About two and a half years ago when crude oil prices were heading up at a pace never before seen, the Saudi Arabian oil minister claimed that there was plenty of oil, but not enough refining capacity. To show their good faith, the Saudis would help build two refineries in Saudi Arabia with a total refining capacity of 1 million barrels per day. The Saudis partnered with ConocoPhillips (NYSE:COP) to build a 400,000b/d refinery and with Total (NYSE:TOT) for a 600,000 b/d refinery atYanbu.
Yesterday, ConocoPhillips and Saudi Aramco, the Saudi nationaloil company, stopped the bidding on the refinery’s construction,blaming "uncertainties in the financial and contracting markets."Translation: the Saudis are worried about their profits from crude oiland want to hold onto their cash.
The Saudis weren’t the only ones interested in building exportrefineries. Chevron (NYSE:CVX) joined with India’s Reliance Industriesto construct a 660,000 b/d behemoth at Jamnagar, alongside an existing600,000 b/d refinery. The new plant is expected to be operational bythe end of this year.
Whether building export refineries is a good idea or not remains to beseen. Still, when the richest oil-producing country in the world callsa halt to new capital spending, we should be paying attention.
November 7, 2008