Although work has only just started on the $10bn Yanbu Export Refinery on the Red Sea coast of Saudi Arabia, the project has already been in the news for years.
The initial announcement that a 400,000 barrel-a-day export refinery was going to be constructed was one of the first signals of intent by Saudi Aramco that the state-owned oil giant was going to begin processing its huge reserves of crude. It had traditionally stuck to the tried and tested method of shipping crude to the marketplace to be refined.
The US’ ConocoPhillips came on board as a joint venture partner and, being the world’s fifth largest refiner, it seemed like an excellent choice. But when the US firm exited the project last year Aramco was left with some very big decisions to make regarding the scheme.
Full credit must go to Aramco for recognising that despite ConocoPhillips’ reticence, the project still made commercial sense. Having decided to go it alone, Aramco was confident that it would only be a matter of time before interested parties would start to emerge again.
Aramco’s wait is looking like it is not going to be a long one as China’s Sinopec is in talks to sign up as a partner for Yanbu, now renamed the Red Sea Refining Company.
If a deal is reached it could be even sweeter than the original one with ConocoPhillips. Sinopec is looking to increase its presence in the Middle East and is also the third largest oil refiner in the world.
The potential tie-up already has a proven track-record as both firms are involved in a joint venture refinery project in China with the US’ ExxonMobil. Another positive factor is Sinopec is extremely solvent and, like Aramco, can easily pay for its share of the project, thus possibly negating the need for project finance.
Whatever the outcome of the talks, Aramco is in a strong position on this deal. Sometimes having the faith to press on with something pays dividends and Yanbu is proof of this.