Burrowing underground.

Author:George, Alan
Position:Underground oil storage facilities in Saudi Arabia

AFTER NEARLY TWO decades of delay, Saudi Arabia is pressing ahead with an estimated $5bn-plus project to built a series of underground oil storage depots which will have a combined capacity of 30m barrels. Because of the scheme's strategic and political sensitivities, however, none of the parties involved is keen on publicity, and only the broad outlines of the project have emerged.

Intended to assure supplies of refined products to the kingdom's armed forces in times of crisis, the scheme involves deep caverns at an initial six sites - all of them near major military bases. The main contract is held by a Saudi-owned Swedish company, ABV Rock Group, which is using mainly Swedish expertise. Later, a series of smaller caverns will be built, to provide an integrated storage system able to supply all parts of the kingdom.

The project was initially mooted in the mid-1970s, when Saudi Arabia first established itself as the dominant Opec producer. At that time, however, it did not move beyond studies of potential storage sites on the Red Sea coast, prepared by Toronto-based Acres Consulting Services. For Riyadh, engaged as it then was in a determined drive to establish its basic infrastructure, other projects had higher priority.

The threats to the kingdom's security posed by the 1980-88 Iran-Iraq war prompted renewed Saudi interest in the oil storage scheme. In the mid-1980s the client, the Defence and Aviation Ministry, was holding negotiations with Swedish, South Korean and West German consortia, and by mid-1987 ABV Rock Group - a joint venture between Swedish contractors ABV and Skanska - had emerged as the clear front runners.

ABV Rock Group's prospects had been enhanced by the signature in January 1987 of an agreement under which technical advice for the estimated seven-year project would be provided to the client by two Swedish government agencies, the Board of Fortifications and the Civil Defence Board.

In 1986, however, world oil prices crashed, slashing the kingdom's revenues, and financing the storage scheme became a major headache. During 1987 talks centred on a possible oil barter deal, but ABV Rock Group was unable to find guaranteed outlets for the crude. Nevertheless, in mid-year the joint venture signed a main framework agreement for the project management and construction contract.

At about the same time it was reported that the Saudi Petroleum and Minerals Ministry had decided to allocate the project revenues from 200,000 b/d of...

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