SAUDI Aramco is seeking to minimise the impact of rising costs at its new refinery in Jubail by splitting the contracts into smaller, more manageable packages and asking contractors to submit fixed-price bids.

The strategy was put in place after contractors working on engineering, procurement and construction (EPC) contracts on the Qatargas II project incurred additional costs of $700 million.
Costs on Aramco’s 400,000-barrel-a-day Jubail export refinery, which is being developed in a joint venture with France’s Total, have spiralled to $13 billion from $6.4 billion.
The state-owned oil company has now split its four original packages into eight smaller ones, in an attempt to spread the risk attached to the crucial EPC deals among contractors.
But contractors are also expected to bid for work on a fixed-price or traditional lump-sum turnkey basis, where the contractor takes almost all responsibility for the project and the risk.
It marks a change in strategy for Aramco, which had started to share project risk with contractors by signing convertible lump- sum deals. These meant the initial phase of an EPC contract was done on a cost-reimbursable basis.
EPC contractors are already struggling to deal with rising costs in the region, with some firms forced to take charges of several hundred million dollars.
However, despite the transfer of all the risk to the contractors, 13 companies had submitted interest in the eight packages by the February 6 deadline.
The packages cover: distillation and hydrotreating; a conversion unit; sulphur and amine saltwater treatment; aromatics; a coker unit; flare control and electrical systems; a cooling tower and project management; and plant utilities.
Companies indicating an interest in specific packages include Canada’s SNC Lavalin; Australia’s WorleyParsons; Foster Wheeler, Bechtel and Fluor of the US; Italy’s Snamprogetti and Techint; Paris-based Technip; Spain’s Tecnicas Reunidas and four South Korean firms.
Aramco has previously indicated that South Korean companies will be excluded from bidding because of the high levels of technical expertise required for the project.
The final cost estimate on the new refinery is due later this year from Technip, which is handling the combined front-end engineering and design and programme management services contracts.
Total has yet to formally commit to an investment decision on the refinery, but is expected to confirm its participation by the end of June, according to an executive close to the project.
He says the joint venture has already awarded a technology deal to Axens for the aromatics unit and has initiated exploratory talks over constructing an ethylene complex.
“Total is already quite far down the line over Jubail, so I would be very surprised if it were to pull out now,” says the executive.
He adds that Total’s recent decision to pull out of the South Rub Al Khali (Srak) gas exploration hunt in Saudi’s Empty Quarter makes Jubail “strategically vital” for the French oil major’s relationship with the kingdom.