Reservations over Riyadh refinery

23 August 2012

Saudi Aramco’s lump-sum turnkey approach to refinery refitting is causing concern

As Saudi Aramco releases the tenders for the rehabilitation of its Riyadh refinery, the next phase of the kingdom’s downstream hydrocarbon industry is beginning to take shape.

All of Aramco’s domestic refining stock is due to undergo huge changes in the next five years as the kingdom lowers the sulphur content of its refined products, while building new downstream facilities.

This is not going to be an easy job, however. Refitting an existing operational refinery requires distinct skills and experience from a contractor. Being able to work closely with the operational team and ensuring production loss is kept minimal are both vital factors when carrying out work of this kind.

The Riyadh refinery will be seen as a testing ground for future contracts, so many contractors looking to win work will feel that picking up a package at Riyadh could lead to further deals down the line. This could lead to some competitive bidding.

Both client and contractor need to show caution with brownfield work of this kind. The lump-sum turnkey model has served Aramco well, but many feel it is not a suitable way to carry out this type of contract.

A model that encourages collaboration is the cost-reimbursable method, which is preferred in most other countries when it comes to refitting large process facilities. The only problem is that since 2009 the cost reimbursable contracting model has been consigned to history in the GCC.

The cost of losing production for even a week at a 120,000-barrel-a-day (b/d) oil refinery such as Riyadh is huge. Aramco needs to find the right formula because the Ras Tanura refinery is next. If losing a week’s worth of production at 120,000 b/d is undesirable, the losses from a similar shutdown at a 550,000 b/d facility would be unbearable.

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