Rabigh project budget to double

Sumitomo Chemical Company, a Japanese chemical giant, has said the total cost of the Rabigh petrochemical project in Saudi Arabia is likely to double from the original plan. The increase to a cost of about US $8 billion is due largely to higher steel prices.

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By  Jyotsna Ravishankar Published  September 6, 2005

Sumitomo Chemical Company, a Japanese chemical giant, has said the total cost of the Rabigh petrochemical project in Saudi Arabia is likely to double from the original plan. The increase to a cost of about US $8 billion is due largely to higher steel prices. Initially, total investment in the oil refinery and petrochemical plant being constructed in a joint venture with Saudi Aramco was projected at $4.3 billion, but with rising prices of steel and other materials, the costs indicated by engineering firms exceeded initial estimates, according to a Japanese business daily. New facilities not included in the initial plans, such as power generation and desalination plants, will also be built. Sumitomo Chemical and Saudi Aramco agreed in May last year to establish a 50-50 joint venture. Involving the purchase of an existing large oil refinery in Rabigh on the Red Sea coast, the project will refine ethane, a type of natural gas, to begin start-to- finish production of such products as ethylene and polyethylene. Earlier last month, an agreement was signed between the two companies to formalise the joint venture and to form the new company Rabigh Refining and Petrochemical Company (Petro-Rabigh). When completed in late 2008, the Rabigh Project will be one of the largest integrated refining and petrochemical projects ever to be built at one time. A total of 2.4 million tonnes of petrochemical solids and liquids, along with large volumes of gasoline and other refined products, will be produced annually. The Rabigh project’s executive director Saad Al Dosari said: “The signings of Petro-Rabigh joint venture agreement and this agreement mark major milestones for Saudi Aramco and Sumitomo Chemical.” The unit is to output 1.3 million tonnes of ethylene, a basic material for petrochemical products, and 750,000 to 900,000 tonnes of the general use plastic polyethylene each year. The project has now moved to an early phase of execution with the recent award of multiple engineering, procurement and construction (EPC) contracts. Construction for this project is expected to begin in the first quarter of 2006. Last month, Oil&Gas Middle East reported on surging material prices and the need for contractors to revise budgets due to increased raw material and labour outlays. Across the industry, costs are surging. The price of steel used for pipelines and rigs has doubled in some cases since 2002. The higher costs are primarily attributed to the price of steel materials, which were recently about 50% higher than at the start of 2004.

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