Gulf refining boom to fill demand gap

By Ian Simm

An unprecedented rise in the number of refineries throughout the Middle East is set to cut the region’s reliance on imported petrol and diesel in a move that could transform the global products market.

“The Gulf is generally short on petrol and diesel, and that is set to change in the coming years,” Robin Mills at Dubai-based Manaar Energy Consulting and Project Management said in a recent interview with Bloomberg. “They are putting more refining capacity into an oversupplied market.”

Increasing capacity

Saudi Arabia is close to completing the 400,000 barrel per day Saudi Aramco Total Refinery & Petrochemicals (Satorp) refinery at Jubail in order to slash its imports of fuel products, while two more projects with the same capacity are also under development in Yanbu and Jazan.

The latter, which includes a sea terminal, is worth around US$6 billion in contracts and is the first in a number of facilities that Saudi Arabia is planning that will lead to the development of the southwestern part of the country.

Contracts for the work went to South Korean firms Hanwha Engineering and Construction, SK Engineering and Construction and Hyundai, Japan’s JGC Corp. and Hitachi Plant Technologies, the UK’s Petrofac and Spanish firm Tecnicas Reunidas.

Saudi firm Al-Ali Al Ajmi Group will prepare the site, which covers a 12-square km area. A number of Saudi officials attended the signing ceremony and commented on the importance of the project for the development of the industrial city and surrounding area.

Downstream capabilities

The Jazan unit will be designed to process Arab Medium and Arab Heavy crudes and produce petrol, ultra-low sulphur diesel, benzene and paraxylene (PX). Products from the refinery will supply the Jazan, Asir and Najran areas and also be exported through the new marine terminal, which will supply the refinery with crude oil and export refined products.

Jazan will be in addition to four refineries owned and operated by Saudi Aramco in the country that have a total production capacity of 1 million bpd. The firm also holds interests in the Saudi Aramco Mobil Refinery Company (Samref) in Yanbu, in partnership with ExxonMobil, and in the Saudi Aramco Shell Refinery (Sasref) in Jubail, with Shell.

The latter units have a combined capacity of 700,000 bpd. Furthermore, Saudi Aramco holds an interest in the Petro Rabigh refinery which has a 400,000 bpd capacity, giving the leader of the Organisation of Petroleum Exporting Countries (OPEC) a refining capacity of more than 2 million bpd.

The Yanbu and Jubail facilities will also process heavy crudes for export. Operations resumed at Yanbu last week after two months of maintenance work.

In January, Fereidun Fesharaki, chairman of Facts Global Energy, said in a report that “despite growing demand at home, most of the products will go to exports and have a regional impact on product markets and the flow of products globally”.

Following the trend

Other Gulf countries are also following a similar pattern. The UAE, Kuwait and Oman are planning a number of new facilities in order to keep up with rising domestic demand and to diversify their economies.

In mid-June, the Kuwait National Petroleum Company (KNPC) intends to award a major engineering, procurement and construction (EPC) contract to build new sulphur-handling and marine export facilities at its Mina-al-Ahmadi refinery in the southeast of the country.

In late April, the state-run Oman Oil Company (OOC) announced that it was seeking a US$4 billion bank loan to build a large export refinery and petrochemical complex at Duqm in the south of the country.

The Duqm Port & Drydock project will host a planned US$6 billion refinery with a capacity of 230,000 bpd and will be commissioned in 2017. OOC – which owns a 50% stake in the Duqm Refinery and Petrochemical Industries Company (DRPIC) – recently appointed Shaw Energy and Chemicals as PMC to oversee the greenfield scheme.

The remaining 50% is owned by Abu Dhabi’s International Petroleum Investment Company (IPIC).

Up the coast from Duqm, Oman Oil Refineries and Petroleum Industries (ORPIC) is carrying out an expansion project on the Sohar refinery, which is due to be ready in 2016.

The expansion will add around 60,000 bpd, to take the total capacity to just under 180,000 bpd.

Deeper into the Gulf, state-run Qatar Petroleum (QP) last month announced a US$1.5 billion joint venture agreement for its Laffan Refinery 2 (LR2) project in Ras Laffan. At the time, the company said that the 146,000 bpd plant would boost the country’s export capacity, further adding to the threat of oversupply in the Gulf market.

The Middle East’s push to increase refining capacity is one that will have an impact on oil and product markets around the world.

While Saudi and its neighbours’ efforts to cater to growing domestic demand may result in a dip in available crude oil for the global market, the downstream facilities will also produce sizeable levels of refined products, a large amount of which will be available for export.

As European refineries continue to be mothballed or closed permanently, mega-refineries throughout the Middle East and Asia are filling the void left by these ageing beasts, creating a new dynamic.

The Middle East’s increasing capacity allows for healthy economies of scale that make it cheaper for European end users to import high-grade fuels and petrochemical products rather than refining crude closer to home.

Refining squeeze on in Cameroon

By Ian Simm @drake.newsbase.com

As Cameroon heads towards elections, in July, the country faces pressure to maintain social spending – particularly by keeping fuel prices affordable. It is becoming an increasingly expensive business, though, and local refinery expansion plans are unlikely to bring near-term relief.

In July 2012 Cameroon raised its fuel subsidy spend for the year to 400 billion CFA francs (US$742 million). This represented an increase of almost 24% on 2011, when it spent 323 billion francs (US$600 million).
At the time, Reuters quoted Gilbert Didier Edoa, head of the finance ministry’s budget department, as saying: “The decision to raise fuel subsidies was taken in order to stabilise prices at petrol pumping stations in the interest of the ordinary Cameroonian”.
The country introduced fuel subsidies in 2008, in the wake of violent protests about price hikes that led to the deaths of around 100 people – making the continuation of subsidies particularly important during the electoral season.
Edoa was quoted as saying: “the need to increase the subsidy was unfortunate and would deprive the government of budget resources for major infrastructure projects, including road construction”.
In March, petrol and diesel in Cameroon were priced at US$1.15 and US$1.04 per litre respectively. According to a note from Ecobank, pump prices have been static since 2009.
The Togo-based bank said the “subsidy component is as high as 50% on kerosene, which is the major heating fuel for low-income households in the country.” The bank also noted the country was forced to provide greater subsidies for areas further inland, which would otherwise be penalised by transport costs.

Out on a Limbé
Cameroon only has one refinery, Sonara’s 45,000 barrel per day Limbé unit, located around 350 km southwest of the capital, Yaounde. In mid-2011, the then general manager of Sonara, Charles Metouck, announced that the facility would receive 75 billion francs (US$164 million) from eight banks to fund its expansion. The project is expected to raise the unit’s capacity to around 80,000 bpd.
Metouck was dismissed in February of this year and broke into his former office, apparently in order to destroy documents implicating him. As a result, he was arrested and, in April, sentenced to nearly 10 years in prison.
The refinery investment will also allow the unit to process heavy crude. The government owns a 66% stake in the refinery, with Total holding an 18% stake, while ExxonMobil and Royal Dutch Shell have 8% each.

Making the grade
Cameroon produces two grades of crude – Kolé, a light crude with 34º API, and Lokele, a heavier crude with an API gravity of 20º. However, the Sonara unit currently only refines light crude.
In the note, Ecobank’s head of research, Rolake Akinkugbe said: “Kolé crude grade represents less than 20% of the refinery’s feedstock but Sonara is undergoing an upgrade that could raise its utilisation of Kolé crude oil above 30%. Due to the high residual fuel production from Kolé, put at over 40%, the upgrade is billed to include the installation of a hydro-cracking unit, which would significantly boost the refinery’s output of petrol and jet fuel, for which the refinery is currently unable to satisfy market demand.”
At present, according to local sources, the facility relies on imported Bonny crude from Nigeria, Alba condensate from Equatorial Guinea and a mixture of light crudes from Angola to blend with Kolé, and thus satisfy domestic demand.
The Ecobank note added: “Plans to expand capacity at Sonara or build a new refinery are unlikely to immediately reduce fuel prices … However, the refinery would require more hydro-cracking capacity than planned to be able to process purely Kolé crude. The government has also considered building a new export-focused refinery that will process Cameroonian crudes, as well as other crude blends.”
The planned new unit in Kribi is expected to be built with a refining capacity of 200,000 bpd, which can be later ramped up to 350,000 bpd. It will also be able to cover cover supply cuts from Sonara during maintenance work at the latter.
However, already paying the price for the lack of complexity at the Limbé facility, Cameroon will continue to be at the mercy of the market, as “depend on crude oil bought at international market prices (Brent plus), it will have to cover its margins and thus offer no measurable reduction in fuel prices too for the foreseeable future,” according to Akinkugbe.