Surging raw material costs and a region-wide shortage of engineering capacity are likely to cut by more than half the ambitious plans to boost Middle East and North Africa (MENA) refining capacity. On paper, capacity could rise by at least 9mn b/d by 2015 (see table below). The total cost of these projects could be well over $130bn (not including 15 refineries/expansions for which the cost has not been published). With rapidly increasing demand for refined products in many MENA countries, governments have signed agreements aimed at boosting their refining capacity and modernizing their existing refineries to keep pace with tightening fuel standards. However, many of these agreements are likely to fail to materialize due to surging raw material prices and rising engineering, procurement and construction (EPC) contract costs. Because of this, the list of planned refinery projects is too optimistic, FACTS Global Energy Group Director Tomoko Hosoe told MEES .

Question marks already hang over a number of proposed projects. For instance, investor interest in Saudi Arabias first private sector refinery at Jazan has been tepid. The planned plant would be located in the far southwest of the kingdom, a long way from producing fields, thus raising doubts about the projects viability. Also, while ConocoPhillips remains committed to partnering Saudi Aramco in the proposed Yanbu? heavy crude oil export refinery project, the two firms are still engaged in technical discussions and economic analysis reviews focused on rising costs (MEES , 15 October 2007). Final investment decisions (FID) are expected this year in the Yanbu?, Jubail and Jazan refineries, so the next few months will be critical in determining how much extra capacity is to be added to Saudi Arabias refining sector.

Elsewhere there are also uncertainties. In Turkey, for example, at most only two of the three refineries planned for Ceyhan will be approved in their present form. Turkey is hoping to establish an energy hub at Ceyhan, with a growing crude export terminal, refining and petrochemical center, and LNG plant. In Lebanon, the war with Israel has dented investor enthusiasm for new refining projects. Among other projects anxiously awaiting FID this year are those at al-Duqm in Oman, and at Fujairah in the UAE.

Saudi Arabia Leads

On paper, Saudi Arabias planned additional refining capacity is the largest amongst MENA countries at 1.7mn b/d. It is closely followed by Turkey, whose planned additional capacity averages 1.1mn b/d. Iran aims to add 960,000 b/d of refining capacity, including a three-train condensate splitter plant, while Kuwait has a 615,000 b/d refinery planned by KNPC at al-Zour, whose completion is expected by 2012. KNPC is expected to award the contracts to build al-Zour refinery in 1Q 08. (When al-Zour comes on-stream, Kuwaits ageing 200,000 b/d Shu?aiba refinery will be shut down.) In the North Africa region, Egypt and Algeria lead the way in planned refinery projects. Egypt has five projects planned with a total crude distillation capacity of 680,000 b/d, while Algeria aims to double its distillation capacity by 2012 with four planned refineries with a total crude distillation capacity of 409,000 b/d and a 5mn tons/year condensate splitter. Of these, the 12,000 b/d Soralchin Oil Refinery in the southwestern Adrar region was completed in April last year (MEES , 7 May 2007).

3.6Mn B/D Capacity Rise

FACTS assumes a refining capacity build-up of 3.6mn b/d in the Middle East between 2007 and 2015, Ms Hosoe said. The timing of refinery completions has, in general, been pushed back due to rising costs and contractor availability, she added. All the sectors of the oil and gas industry are simultaneously drawing on the same contractors and manufacturers, Ms Hosoe said. As a result, approximately 680,000 b/d of refining capacity is now expected to come on-line between 2007 and 2010, as compared to the 1.8mn b/d forecasted a year ago. Numerous delays in Iranian expansion plans and rising costs have resulted in some of the key refining projects being pushed back. Also, Saudi export refineries are subject to delays as final investment decisions (FIDs) have not been reached yet, added Ms Hosoe.

The bulk of heavy sour crude grades will be used domestically in the Middle East, thus the incremental export barrels from the Middle East will likely be light to medium sour, Ms Hosoe told MEES . Middle East refiners will be mainly targeting Western countries for refined product exports: primarily auto diesel for the European market and gasoline for the US market, she added. The regional shortage of gasoline will be eliminated by 2011-12, and the Middle East will have a surplus of some 200,000-250,000 b/d of gasoline by 2015. Additionally, FACTS predicts that the Middle East will have middle distillate export availability of 1.4mn b/d in 2015.

Given rising Gulf region products demand, some export projects might be reconsidered and targeted towards the domestic market instead, said Ms Hosoe. FACTS expects the domestic markets to become a priority and thus some of the full conversion export refineries might be changed to medium conversion to allow fuel oil production for the domestic markets, she explained. While high oil prices have encouraged many of the refinery projects, they have also helped to increase EPC costs. If oil prices collapse, then many of the projects will be postponed but those already under construction will go ahead, concluded Ms Hosoe.

MENA And Turkey Planned Refineries/Expansion

Country

Refinery

New Capacity

Expected Cost

Expected Completion 

Algeria

Soralchin

12,000 b/d

$350mn

April 2007

Condensate splitter, Skikda

5mn t/y

n/a

2009

Tiaret

300,000 b/d

$4bn

2012

Expansion of Skikda

60,000 b/d

n/a

2010

Expansion of Arzew

37,000 b/d

n/a

2010

Egypt

Northern Egypt

300,000 b/d

$3.4bn

n/a

Greenfield Musturud (the feedstock is fuel oil)

4mn t/y

$2.25bn-$2.7bn

2011

Indias Reliance refinery/petrochemical project

n/a

$10bn

n/a

Matobas

300,000 b/d

$10.5bn

2011

?Ain al-Sukhna

FCC unit and 100,000 b/d fuel oil

$1.5bn

n/a

Iran

Bandar Abbas heavy oil refinery

300,000 b/d

$8-10bn

2011

Bandar Abbas condensate refinery

360,000 b/d

n/a

n/a

Abadan heavy crude refinery

180,000 b/d

$250mn

30 months

Expansion of  Lavan

20,000 b/d

n/a

2011

Expansion of Bandar Abbas

100,000 b/d

n/a

n/a

Iraq

Northern Iraq

20,000 b/d

$130mn

18 months

Koya

70,000 b/d

n/a

2015

Hindeya

140,000 b/d

n/a

2015

Nasiriyah

300,000 b/d

n/a

2015

Kurdistan

250,000 b/d

n/a

2015

Jordan

Expansion of Zarqa

40,000 b/d

$750-800mn

n/a

Kuwait

KNPC, at al-Zour

615,000 b/d

$14.6bn

2011

Lebanon

Planned by QPI

150,000-200,000 b/d

$1bn

n/a

Libya

Mellitah

200,000 b/d

$3bn

n/a

Mauritania

Refinery

100,000 b/d

n/a

2010

Morocco

Jorf Lasfar

200,000 b/d

$3-4bn

2015

Oman

Completion of Sohar refinery

116,000 b/d

$1.3bn

2008

Planned refinery at al-Duqm

80,000-300,000 b/d

n/a

n/a

Qatar

QP, at Messaieed

250,000 b/d

2013

Laffan Refinery Company

146,000 b/d

$800mn

4Q 08

Saudi Arabia

Private companies, at Jazan (proposed by Ministry of Petroleum and Minerals)

250,000-400,000 b/d

$12-15bn

n/a

Saudi Aramco, at Ras Tanura

400,000 b/d

$430mn

2013

Saudi Aramco/Total, in Jubail

400,000 b/d

$12bn

n/a

Saudi Aramco, ConocoPhillips, at Yanbu?

400,000 b/d

$14bn

n/a

Yanbu? (Saudi Aramco)

125,000 b/d

n/a

2012

Sudan

Port Sudan

150,000 b/d

$4bn

2010

Syria

Dair al-Zour

140,000 b/d

$1.5bn

3-4 years

Planned by Chinese Company

70,000 b/d

n/a

n/a

Revamping of Banias

n/a

n/a

n/a

Furqlus

140,000 b/d

$2.6bn

n/a

Tunisia

La Skhira

120,000 b/d

$2bn

2011

Turkey

Ceyhan: Petrol Ofisi and  OMV

200,000 b/d

$2bn

n/a

Ceyhan: Calik Enerji, and IOC

300,000 b/d

$4.9bn

n/a

Ceyhan: Turcas and Socar

200,00- 400,000 b/d

n/a

n/a

Yumurtalik

200,000 b/d

Part of $6bn

n/a

UAE

Ruwais (Takreer)

300,000 b/d

n/a

2013

Fujairah (IPIC)

500,000 b/d

n/a

Yemen

 ONGC, at Hadramawt

100,000 b/d

$1bn

2011

Al-Mukalla

n/a

$1bn

2011

Expansion of Marib (current 10,000 b/d)

15,000 b/d

$100mn

n/a

Ras ?Isa (Reliance/HoodOil)

50,000 b/d

$450-500mn

2010

?Aden expansion (current 100,000 b/d)

50,000 b/d

n/a

n/a

Planned refinery for proposed industrial city

200,000 b/d

$2.5bn

n/a

Copyright MEES 2008.