SATORP Achieves Substantial Cost Reduction

Following on from my previous post on the cost savings achieved by Dow and Saudi Aramco at Ras Tanura, I have now learned that Total and Saudi Aramco have reported cost savings of over 20% on the SATORP integrated refinery project. This has been achieved by slightly delaying the project and lengthening the EPC selection process in order to take advantage of lower construction costs. As noted previously, the IHS CERA downstream index showed an increase of over 40% for construction costs between 2006 and Q3 2008, reflecting the significantly increased demand for new construction in this period. Even so, to achieve a 20% reduction in cost for a project as large and as complex as SATORP and in such a short period of time is highly impressive. I'm informed that Saudi Aramco and Total will be presenting details of this project as a case study at the forthcoming Petchem Arabia meeting , which takes place in Abu Dhabi during October.

Dow and Saudi Aramco Achieve Savings on Ras Tanura?

I was very interested to read a report this week in Reuters claiming that Dow and Saudi Aramco had achieved savings of $4BN on an estimated total investment of $20BN in the Ras Tanura petrochemical complex.

As reported previously in this blog, construction costs are down, with the CERA downstream index showing that on average, the cost of building new refineries and petrochemical plants fell 9 percent between the third quarter of 2008 and the second quarter of 2009, after several years of steady and significant increases.

If the reported savings at Ras Tanura are correct, then Dow and Saudi Aramco have been highly successful in demanding cost reductions from managing contractors. Clearly, the managing contractors will be looking to their sub-contractors and equipment suppliers to achieve substantial savings. In some cases, where order books are weaker, this will create major problems and some may not survive.

After years of very high inflation in new plant construction, it is now necessary for all parties to work smartly to achieve economies and satisfy the end clients. The days of 'just get it built' are clearly over.