Riyadh is to offer oil majors improved crude supply agreements and financial incentives to win support for its planned Jizan oil refinery, as well as the option of developing a petrochemicals facility alongside it.
Potential capacity: 400,000 barrels a day
Estimated cost: $8-12bn
Length of Aramco supply deal: 30 years
Full details of the incentives package are expected to be released in September, along with Riyadh’s request for proposals.
It is the first time the kingdom has tried to develop a refinery without the involvement of state oil giant Saudi Aramco.
In 2007, amid speculation that there had been little interest from international oil companies (IOCs), the Petroleum & Mineral Resources Ministry drew up its own list of 43 prequalified companies, before ascertaining the level of potential interest (MEED.com 3:7:07).
At the time, however, firms including the US’ Chevron and ExxonMobil Corporation, and the UK/Dutch Shell Group, told MEED they would not consider bidding for the project because of concerns over its profitability (MEED 6:7:07).
International firms are understood to have been deterred by the fact that all the costs of the project must be met by the private sector through a consortium with local companies. The 250,000-400,000 barrel-a-day refinery is also seen as a difficult project to tackle because of its remote location in the far southwest of the country and the potential for escalating costs.
However, in an effort to encourage more international investors to commit to the $8-12bn complex, Riyadh is expected to offer financial assistance with the seed funding for the refinery.
“We are looking at a set of financial incentives for companies that could involve some help with the initial financing,” says one ministry official.
The winning bidder will also be handed a 30-year crude oil supply deal with Saudi Aramco, he adds, which may be supplied at a discount to the market price.
The incentives package comes despite earlier statements from the ministry that the project would not receive preferential treatment from the state-run oil company. An allocation of ethane will also be made available for the proposed integration of a petrochemicals facility, despite the current tight supply situation.
Aramco is set to bring additional ethane stocks on stream when its field development
programme is completed by 2010. The ministry is expected to release its request for proposals on 6 September, more than a year later than planned, when it will reveal further details of the incentives programme.
“We have heard about a number of financial incentives involving assistance with funding and possibly even some help with the provision of labour,” says the managing director of one Al-Khobar-based company, which expects to lodge a bid for Jizan as part of a consortium. “There was some suggestion we would find out the details in August but they are now going to be released at the same time as the request for proposals in September.”
The ministry is to hold a series of investor roadshows for oil majors in London and Singapore in November to outline further details of its programme and drum up support for the refinery.
Bids are expected to be filed by March 2009, with an award scheduled for the second quarter of the year. Under the original tendering schedule, a request for proposals was to be issued to prequalified companies in the second quarter of 2007, with bids submitted early in the fourth quarter. The ministry’s aim was to award the licence before the end of 2007.
Five firms that have registered an interest in the refinery are Malaysia’s Petronas, Taiwan’s Formosa Petrochemical Corporation, India’s Reliance Industries, China National Offshore Oil Corporation and Brazil’s Petrobras. They will all have to partner with a local company on the scheme.