: Value of brownfield refinery projects at design or tender phase in Saudi Arabia
Sources: MEED O&M; MEED
In the late 1970s, Saudi Aramco was in the process of being transferred from foreign ownership to the state-run oil giant it is today. Riyadh eventually bought out its partners and turned Aramco into a fully fledged national oil company in 1980. At about the same time, the kingdom began to initiate a capital expenditure programme aimed at improving and expanding its domestic oil and gas infrastructure, especially in the downstream sector.
Several joint ventures with international oil companies were added to Aramco’s refining inventory in the late 1970s and early 1980s and many of its existing facilities underwent extensive upgrades and capacity expansions.
Regional facilities tracker MEED Operations and Maintenance (MEED O&M) lists 13 refining plants operating in the kingdom today, with the majority nearing at least 30 years of age.
Solid reputation for Saudi Aramco
Most are large complexes either fully or co-owned by Aramco, with three privately owned small plants producing lube oil products. The facilities have been well looked after and Aramco and its domestic joint venture partners have a solid reputation in the oil industry for investing in maintenance programmes.
Aramco’s downstream facilities have been well looked after, but now major refurbishment work is required
Saudi-based engineering consultant
“Aramco must rank as one of the best in the world for looking after its infrastructure,” says Mike Mair, business development director at UK brownfield specialist, Wood Group PSN. “It is because of this that all the downstream plants it owns are still working well and are still producing products at full capacity.”
The investment Aramco has made in maintenance has meant its refineries have given decades of solid service. But time is starting to catch up with the company’s domestic refining stock and most are now having to undergo further rehabilitation.
The upgrades either under execution or being planned by the state-owned oil firm aim to tackle a range of issues and promises contractors plenty of opportunities to win work.
|Saudi Aramco annual refining capacity|
|(Millions of barrels)|
|Source: Saudi Aramco|
According to regional projects tracker MEED Projects, there are about $6.6bn-worth of brownfield refinery projects in Saudi Arabia currently at the design or tender phase.
This is considerably less than the nearly $30bn being spent by Aramco on adding greenfield refining capacity.
“Aramco’s downstream facilities have been well looked after over the years, but now several factors mean that major refurbishment work is required,” says a source from an engineering consultancy based in Saudi Arabia. “This is making work become available for contractors with the right experience.”
Key factors forcing Aramco to initiate the refurbishment of its refining infrastructure include the need to lower the sulphur content of its gasoline and diesel to comply with international emissions standards and the need to increase the product mix at some existing facilities. The firm is also converting refineries so they can handle more viscous crude types.
Carrying out an upgrade will not be cheap, much of the current systems will need to be replaced
Saudi-based EPC contractor
The changes are necessary due to the changing nature of the kingdom’s crude oil. As the fields mature, a much more viscous type of crude, known as heavy oil, will be produced. The kingdom’s refineries must, therefore, be adapted to be able to process it.
Increasing domestic demand for refined products, such as diesel and gasoline, is another motivation behind Riyadh’s refinery upgrades. Gasoline consumption is growing at 7 per cent a year and unless this usage is curbed or extra capacity brought on stream, analysts say Riyadh could be importing 248 billion litres of gasoline and diesel in the next 10 years, at a cost of about $170bn.
Saudi Arabia’s clean fuels strategy
The kingdom’s clean fuels plans are in response to new US regulations that make it compulsory for any refiners who sell into the US market to make gasoline and diesel cleaner. The legislation coming into force in 2013 means that the sulphur content of gasoline must be less than 10 parts per million (ppm) and 50ppm in diesel by 2016.
Two of Aramco’s domestic joint-venture refineries have already initiated clean fuels programmes aimed at lowering the sulphur content of the gasoline and diesel they produce.
The 400,000 barrel-a-day (b/d) Saudi Aramco Mobil Refinery Company (Samref) refinery was commissioned in 1984 and is located at Yanbu on the kingdom’s Red Sea coast. Samref is a complex refinery, which means it produces a wide range of products for sale in international markets.
To comply with clean fuels regulations, Samref is spending about $2bn on a major refurbishment of its facilities, of which $1.5bn is being invested in new process plants and technology. Australia’s WorleyParsons is executing the scheme and completion is due for 2016.
“Despite the work being worth more than $1bn, the Samref project has still appeared under the radar of most contractors,” says the contracting source based in the kingdom. “This may be because the project has had a slow execution strategy.”
The Saudi Aramco Shell Refinery (Sasref) at Jubail in the Eastern Province was built in the early 1980s and is a 50:50 joint venture of Aramco and the UK/Dutch Shell Group. The refinery has a capacity of 305,000 b/d and makes kerosene, benzene, gas oil, naphtha and diesel.
Upgrade programme for oil facilities
About $500m has been spent upgrading the Sasref facilities recently, although a $1.3bn expansion planned in 2007 did not go ahead.
Aramco is also implementing a clean fuels plan for its fully owned domestic refineries. The US’ Foster Wheeler is currently carrying out front-end engineering and design (feed) for an upgrade of the 120,000 b/d Riyadh refinery.
A spokesman from Foster Wheeler confirmed work is ongoing on the Riyadh project and that engineering, procurement and construction (EPC) contracts will be tendered in the second half of 2012. According to MEED Projects, the work will include the construction of sulphur handling plants and the debottlenecking of facilities.
The Riyadh refinery, along with the 88,000 b/d Jeddah plant, is one of Aramco’s smaller facilities. Contracting sources in the kingdom, however, expect the project to be of a significant size and the first of similar schemes at the firm’s other refineries.
“The Riyadh plant is showing its age now as it was built in 1975,” says a source from an EPC contractor in the kingdom. “That means carrying out an upgrade will not be cheap, as much of the current systems will need to be replaced or extensively upgraded.”
As the clean fuels programme gains momentum, Aramco is initiating even more ambitious plans for its oldest and largest domestic refinery.
The Ras Tanura refinery started operations in 1945 with a capacity of 50,000 b/d. Upgrades and rehabilitation over the past 60 years have seen capacity grow to 550,000 b/d.
Aramco is planning a $2bn upgrade of Ras Tanura, which includes implementing a clean fuels programme for its products, as well as adding an aromatics cracker to the existing facilities. The US’ Jacobs Engineering is carrying out the feed on a fast-track basis and contractors have now been prequalified to bid for EPC contracts on the scheme.
Jacobs expects to carry out about 400,000 hours of feed work and several technical packages will be tendered in mid-2012.
“The packages for Ras Tanura will be split between traditional brownfield for the clean fuels and greenfield for the aromatics segment,” says the EPC contracting source. “Any contractor looking to win work on both parts of the contract will need the flexibility to execute both types of work.”
Ras Tanura is an example of the strategy Aramco is adopting for its downstream infrastructure. Making cleaner fuel is an expensive but necessary step for the company. Adding an aromatics cracker demonstrates the kingdom’s determination to diversify its downstream industries.
Riyadh’s downstream ambitions
One of Riyadh’s downstream ambitions is to become a major automotive producer and some of the offtake produced from Ras Tanura will be used as feedstock for petrochemicals plants to make raw materials for that industry.
The kingdom is taking its automotive plans seriously and Saudi Aramco Lubricating Oil Refining Company’s (Luberef) planned $1bn upgrade for its Yanbu complex fits with that strategy.
Luberef is a joint venture of Aramco and ExxonMobil and is one of the few large-scale facilities in the region that makes lube oil products for the car industry.
As for Ras Tanura, Jacobs will carry out the feed for the Luberef upgrade after winning the contract in February 2011. The expansion will include the construction of a lube hydrocracker that will produce high-quality type-three oil used in the engines of luxury cars. Type-three oil is not produced in the Gulf at present.
All the refinery upgrade works require careful planning and implementation, but Aramco and its joint venture partners are making progress with the various strategies they are employing. As the work is completed on the existing facilities in 2016-17, Aramco will also be bringing three more refineries with a total capacity of 1.2 million b/d on stream, which will complement the 400,000 b/d PetroRabigh refinery, which has been in operation since 2009.
The kingdom will then have some of the most extensive and modern downstream facilities in the world. Maintaining them will create a new set of challenges for Aramco, as well as many more opportunities for oil and gas contractors.