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Saudi, Total to invest $9.6 bln in Jubail refinery

PARIS/KHOBAR, Saudi Arabia - Saudi Aramco and France’s Total said on Thursday they will invest $9.6 billion to build the Jubail oil refinery, and picked Technip and Tecnicas Reunidas among the main contractors.

Aramco and Total delayed the bidding process for the joint venture refinery by seven months, sending contractors back to the drawing board to revise bids and chop costs.

The price tag for the 400,000 barrels per day refinery was over $2 billion below the highest estimate last year of around $12 billion.

“The target has been achieved, whereby the overall project cost now stands at $9.6 billion,” the joint venture Satorp said in a statement, confirming the project cost reported earlier by Reuters.

The cost of the refinery had doubled from an initial $6 billion, as commodity and raw material prices soared and contractors strained to deal with backlogs on order books for energy projects.

Prices for steel and labour then fell with the global economic downturn, and contractors were forced to compete for a smaller number of projects.

“We are really happy that we were able to keep the overall amount below the $10 billion threshold,” said a Total source.

Contractors

Spain’s Tecnicas Reunidas won a a contract to build crude and hydrotreating units, and France’s Technip won two separate contracts for refining unit work and utilities, Satorp said in the statement.

Industry sources have said these three contracts were the biggest of the 15 packages that were up for bidding. Satorp did not detail the value of each package.

Technip had already carried out engineering and design work on the refinery.

Other winners included South Korea’s Daelim Industrial Company, Samsung, SK Engineering & Construction, and Japan’s Chiyoda Corporation.

Aramco and Total will send letters of intent to contractors next week, two contractor sources said on Thursday.

The refinery would be operational in the second half of 2013, Satorp said. Aramco would offer 25 percent of the JV to the Saudi public in the fourth quarter of 2010, leaving both Aramco and Total with an equal 37.5 percent share in the plant.

At present, Aramco holds 62.5 percent of Satorp, while Total has 37.5 percent.

The refinery is one of four that the world’s top oil exporter is planning to boost domestic capacity by as much as 1.6 million bpd from 2.1 million bpd.

The Jubail refinery is tied to development of the giant 900,000 bpd Moneefa oilfield. The plant will process Moneefa’s heavy oil, although Saudi officials have said they would only develop Moneefa if global oil demand warrants a rise in output.

Global oil demand has fallen this year at the fastest rate since 1981 due to the recession, forcing Saudi Arabia to cut supply and leaving it sitting on 4.5 million bpd of spare capacity that is expensive to maintain.

Aramco is developing a second 400,000 bpd export refinery in a joint venture with ConocoPhillips to process more crude from Moneefa. That plant was due to start later than Jubail, in 2014.