Get cracking in right direction

A few weeks ago I discussed in this column the case for integrating refineries and petrochemical plants for the benefit of both industries. This process has been going on slowly but surely since the 1960s and it is catching on in our region.

The Saudi oil minister Ali Al Naimi recently inaugurated Petro Rabigh I, a project of Rabigh Refining and Petrochemical Company, which is a joint venture project between Aramco and Sumitomo Chemical Company of Japan.

The Rabigh refinery was a simple topping refinery with no sophisticated processing units, built in 1989 and having a crude distillation capacity of 400 thousand barrels a day in a single unit, which made it one of the largest refineries in the world.

The refinery for many years operated at reduced capacity exporting naphtha, diesel, jet fuel and fuel oil to international markets. However, no gasoline was produced there and the refinery often suffered as fuel oil — the least expensive product — constituted almost 50 per cent of its production.

The joint venture between Aramco and Sumitomo, which was established in 2005, proceeded correctly to process a large portion of this fuel oil into sophisticated products including high octane gasoline and petrochemical feedstock to produce polyethylenes, polypropylenes and other basic petrochemical products much in demand. The feedstock is enhanced by further supply of ethane and butane from Aramco.

Joint venture

The joint venture signals Aramco's entry into the petrochemical industry in a new step to become a fully integrated oil company, being the world's largest oil producer and one of its largest refiners.

The structure of the joint venture is 50 per cent for each partner but both already offered jointly 25 per cent to the public in an initial public offering reported to be oversubscribed. Of course, the Saudi government as usual offered some incentives to the new company in the pricing of ethane and butane valid till 2015.

This has encouraged the speed at which the project went ahead and completed in a relatively short time. It is unfortunate, however, that the project coincided with an increase in the cost of engineering projects in the last few years.

While the initial cost estimate of the project was $4.3 billion (Dh15.78 billion), it eventually reached $9.8 billion and it must have been a huge effort to secure financing.

The complex is expected to produce close to 17.2 million tonnes of petroleum products and 2.4 million tonnes of petrochemicals or about 10 per cent of feedstock. But even more interestingly, the company is encouraging the establishment of 50 to 60 smaller downstream plastics technology companies to add value by producing finished products based on Petro Rabigh's basic products.

I believe that further development of the light products section of the refinery is essential to cater to the evolving petroleum products specification and demand in international markets and add further value and profitability to the complex.

It is no wonder then that Petro Rabigh II is under way as its feasibility study with a completion date set for the third quarter of 2010. If found feasible, it will add further ethane cracking capacity and a 3 million tonnes a year aromatics complex, based on the refinery naphtha, in addition to other higher value products and the improvement of quality of existing fuels.

I may even venture to say that there could even be a Petro Rabigh III to process the 89,000 barrels a day of fuel oil that is currently produced in the complex.

Industrial users

The developers are so forward looking as to consider a scheme by Marubeni to independently produce water, steam and power for the supply of all industrial users in the region.

Such a scheme will probably make these utilities cheaper and more economical for all users while at the same time creating a new specialised company.

Thousands will be employed, housed, and schooled in Rabigh, which will make it a major city in Saudi Arabia. But if people are the purpose of development, as is often said, then the brightest part of Rabigh's development, in my view, is the King Abdullah University of Science and Technology, which promises to be a world class university and research centre.

I hope it will be open to students and professors from all neighbouring countries so that it can play a role in uniting people and ideas.

The writer is a former head of Energy Studies Department in Opec Secretariat in Vienna.