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Conoco, Aramco Delay Saudi Refinery

THE WALL STREET JOURNAL

By RUSSELL GOLD

ConocoPhillips and Saudi Aramco said Thursday they will delay a proposed oil refinery in Saudi Arabia, widely believed to cost more than $10 billion, in the latest sign that economic uncertainty is leading energy producers to move cautiously.

The companies said they will push back the construction bids, originally due in December, by six months to allow engineering and construction costs to drop, as they are expected to do in a cooling world-wide economy.

The global oil industry has experienced a number of project delays in recent weeks, stretching from the Canadian oil sands to the Middle East and Asia. While fossil-fuel demand is dropping, these delays could exacerbate an anticipated supply crunch when demand recovers.

Saudi Aramco, the world’s most powerful oil company, also said it was “reassessing all projects” in light of softening demand, according to industry newspaper International Oil Daily. Others already have taken specific steps.

BG Group PLC deferred the third phase of its Karachaganak field in Kazakhstan in hopes that costs will come down. Chief Executive Frank Chapman said this week: “We think that there’s going to be a significant fall in the cost structure of projects. We can all see what’s happening with raw materials and prices falling, we can all see projects are being delayed and overall construction-activity levels are falling. What we don’t want to do is make a commitment…at the peak of the cost cycle.”

Crude oil for December delivery fell 6.9%, or $4.53, to $60.77 a barrel on the New York Mercantile Exchange on Thursday.

Project delays in the high-cost Canadian oil sands have been announced in the past month by Royal Dutch Shell PLC, Suncor Energy Inc. and Nexen Inc.

ConocoPhillips and Saudi Aramco previously had said they hoped to have the 400,000-barrel-a-day refinery operational by 2013. It was aimed to convert Saudi crude into gasoline and other refined products for export.

In an interview this week before the announcement, ConocoPhillips CEO James J. Mulva said “investment is slowing down…because of the uncertain economic environment.”

Write to Russell Gold at [email protected]

WALL STREET JOURNAL ARTICLE

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