KHOBAR, Saudi Arabia (Reuters) - Saudi Aramco has shut down its 80,000 barrel per day crude oil refinery in Jeddah indefinitely, converting the complex into a hub for oil products distribution, it said on Sunday.
Aramco has been considering whether to shut the refinery for years because of age and environmental concerns as Jeddah’s growth had meant the refinery was in the middle of the city.
Quoting its senior vice president for downstream, Abdulaziz al-Judaimi, Aramco said it could not expand the facility as demand for fuel from the refinery’s main consumers had dropped. In addition, it was not economically feasible and was close to residential areas.
The plant, which started operations in 1967, served less than 20 percent of demand from the Mecca region, western Saudi Arabia and its closure will increase demand at other Saudi facilities. A source told Reuters earlier the facility would be mothballed. The tanks will still be used to supply south Jeddah requirements through the Jeddah terminal, he said.
The refinery produced liquefied petroleum gas, gasoline, diesel, asphalt and jet fuel, and exported naphtha.
“The decision to convert the complex to a hub for oil products distribution comes as the company is keen to boost the performance of its facilities,” Aramco said in a statement in Arabic.
The shutdown is not expected to cause a shortage of oil products in Saudi Arabia as Aramco will meet demand from other refineries, industry sources said earlier on Sunday.
In 2014, Aramco brought online two refineries which added 800,000 bpd of refining capacity, in Yanbu on the west coast, the Yasref refinery and the Satorp refinery in Jubail in the east.
On the west coast, Aramco is expected to complete the first major unit of a new, 400,000 bpd refinery in Jizan province by the end of this year.
This additional refining capacity from the three sites will help meet domestic demand and compensate for production lost from the Jeddah refinery which accounts for less than 3 percent of the total refining capacity of the kingdom and only meets a small part of needs from the Mecca region, Aramco said.
“The timing of the shutdown places little risk given that Saudi demand for gasoline in the first half of 2017 only modestly recovered whilst diesel consumption levels declined on the year before,” said Mustafa Ansari, an energy analyst at APICORP.
Capacity additions in the last five years have turned Saudi into a net exporter of primary products, he said.
“The impact from the Jeddah closure depends on how much of each fuel goes offline, but this is unlikely to be significant,” said Ansari.
Judaimi added that until the Jizan refinery is up and running in 2018, oil products will be supplied to Mecca from Aramco’s facilities in Yanbu and Rabigh.
The Jeddah refinery is next to, and supplies feedstock and power to, a base oil refinery run by Luberef, a joint venture between Aramco and Jadwa Industrial Investment Group.
The closure of the Jeddah refinery will not affect Luberef’s production of GI base oil and supply to customers will continue, because Luberef is expanding its GI facilities at Yanbu, the chief executive of Luberef told Reuters in June.
Saudi Aramco has been building refineries integrated with chemicals to boost their economics by adding high value products to the supply chain.
It has been also revamping its refineries to produce cleaner fuel to target export markets with stricter environmental requirements.
Editing by Andrew Torchia and David Evans