Saudi Arabia Review

Aramco ... demanding deep discounts

Aramco ... demanding deep discounts

Discounts to revive major projects

Saudi Aramco expects to award several new domestic projects shortly, including the second phase of its ambitious shale gas development project

Saudi Aramco is taking full advantage of the steep discounts on offer from oil-field service providers to revive several projects that have taken a back seat amid low oil prices, industry sources say.

One such project now gathering momentum is the $2 billion clean fuels scheme at Saudi Arabia’s eastern Ras Tanura refinery, which was put on hold for nearly two years while Aramco re-evaluated its priorities, the sources say.

However, with Aramco now seeking to boost its market share of clean fuel exports to Europe, and take advantage of a more favourable bid environment, the contract award looks set to take place this year.

'Aramco has invited service companies to go in and assess the refinery and the project scope,' says one Saudi-based industry source, who adds that bids are expected to be lower than in previous years. The bid deadline is expected to be in May, with awards potentially a few months later, another source says. Aramco declined to comment. As they seek to keep up their work rates and retain their state-owned Mideast customers, which have shown greater financial resilience to the oil-price rout, international oil-field services providers have been more open to offering discounts to Aramco.

The firm expects to award several other domestic projects this month, including the second phase of its shale gas development in the northwest of the country, and the Hasbah offshore gas field expansion scheme, sources said. Both projects aim to boost gas supplies to the kingdom, which remain a national priority as domestic demand continues to rise.

The so-called System B shale gas project aims to add 200 million cubic feet (5.7 million cubic metres) per day of gas capacity. The gas will be piped from Turaif to the industrial city of Waad Al-Shamal now under construction. Meanwhile, Hasbah envisages expanding production capacity by a further 2 billion cubic feet per day and piping the gas to the onshore Fadhili plant, which is also now being built.

Another project up for grabs in the coming months involves a 220 km pipeline to transport refined products from the Qassim refinery to a new plant at Hail. Bids for the project are expected to open in May with awards in July, according to industry sources. Fuel is currently transported by truck to the Hail area, where demand is seen growing over the next decade in tandem with the construction of an economic zone.

Sources say Aramco awarded three contracts in December worth $1 billion for the second-phase expansion of its master gas pipeline system, also aimed at improving fuel distribution in the kingdom. The company is responsible for ensuring Saudi Arabia continues to meet domestic demand for energy, which is growing annually by 4 per cent-5 per cent, and set to double by 2030. Its gas investments have been boosted by Riyadh’s decision in late 2015 to hike domestic gas prices, which had been fixed at just 75¢ per million Btu since 1998, to $1.25/MMBtu.

According to Aramco’s 2015 annual report, the firm committed $10 billion to gas exploration and is focusing on deepwater areas of the Red Sea, shale gas plays in the north and tight gas around its giant oil fields. Last week, Saudi Oil Minister Ali Naimi said that the kingdom is now producing about 12.5 bcfd and is targeting 25 bcfd by 2035.

In terms of oil projects, Aramco sources say the priority is to maintain the kingdom’s capacity at 12.5 mbpd. But they do not expect the company to launch any bid processes for oil-related work this year. In September, Aramco started work a year behind schedule on the expansion of the giant Khurais oil field, which will boost output by 300,000 bpd to 1.5 mbpd. The project will now come on stream a year later than planned, in 2018.




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