Saudi Arabia's proposed Jizan oil refinery, which was supposed to be its first refinery built and owned entirely by the private sector, has ended up as a state-funded development project for the kingdom's impoverished south-western region. Saudi Aramco, the national oil company, said this week it would build the much delayed Red Sea facility itself, after the project failed to attract foreign investors.
"Upon King Abdullah's approval, Saudi Aramco has been instructed to quickly build Jizan refinery," said Ali al Naimi, the Saudi oil minister. "Due to the size and circumstances, this important development project in the Jizan region will be commissioned by Saudi Aramco, and the implementation is fully financed," he added. The kingdom had unveiled plans for the 250,000 to 400,000 barrel per day oil processing plant in 2006 as part of Jizan Economic City, a proposed industrial hub intended to boost long-term employment in a region sustained mainly by agriculture and smuggling across the porous border with Yemen.
Jizan province, in the extreme south-west of Saudi Arabia, is separated from the kingdom's main oilfields in the Gulf region by an expanse of desert, the Rub al Khali (Empty Quarter), and a mountain range, posing difficulties for pipeline construction and maintenance. Potential foreign investors were initially concerned that the cost of supplying crude to the plant could make the venture unprofitable. With the recent upsurge of rebel and militant activity in Yemen's lawless hinterland, security has also become an issue. Fighting along the border has so far forced the permanent relocation of 10,000 Saudi residents away from the troubled area.
Last year, after Riyadh pre-qualified eight Saudi firms and 42 foreign companies to submit proposals, the Jizan refinery project attracted just two bids, both from local consortiums. "Despite their industrial experience and strong interest, none of the Saudi companies are in a position to execute such a vast programme," Sadad al Husseini, a former senior executive of Aramco, told Reuters. Saudi Arabia's existing refineries are either wholly owned by Aramco or are joint ventures between the state petroleum company and international oil firms.
Despite being OPEC's top exporter of crude oil, Saudi Arabia imports oil products including petrol and diesel for transportation and fuel oil for its power plants. The continuing expansion of its industrial sector has caused domestic fuel demand to outstrip supply. Nevertheless, the kingdom aspires to become a net exporter of oil products as well as crude. Soaring construction costs during the oil boom that ended in mid-2008 and the global financial crisis, however, have delayed a number of key projects aimed at expanding Saudi refining capacity.
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