RIYADH (Reuters) – Saudi Aramco and French oil firm Total signed an agreement on Sunday to build a 400,000 barrel per day (bpd), export-oriented refinery in the kingdom at a cost of around $6 billion.
The full-conversion refinery in Jubail on the Gulf coast is designed to process Arabian heavy crude oil and is scheduled to start up in 2011, state oil firm Aramco said in a statement.
According to the memorandum of understanding, Aramco and Total would form a joint venture firm, with each holding a 35 percent stake. Up to 30 percent ownership in the project is planned to be offered to the Saudi public in the future.
Aramco officials put the project’s cost at $6 billion. The state oil firm will supply 400,000 bpd of Arabian heavy crude and both Aramco and Total will market the refinery’s production.
Aramco and Total said they would carry out a joint front-end engineering and design study and that documents to implement the project would be negotiated in parallel with the study.
The deal is one of two joint venture export refineries which Saudi Arabia wants to build in the kingdom, the world’s top oil exporter, which is also expanding its crude output capacity.
Aramco officials have said they hope to sign a memorandum of understanding with ConocoPhillips for a 400,000 bpd refinery in Yanbu by the end of May. ConocoPhillips Chief Executive Jim Mulva said earlier this month he was pleased with the ongoing negotiations.
The deals are part of plans by Aramco to spend, together with its partners, $50 billion over the next five years to boost refining capacity at home and abroad.
Aramco Chief Executive Abdallah Jumah said the global energy industry was now less flexible partly due to chronic underinvestment in facilities and infrastructure, especially in refining.
“Perhaps nowhere along the value chain do we see capacities as tight as they are in the refining sector. Crude oil is of little good to the average end-user until it is refined into useful products, and at the moment, our industry’s ability to do that is being stretched,” Jumah said.
“This facility in particular … not only eases tight refining capacities but also addresses the mismatch between available crude supplies and refinery configurations that is complicating today’s market situation,” he said at the signing in Dhahran.
The Organisation of the Petroleum Exporting Countries (OPEC) has said concern over shortages of oil products such as gasoline and diesel, due to a lack of global refining capacity, has played a big part in driving world oil prices up.
Saudi Arabia holds the bulk of OPEC’s spare output capacity. But most of Riyadh’s unused capacity consists of heavy sour crude that refiners find difficult to process into transport fuels.
French Finance Minister Thierry Breton, who began a visit to Riyadh on Saturday, held talks with Oil Minister Ali al-Naimi and Finance Minister Ibrahim al-Assaf about the oil market situation and cooperation, sources familiar with the talks told Reuters.
The Jubail refinery was one of several deals under discussion between Saudi Arabia and France, which also wants to sell fighter jets and border security systems to Riyadh.
Total has already gained a foothold in the world’s richest oil patch, albeit for gas, when it joined Royal Dutch Shell Plc
in 2003 in the first exploration project awarded to foreigners since Saudi Arabia nationalised the industry in stages during the 1970s.
“This agreement reinforces our presence in Saudi Arabia and through this long-term project strengthens our close cooperation with Saudi Aramco,” Total Chief Executive Thierry Desmarest said.