Sumitomo Chemical and Aramco boost joint venture plans

Oct 22, 2007 02:00 AM

Petro Rabigh, a joint venture of Sumitomo Chemical and Saudi Arabian Oil Co., is firming up plans to boost its investment in a refinery and chemicals project in Saudi Arabia beyond $ 10 bn, people familiar with the plans said.
Sumitomo, Japan's third-largest chemical producer, and state-controlled Saudi Aramco have invited engineering firms to bid for the contract to manage the expansion of the Petro Rabigh joint venture, located about 200 km north of Jeddah on the Red Sea, Saudi-based people said.

The partners are "definitely interested in the second phase and are now going through the evaluation process," an official close to the project said, adding that a final investment decision was still some time away.
The successful bidder will help the Sumitomo/Aramco venture manage the construction of a second world-scale petrochemicals complex at Rabigh. AramcoSumitomo signed in 2005 a contract to develop and integrate an existing 400,000-bpd refinery at the site with petrochemical plants to benefit from economies of scale. The plants will use feedstock including ethylene, a gas derivative, for the production of polyethylene among other chemicals, which are used to make plastics.

Cheap gas has made Persian Gulf countries an attractive destination for investments in petrochemical industries, which are booming on the back of high global demand, especially from fast-growing markets in Asia. Countries like Oman, Kuwait and Saudi Arabia are developing domestic petrochemical industries to diversify their economies away from oil and to create jobs for their young and growing populations.
Petro Rabigh's first phase is estimated to cost the two companies $ 9.8 bn to develop, more than double the originally budgeted $ 4.3 bn. Given the size and complexity of the latest plans, phase two may have a similar or higher price tag.

The Petro Rabigh 2 project is intended to produce specialist petrochemicals such as paraxylene and vinyl acetate monomer, and will add gasoline production.
"We will have a final cost estimate after the FEED," the official said.
AramcoSumitomo will submit their documentation for the phase 2 project management and FEED contract, the people said. The expansion plans are moving ahead at a time of escalating project costs worldwide, which has seen some projects delayed and others being cancelled.

Project costs in the Middle East have soared as governments are spending record oil revenues on building and expanding industries and infrastructure, leading to a shortage of contractors, raw materials, equipment and qualified labour, which in turn has driven up prices.
Sumitomo is competing with rivals such as Dow Chemicals in developing integrated refinery and chemical plants in the kingdom.

Aramco, the world's largest oil company by production, and Dow in May signed a memorandum of understanding to develop a similar integrated complex at Ras Tanura, despite industry sources' estimates that it will cost about $ 22 bn -- more than double its initial estimate.
Saudi Arabia is seeking to produce more specialized chemicals as part of the country's strategy to create new industries that will provide jobs for its young and growing population.

Source / Dow Jones Newswires
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