SAUDI ARABIA'S NEW MIGHT: ENERGY
Fort McMurray of the Middle East
As Saudi Arabia tries to extend its oil reach, it faces the same hurdles as Alberta
DAVID EBNER
November 13, 2007
RABIGH, SAUDI ARABIA -- It's 35 C and humid on the shore of the Rea Sea north of Jeddah as a sprawling industrial facility and construction cranes emerge through the bright haze in the near distance.
For Saudi Arabia, a crude oil producer and refiner, the site is a first step into a future of doing more with the black gold that lies in vast quantities beneath the desert kingdom.
A $10-billion (U.S.) petrochemicals project is about 60 per cent complete, set for operation late next year, and while the site is half a world away from Fort McMurray in northern Alberta, the similarities between the two places are striking, beginning with the huge scale of these projects.
Petro Rabigh, a 50-50 joint venture between Saudi Arabian Oil Co. (Aramco) and Sumitomo Chemical Co. Ltd. of Japan, has seen its costs double since it was first conceived in 2004.
The project, like the oil sands and other major industrial developments around the world, suffers from surging steel prices.
And even with an astounding 38,000 workers on the site, construction has been hampered by a continued shortage of skilled labour.
The project has been several thousand workers short for more than a year and the cost of employing them, even at the relatively low wage rates here, is rising.
During shift changes, the site's roads are choked with rush-hour traffic to match Manhattan - and the highway north of Fort McMurray to the oil sands mines.
"I've never seen anything like this. Everything has doubled," said Ali Abuali, Petro Rabigh project director and a three-decade veteran at Aramco, the world's largest oil producer and most valuable company.
The one striking difference between Alberta and Saudi Arabia is the work force. With the construction boom in the oil sands, Alberta builders have brought in thousands of foreign workers but the large majority of the crews remain Canadian. The Alberta Federation of Labour has argued that Alberta is exploiting foreign workers by bringing in their expertise without offering them the opportunity to immigrate.
Such a debate doesn't exist in the Kingdom of Saudi Arabia, where the 15 million or so nationals don't dirty their hands in matters such as actually building major industrial projects. Of the 38,000 workers on the job at Petro Rabigh, all are foreign, many from India, Pakistan and China. All the technology employed is also foreign. The only stamp of Saudi Arabia on Petro Rabigh is senior management and the billions of dollars in oil money to build it.
Still, Petro Rabigh marks an advance for Saudi Arabia, which rode the oil boom of the 1970s all the way up and then, through the 1980s and 1990s, all the way down. This time, King Abdullah, in charge of Saudi Arabia since 2005, has made moves to build a greater foundation for the future.
The project, its managers said, will be among the largest petrochemical facilities in the world. Given its massive economies of scale with the existing and connected 400,000-barrel-a-day refinery and its central location to ship products worldwide, Petro Rabigh looks like it will instantly be a significant player in Saudi Arabia's first foray into a new international market.
Beyond selling new products, Petro Rabigh also marks another small step to open up the kingdom's wealth and businesses beyond the ruling House of Saud to a broader array of citizens. Petro Rabigh recently announced a plan to float 25 per cent of the venture on the kingdom's stock market to Saudi nationals, with the remaining 75 per cent remaining split 50-50 between Aramco and Sumitomo. The initial public offering takes place in early January and will likely be wildly oversubscribed, set to become the biggest IPO in the kingdom's history. The reason is simple: It will be the first piece of Aramco that the public can get its hands on.
"It's exciting for Saudis," Salah Kahtani, a Petro Rabigh spokesman, said in an interview. "People have an extremely positive opinion of Aramco. They trust Aramco."
And it couldn't come at a better time for Saudi investors, many of whom were burned in a massive stock market collapse. The index, formed early this decade, began to surge in 2004 when oil prices jumped, with shares quickly doubling, before just as quickly losing all that had been gained and more. "A lot of people have had a hard time," Mr. Kahtani said. "But the market has stabilized. Nothing spectacular has happened."
Public relations is still new in the kingdom but, at least relatively, is coming of age like other aspects of life on the Arabian Peninsula. Mr. Kahtani has been there since the industry's earliest days a decade ago and has done PR for several firms. Promoting the Petro Rabigh IPO isn't going to be one of his tougher jobs. "It's a no-brainer [to buy shares]. It makes my job easy."
By the numbers
2.4 MILLION
Petro Rabigh's expected production in tonnes of ethylene- and propylene-based products - used in plastics and other products. It will be one of the world's largest facilities.
38,000
Workers on site at Petro Rabigh - all foreign and from 30 countries.
8,500
Peak work force this fall at the $8-billion Horizon oil sands mine project in Northern Alberta.
Sources: Petro Rabigh;
David Ebner
