Saudi starts work on $10 bln petrochemical project
Sun Mar 19, 2006 12:24 PM ET
RABIGH, Saudi Arabia, March 19 (Reuters) - Saudi Arabia started work on Sunday on a $10 billion refinery and petrochemical complex, at least 25 percent of which it plans to float.
Petrorabigh, a joint venture with Japan's Sumitomo Chemical Co., is due to start production in the second half of 2008. It will produce 18.4 million tonnes of oil products, 1.3 million tonnes of ethylene and 900,000 tonnes of propylene a year.
Sumitomo and Saudi state-owned Aramco agreed in May to develop the petrochemical complex through a 50-50 joint venture that would upgrade a refinery at Rabigh on the Red Sea.
Under the pact, Aramco's first foray into the petrochemical business, the oil giant will supply the project with 400,000 barrels per day of crude oil, 95 million cubic feet a day of ethane and about 15,000 bpd of butane.
"Petrorabigh is an investment of high economical and commercial value," Abdulaziz al-Khayyal, Petrorabigh's chairman, told the groundbreaking ceremony.
"It will generate additional revenues for Saudi Arabia and it will provide Japan with ready access to a stable and abundant supply of petrochemical feedstock," he said.
Riyadh has said it plans to invest $50 billion to boost crude production capacity to 12.5 million bpd by the end of the decade from 11 million bpd now to meet future global demand. The plan calls for capacity to hit 15 million bpd in later years.
Aramco has also said it wants to float a 25-30 percent stake in the project, which could help soak up liquidity on the troubled Saudi stock exchange.
Saudi Oil Minister Ali al-Naimi confirmed the flotation, saying it would be not less than 25 percent. Sources close to the talks said earlier this month that Sumitomo opposed the flotation, feeling it was premature and that more cash should be raised from the offering than the 25-30 percent suggested.
But Naimi told the news conference that details -- such as when the offer would take place and how many shares would be offered -- would be announced after the joint-venture partners complete talks with the Saudi Capital Markets Authority. "Petrorabigh's initial public offering, which we are committed to, will serve to help promote the sound growth of Saudi Arabia's stock market," Hiromasa Yonekura, president of Sumitomo, told the gathering.
Naimi signalled there could be other energy sector flotations on the bourse.
"Big projects are coming in the future and nearly all of the projects in the refining and petrochemical sector will be partially floated to support the stock market and diversify the economic base of Saudi Arabia," Naimi said.
Naimi has said the rising prices of raw materials inflated costs by 70 percent for Petrorabigh, which had an initial value of $4.5 billion.
Moody's Investors Service said this month that Petrorabigh, which has secured $5.8 billion in financing, will have the capacity to cover project finance obligations and generate "acceptable" returns because it has a low break-even point.
Aramco President Abdallah Jumah conceded that raw material costs had risen and there was a big shortage in companies able to carry out such large projects. But he added: "The project is difficult but doable."
The project comes amid a sharp increase in construction costs in the Gulf region.
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