Aramco - Scraping The Bottom Of The Barrel For Power Generation
BMI View: Saudi Arabia is pushing ahead with plans to establish the world's largest re-gasification- based power plant in a move that would allow the kingdom to prioritise more of its hydrocarbons for export rather than use in domestic power generation and ease already-tight domestic gas supplies . We believe t he highly efficient facility will power the economically important Jazan industrial city and similar facilities could be deployed elsewhere as Saudi Aramco expands its refining capacity .
German engineering conglomerate Siemens has signed a US$966mn contract with state-owned oil company Saudi Aramco under which it will supply key components for the 4,000MW Jazan combined cycle power plant - th e latest development in the Kingdom's bid to bring online what will be the world's largest regasification-based power plant. The facility , which will be designed to u tilise synthetic gas (syngas - extracted from gasified refinery residues ), as well as diesel fuel, will power the Jazan Industrial City and the 400,000 barrels per day (b/d) Jazan refiner y in south-western Saudi Arabia . Util ising this technology could prove an important component of Saudi Arabia 's wider aim of preserving its precious oil reserves for export. This will be increasingly important in the short-term as domestic demand for electricity grows at a rapid pace - although we note that utilising syngas in power generation will likely be dependent on the price of producing syngas relative to the price of simply burning domestic oil .
|Robust Growth Expected|
|Saudi Arabia - Generation And Consumption, 2010-2022|
The signing of the contract will undoubtedly be a coup for Siemens and will allow the company to establish a foothold in 'a significant growth market for efficient fossil power generation'. Meanwhile, the deal will also help Saudi Arabia meet growing demand for electricity, as it moves to execute an extremely ambitious plan to invest US$80bn in the expansion of generation capacity by 2014. According to our forecasts, electricity consumption in Saudi Arabia will grow at an annual average of just under 5% to 2022. Even adopting a reasonably cautious approach we forecast the kingdom will have around 72GW of capacity by 2014 derived largely from thermal sources of generation. Our robust capacity expansion forecasts are underpinned by healthy GDP growth of 3.6% in 2013 and 4.3% in 2013 (although BMI's Country Risk team recently revised these numbers down slightly based on weak PMI data in June and July) and also due to demand for electricity from the kingdom's energy-intensive hydrocarbons industry as well as the booming construction industry ( see 'Short-term Capacity Constraints, But Project Awards Strengthen Outlook', August 12).
To this end, the construction of the Jazan power plant is significant development in relation to the future of both the Saudi power sector and hydrocarbons sector, while at the same time it will support the economic development of the south-western region of the country. In our view, one of the key aspects of the new facility is that it will be fuelled via the gasification of low-value residue feedstock to produce syngas for power generation. While Siemens is planning to construct a facility in Dammam to manufacture gas turbines and related equipment, Shell Global Solutions International B.V and Saudi Aramco are reported to have signed a gasification licensing technology agreement for the residue regasification unit at Jazan in March 2013.
This is significant because the construction of such a facility could support Saudi efforts to produce power without burning through its potentially lucrative domestic oil and would free up already-tight supplies of gas. This would support the kingdom's efforts not only to prioritise oil for export rather than power generation, but would boost the available supply of gas for power - with reports that supplies were so stretched that Saudi Arabia was reportedly considering developing import capacity as a short term solution until new fields are developed.
|Saudi Arabia - Crude Oil Refining Capacity, 2010-2022|
Providing upside to this view, we highlight that Saudi Arabia has been pushing ahead with plans to expand its refining capacity in recent years, with a view to meeting greater domestic demand for refined products such as gasoline, and also to tap export markets in Asia - where refined products and petrochemicals can fetch higher prices than crude oil. With Bloomberg reporting in 2012 that Saudi Aramco officials were hoping to boost refining capacity in Saudi Arabia from 2.26mn b/d to 3.46mn b/d in 2016, there appears to be scope for more regasification-based power capacity. Such capacity could utilise the vacuum residue that would be accumulated from refining greater volumes of heavy Saudi crude.