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Aramco Awards Yanbu Refinery Work to Tecnicas, Daelim

Saudi Aramco, the biggest state-owned oil company, awarded contracts at the planned 400,000 barrel-a-day Yanbu refinery in Saudi Arabia to companies including Tecnicas Reunidas SA and Daelim Industrial Co.

Tecnicas Reunidas will build a coker, Daelim won contracts for gasoline and hydrocracker units and SK Engineering & Construction Co. will work on a crude unit, Saudi Arabia’s state oil company said today. Tecnicas said its contract for the 114,500 barrel-a-day coker is worth about $770 million.

“Signing these contracts represents a critical milestone,” Motassim Al-Ma’ashouq, Aramco’s executive director of new business development, said in the statement.

Aramco is boosting refining capacity to meet demand at home even as returns from processing crude oil have narrowed, Chief Executive Officer Khalid al-Falih said in January. The plant will cost $10 billion to $12 billion, John Sfakianakis, chief economist at Riyadh-based Banque Saudi Fransi said in April.

The company will add 1.5 million barrels a day of refining capacity from three new projects in the kingdom and by expanding a U.S. facility, al-Falih said in a speech in April. Aramco has global refinery capacity of 3.7 million barrels a day, he said.

Operation Start

The Yanbu refinery, planned to produce for export, is set to start operations in 2014, Tecnicas Reunidas said.

Punj Lloyd Ltd. also won a contract to work on offsite facilities, Saudi Aramco said in an e-mailed statement. Egypt’s state-owned engineering unit will build storage tanks, while local contractors Rajeh H. Al Marri & Sons Co. will relocate pipelines and Saudi Services for Electro Mechanic Works Co. will install high-voltage power lines, Aramco said. More contracts may be awarded over the next few months, Aramco said.

Saudi Arabia is seeking the flexibility to export fuels or crude. Refiners worldwide have postponed projects and idled plants as the global recession eroded demand and squeezed profit margins. While the country holds the world’s largest oil reserves and is the biggest producer in the Organization of Petroleum Exporting Countries, it imports fuels such as gasoline and diesel because its processing capacity is insufficient to meet domestic consumption.

Saudi Aramco and Total SA have cut construction costs for a similar joint venture refinery on Saudi Arabia’s east coast to less than $10 billion as contracting costs fell and said last month they had raised $8.5 billion in financing for the project.

Both the Yanbu and Jubail projects will process Arabian Heavy crude, production of which will be boosted when the Manifa oilfield development starts. Saudi Aramco will start production of 500,000 barrels a day of Arabian Heavy crude by June 2013 at Manifa before the field reaches full capacity of 900,000 barrels a day by January 2024, the company said last month.

The Yanbu refinery will turn Arabian Heavy into 90,000 barrels per day of gasoline, 263,000 barrels a day of ultra-low sulfur diesel, 6,300 metric tons of coke per day and 1,200 metric tons per day of sulfur, Aramco said.

The Saudi company, also planning a refinery at Jazan, decided to go ahead with the Yanbu project after ConocoPhillips pulled out of in April, saying it was focusing on production.

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