Conoco and Aramco delay Yanbu refinery construction

Nov 06, 2008 01:00 AM

ConocoPhillips and Saudi Aramco said they halted bidding on the construction of the 400,000 barrel per day joint-venture Yanbu refinery in Saudi Arabia, citing uncertainties in the financial and contracting markets. Turmoil in world credit markets and tumbling crude oil prices have prompted energy companies around the world to reconsider more expensive projects or cut back on spending to preserve liquidity.
"ConocoPhillips remains committed to working with Saudi Aramco to complete the Yanbu Export Refinery Project," said Jim Mulva, chairman and chief executive of ConocoPhillips. "We believe that this short delay will allow the markets to adjust from the current uncertainties and provide a stronger basis for the long-term success of the refinery."

The current bidding process to build the Yanbu export refinery will be delayed to the second quarter of 2009 from the fourth quarter of 2008, the companies said. Conoco and Saudi Aramco said they will continue engineering and start-up plans for the project to ensure continuity while accommodating the delay.
The Yanbu delay is not surprising because "the refining environment is pretty weak," Phil Weiss, energy analyst with Argus Research, said. "Steel and other related commodity prices are supposedly falling, so they can lower costs by waiting."

Yanbu, which had a price tag of $ 6 bn when it was announced in 2006, was one of four plants planned by the world's top oil exporter to boost its refining capacity. But equipment and labour shortages have pushed costs up globally in the energy sector, casting doubt on whether the projects would go through as planned.
In an another example, Royal Dutch Shell said on Oct. 30 that it has put off making a decision on a 100,000 bpd expansion of its Athabasca Canadian oil sands production project due to rising costs and falling crude oil prices. Shell's plans in turn prompted Marathon Oil to slow a $ 1.9 bn upgrade project at a Detroit refinery that would have expanded the plant's ability to process Canadianoil sands crude.

Global refining margins have been falling on weaker demand due to a slowing economy and increased supply from new export refinery capacity.
Energy stocks have been hammered by steep declines in crude oil prices. Crude futures in New York dropped to a 19-month low as demand worries persisted amid a slowing global economy.

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