Saudi Aramco and Japan's Sumitomo Chemical have issued letters of intent to at least two contractors who submitted the lowest bids to expand a petrochemical complex in Saudi Arabia, moving a step closer to a decision on whether to proceed with the major project, industry sources said.

British company Petrofac and South Korea's GS Engineering and Construction were picked among contractors to be part of building the second phase of the already operational complex in Rabigh on the Red Sea coast of the world's largest oil exporter.

The Rabigh 2 project is part of state-run Saudi Aramco's plans to become an energy firm focusing on chemicals, unconventional gas and renewables, to diversify its business from oil alone.

Petrofac leads the race for the two packages that involve a tank farm and common utilities.

GS Engineering and Construction is front-runner for two process packages known as CP3 and CP4.

The CP3 package involves production of ethylene-vinylacetate and low density polyethylene (EVA/LDPE), ethylene propylene (EPR) and others. The CP4 products include methyl tert-butyl ether (MTBE/IB), methyl methacrylate (MMA).

GS is also the lowest bidder on a utilities package for interconnecting.

The letters were issued last week as the validity of bids was due to expire on April 30, sources said.

In 2010, Aramco's chief executive Khalid al-Falih said the estimated total budget cost of the expansion was $6 bilion to $8 billion, but one source with knowledge of the bidding said it would now be much lower because of fierce competition.

A spokeswoman for Sumitomo Chemical confirmed that her company and Aramco issued letters of intent to some engineering, procurement and construcion contractors (EPC) since the end of April. She did not name the contractors involved.

She said the letters demonstrate the intentions of Aramco and Sumitomo to conduct final negotiations, adding that this is still one of the steps in the feasibility study and does not mean a final decision on phase 2 has been made.

"We have not made any decisions on Rabigh Phase 2 plan yet at the moment," the spokeswoman said.

She did not say how long the negotiations with the contractors would take or when the final decision on Phase 2 would be made.

"We are in the stage to make final negotiations with some EPC contractors...We are still conducting the feasibility study for Rabigh phase 2".

She said the company would not make any announcements on phase 2 until a decision had been made.

Aramco was not available for comment.

Sources in Saudi Arabia said meetings with contractors would be held towards the end of this month. "The award is coming, they need to have meetings to review some things," said one source in Saudi Arabia.

South Korea's Daelim Industrial has submitted the lowest bids for the CP1 package, for cumene, phenol and cyclohexanone. Aramco and Sumitomo have extended the bidding validity date of this package till June 2, industry sources said.

Italy's Saipem is lowest bidder on an aromatics complex, known as RP2, the sources said.

Petrofac, Daelim and Saipem declined to comment. GS was not immediately available for comment.

The deals had been expected to be awarded in the first quarter of this year but Sumitomo was unsure if it made economic sense and wanted a feasibility study to be completed, a senior executive said in February.

Sumitomo and state-run oil giant Saudi Aramco said when they signed the agreement in 2009 to expand the plant that the feasibility study would be completed by the third quarter of 2010 and Aramco officials said a final investment decision (FID) would be taken by the end of 2011.