"Yes, it is surprising to find out that ConocoPhillips decided that the economics of the refinery were tight just before the awarding of construction contracts were due," said John Sfakianakis, chief economist at the Riyadh-based Banque Saudi Fransi.
He said Saudi Aramco has the capacity, willingness and financial wherewithal to push ahead with the Yanbu refinery. "The refinery could face minor delays, but it is highly unlikely that Saudi Aramco will abandon such a strategic project having invested so much already."
According to Sfakianakis, Saudi Aramco could resort to licensing the needed technology from a third party. "The financing will have to be restructured, but that shouldn't be an obstacle. Participants and the role of export agencies will have to be rehashed," he said.
The Yanbu project is a full-conversion refinery designed to process Arabian heavy crude.
"It will produce high-quality, ultra-low sulfur refined products, including about 265,000 barrels per day of diesel and 90,000 barrels per day of gasoline," said Khalid Al-Buainain, senior vice president of refining, marketing and international at Saudi Aramco. "These products will meet the strictest international specifications and can be sold globally to the highest valued markets."
Saudi Aramco switched its development focus to refining, petrochemicals and gas after boosting its oil production capacity to 12.5 million barrels per day last year.
"The Yanbu project is expected to generate strong returns due to attractive capital costs, a best-in-class operating cost structure and an ideal location for serving local and global markets," said Al-Buainain. "We anticipate that the Yanbu export refinery will become one of the most competitive refineries in the world."
Saudi Aramco is investing in oil-processing capacity even as returns from refining have diminished. Aramco plans to invest more than $120 billion in the next six years on crude oil and petrochemical projects, Chief Executive Officer Khalid Al-Falih was quoted as saying in January.