Saudi Arabia on Sunday signed a deal with Japan's Sumitomo Chemical Co setting the stage for the development of a 4.3-billion-dollar refining and petrochemical complex on the Red Sea.
Kick-off of the project, targeted for start-up in late 2008, "sends a powerful message that this country is secure and stable" despite last week's shooting rampage at a petrochemical plant which killed five Westerners, said Abdullah Jumah, president and CEO of state-owned oil giant Saudi Aramco.
The agreement shows the investment climate in Saudi Arabia remains "very strong," Jumah told reporters after co-signing it with his Sumitomo Chemical counterpart, Hiromasa Yonekura, at Aramco headquarters in Dhahran in the oil-rich Eastern Province.
The complex in Rabigh "will be the largest such facility ever built at a single stroke, and continues Saudi Aramco's tradition of developing ... and operating massive industrial 'megaprojects'," Jumah said.
He dismissed as an isolated incident the May 1 attack by four gunmen who killed five Western engineers of ABB Lummus, a US-based arm of the European engineering group ABB at the site of an expansion project for Yanpet (Saudi Yanbu Petrochemical Company) in the industrial Red Sea port of Yanbu.
The carnage came 10 days after a car bomb at a security forces building in Riyadh, the latest in a series of suicide bombings to hit the Saudi capital in the past year.
But Jumah stressed that a huge security operation was in place to ensure normal operations at Saudi oil facilities, with thousands of security guards protecting the installations and personnel of Saudi Aramco, which runs the operations of the world's top oil exporter.
"Our facilities are protected by technology, by physical barriers, by cameras. We have over 5,000 security guards hired by the company itself. Over and above that, we have government security," he said.
Saudi Arabia has an Opec production quota of 7.638 million barrels per day (bpd) but is believed to be currently pumping about one million bpd more. It has proven oil reserves of 260 billion barrels, a quarter of the world's total.
Saudi Aramco said in the aftermath of the Yanbu attack that it had not been affected by the incident and that operations were continuing as normal at all its facilities.
But oil prices have continued to rise on world markets, with crude hitting 40 dollars a barrel in New York Friday, fuelled by fears of terrorist strikes in the Middle East and US gasoline shortages.
Yonekura, whose company is Japan's second-largest chemical manufacturer, said security was "of utmost importance," but his concerns related to the Middle East as a whole rather than the Yanbu attack.
"We are concerned about what's going on in the Middle East ... I think the Yanbu incident is the kind of isolated event ... Of course, we have to rely on the government of Saudi Arabia to (maintain the) pressure to keep terrorist movements under control," he said. Saudi Arabia is Japan's major supplier of crude oil.
The memorandum of understanding signed Sunday features as the next step a joint feasibility study into the project to produce a total of 2.2 million tons of olefins, along with large volumes of gasoline and other refined products, the Saudi company said.
"The bedrock of this agreement is the development of our Rabigh refinery into a world-class integrated refining and petrochemical complex," Jumah said.
The topping refinery has a nominal crude distillation capacity of 400,000 bpd.
"The cost for the direct project investment is currently estimated to be 4.3 billion dollars. However, this estimate is subject to change based on the results of (the) joint feasibility study," Aramco said in a statement.
Building on the existing site and infrastructure of the Rabigh refinery, initial plans envisage setting up a high-olefins-yield fluid catalytic cracker complex integrated with a world-scale, ethane-based cracker, producing approximately 1.3 million tons per year of ethylene, 900,000 tons per year of propylene, and 80,000 bpd of gasoline as well as other refined products.
Petrochemical units will be included to convert all of the olefin production to downstream products.
Sunday's deal came two months after Saudi Arabia signed gas exploration and production contracts with Russian energy giant LUKoil, Sinopec of China and a consortium grouping Eni of Italy and Repsol of Spain.