Saudi Aramco is expected to complete the first major unit of a new refinery in southwestern Jazan province by the end of this year but refining operations will only start a year later, industry sources said.

The refinery on the Red Sea is part of a plan to revive the region by building an economic city which will help create thousands of jobs.

It had been scheduled to be completed in late 2016 but has faced delays due to contractual disagreements and changes in the scope and design, sources have said.

Mechanical completion – a phase that precedes commissioning – of the crude/vacuum distillation unit (CDU/VDU) is expected by year end, but refining can only start when all other units are completed, which could take one year or more, the sources said.

'The target is mid next year for mechanical completion (of the rest of the complex) but the expectation is third or fourth quarter of 2018,' said one of the sources.

Pre-commissioning and commissioning would take a few months before the refinery is fully operational in early 2019.

Saudi Aramco declined to comment. It said in its 2016 annual review released in July that pre-commissioning was scheduled to begin in mid-2018, following the completion of the marine terminal.

The refinery will be the latest to come online after Saudi Aramco started operating its newest refineries in Yanbu and Jubail to add 800,000 barrels per day of refining capacity.

The refinery is connected to a terminal and a 3.7 gigawatts integrated gasification combined cycle power plant (IGCC) which is still under construction. An air separation unit will supply nitrogen and oxygen to the refinery and the IGCC. Boosting refining capacity will help Saudi Arabia lock in long-term agreements to sell its oil to customers while also using refined products as feedstock for petrochemicals.

The refinery is split into several units, including amine regeneration, hydrocracker and hydrotreater, naphtha and aromatics units, utilities and tank farms.

When complete, the 400,000 barrels per day refinery will process heavy and medium crude oil into around 75,000 barrels per day of gasoline and 250,000 bpd of ultra-low-sulphur diesel.

Meanwhile, Saudi Aramco dismissed a report that it may have to delay its initial public offering by a few months to 2019.

'The initial public offering of a stake in Saudi Aramco remains on track,' the state-owned oil company said in a statement.

'The IPO process is well underway and Saudi Aramco remains focused on ensuring that all IPO related work is completed to the very highest standards on time.'

News agency Bloomberg reported that Saudi Arabia was preparing contingency plans for missing its target of issuing the IPO in the second half of next year. The report cited anonymous sources familiar with the matter.

Saudi Arabia plans to list up to 5 per cent of Aramco on the Riyadh stock exchange and one or more international markets.