Saudi Aramco and ConocoPhillips said on Friday that they would proceed with plans to build a 400,000 barrel-per-day refinery in Yanbu, Saudi Arabia, even as costs for new refining facilities soar. The announcement was the second giant refinery announced in two days. The plant is one of four that the Kingdom aims to build to boost domestic refining capacity by as much as 1.6 million barrels per day from 2.1 million. The companies did not disclose an estimated cost for the Yanbu project, which was originally pegged at about $6 billion when it was announced in 2006. Conoco and Saudi Aramco said they had completed initial evaluation and front-end engineering and design. The next phase will include bid solicitation and site preparation work. The Yanbu refinery is targeted to start in 2013, the companies said. It will process heavy crude supplied by Saudi Aramco. The companies will hold equal shares of the joint venture that will own and operate the plant, and they plan to offer a stake in the refinery to the Saudi public. Conoco and Aramco would each be responsible for marketing one half of the refinery's production. The French oil company Total is building a similar refinery on Saudi Arabia's Gulf coast, and Chief Executive Christophe de Margerie said earlier on Friday that he expected that project to cost more than $10 billion. Equipment and labor shortages have pushed costs up globally in the energy sector, raising industry concerns about whether the new Saudi plants would be built. According to a recent study by Cambridge Energy Research Associates, costs to build refineries around the world have risen 76 percent since 2000. Saudi Arabia, the world's biggest oil exporter, wants to increase refining capacity by 50 percent to make fuel both for its domestic market, where demand is rising, and exports. The plant is scheduled to be completed by 2013, according to the release. No information was disclosed on the size of the investment. Costs to build the refinery have doubled to $12 billion since the two companies signed a memorandum of understanding to pursue the project in 2006, a local Arabic newspaper has reported recently. The facility will bolster Saudi Arabia's refining capacity and provide additional quantities of refined products for global and domestic markets, said Khalid G. Al-Buainain, a Saudi Aramco senior vice president, in a release. The companies have completed the initial evaluation and front-end engineering and design. The next phase of the project includes the solicitation of bids and site preparation work. ConocoPhillips and Saudi Aramco are planning to form a joint venture company to own and operate the new refinery. Subject to regulatory approvals, the companies plan to offer an interest in the refinery to the Saudi public. The announcement comes as oil prices surged more than $3 Friday, hitting a new record of nearly $128 a barrel. Oil prices could rise even higher as US demand picks up during the summer months, when gasoline consumption is typically the heaviest.
