State oil giants feel the pain

28 April 2010

International partners losing interest in schemes backed by state firms show the realities have changed for the oil and gas industry

The past two years have served to overturn many preconceptions about the Middle East and indeed the wider world.

In early 2008, a banker or credit rating agency analyst, who questioned the implicit guarantees around the vast amount of debt being raised in the Gulf would have been laughed out of the offices of the speculative, government-run real estate firms which peppered the region.

That international oil, refining and petrochemical companies would pull out of any of the megaprojects planned for the region was even more unthinkable. This has changed.

Wrangling with Dow Chemical saw Saudi Aramco concede to a change in feedstocks and location

April alone has seen the US’ ConocoPhillips exit two $10bn joint venture developments: the Yanbu refinery project with Saudi Aramco; and the Shah sour gas development with Abu Dhabi National Oil Company (Adnoc).

The projects no longer fitted in with the company’s strategy and it was ready to walk away from the schemes, and their powerful partners, despite having reached advanced stages of development on both.

Meanwhile, wrangling with the US’ Dow Chemical over a planned $17bn petrochemicals project has seen Saudi Aramco concede to a change in feedstocks and location for the scheme, cancelling an $8bn refinery development along the way.

Earlier in the year, Aramco had taken over the development of a new $7bn refinery development at Jizan in the south of the kingdom from Riyadh because the country’s oil ministry had not been able to attract sufficient international interest for what was to be Saudi Arabia’s first private refinery project.

The financial crisis of 2008-09 has served to show that there are no hard and fast rules, and that even energy giants such as Aramco and Adnoc are susceptible to change.

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