Saudi fuel row heats up

Saudi Arabia: Saudi Aramco has said that it continues to supply all of the fuel contracted by Saudi Yanbu Cement Co, to accusations from the cement producer about a lack of fuel.

As reported in Global Cement Weekly #16 Yanbu Cement was forced to delay the launch of a production line that was scheduled to open by the end of September 2011. Yanbu Cement has now announced in a stock market statement that Aramco had not responded to its requests for additional fuel.

"Saudi Aramco confirms it is currently supplying Yanbu Cement with all the allocated volumes of fuel oil as per the signed agreement," Aramco said in a statement. "Yanbu Cement Co should have secured the needed fuel ahead of a commitment to expand and build the fifth production line. The fact that no agreement was concluded in advance absolves Aramco from responsibility that may result from any fuel shortage," Aramco added.

However other cement companies have also reported that shortages of subsidised fuel is threatening growth. Safar Dhufayer, the chief executive of Southern Province Cement Co (SPCC), raised the issue at the Reuters Middle East Investment Summit in Riyadh. He said that his firm, the Gulf country's biggest cement producer by market value, may delay the launch of a new line that is expected to raise its production capacity due to the fuel shortage.

"Our new line under construction should be commissioned by the end of 2011, but if there is not enough fuel we will not run it and that will create more pressure from rising demand which we cannot meet," Dhufayer said. "We only receive 80% of the fuel we need."

Demand for cement in the largest Arab economy is seen at 48Mt in 2011, increasing to up to 52Mt by 2013, while supply is 55Mt/yr in 2011 and plans for growth are uncertain, Dhufayer said. Cement companies in Saudi Arabia have a competitive advantage over global rivals as they benefit from subsidised fuel, supplied by government-owned Saudi Aramco.

Cement firms in Saudi Arabia, which is spending over USD400bn on infrastructure projects and is planning to build 500,000 new homes, faced a cement shortage in the market in 2008 that led to a ban on exports. The ban is still in effect.