Technip Wins Midor Coking Unit Contract, But Egypts New Refinery Plans Stall

Egypt has taken a small step towards upgrading its refining sector, with the Middle East Oil Refinery (Midor) awarding Frances Technip a 43mn engineering, procurement and construction (EPC) contract to expand the delayed coking unit at its 100,000 b/d refinery near Alexandria. But earlier plans to increase the refinerys production capacity have been shelved, MEES learns, due to oil price uncertainty. The financial crisis and a new tax regime applying to the countrys industrial zones have already hampered other plans to expand Egypts refining capacity.

The expansion of the delayed coker unit will enable the plant to process more heavy crudes, the refinerys Operations Manager Muhammad El-Assar tells MEES. We have the flexibility to process either light or heavy crudes. But [because heavy crude is cheaper] we found it economically justified to increase our coker capacity a little bit to cope with more heavy crudes. He said the refinery processes both imported crude, which mainly comes from Saudi Arabia, and local crude, mostly from the Qarun fields in Egypts Western Desert.

Midor is Egypts newest refinery, coming on stream in 2001, and was designed to maximize middle distillates output with zero production of fuel oil. The refinerys existing coking unit can process 150 cu ms/hour of vacuum residue, and this will be expanded to 170 cm/h, or around 30,000 b/d, with the work scheduled for completion in the third quarter of 2010. We had the intention to expand the refinerys production capacity, Mr Assar says. But because these days the oil price is not stable, you cannot justify any [expansion] projects. So we have postponed it for the time being.

Technip, which was the main contractor in the original construction of the refinery, will undertake the project to upgrade the coking unit on a lump sum basis, with construction activities being charged on a reimbursable basis. Separately, MEES learns that BPs six-month contract to lease 50% of the refinerys output, which began in July last year, has expired and will not be renewed.

Financing And Tax Difficulties

The expansion of Midor is not the only Egyptian refinery project to be adversely affected by the economic crisis. The construction of new hydrocracking facilities at the 140,000 b/d Musturud refinery outside Cairo has been delayed because of the difficulties in securing financing. As MEES reported last month, procurement of components for the projects construction has been put on hold until the debt can be secured (MEES, 26 January). The new facilities at Musturud, which will produce 2.2mn tons/year of diesel and 700,000 t/y of high octane gasoline, were originally due on-stream in 2011, but this date is now expected to slip.

For some years, Egypt has been seeking to exploit its strategic geographical location between Europe and Asia and benign investment climate, to draw in international companies mainly from Saudi Arabia, Kuwait and India to help build more than 1mn b/d of extra refining capacity. But a new law, passed in May last year, removed the tax benefits enjoyed by some heavy industries operating in the countrys free zones, including refineries, which has discouraged those companies from investing. The Ministry of Petroleums First Secretary Shamil Hamdy stated in December that all the companies considering new refinery projects in Egypt did not believe it was worth investing if they had to pay taxes in addition to customs (MEES, 8 December 2008).

A source at the General Authority for Investment and Free Zones in Cairo told MEES last week that a proposal by the Minister of Investment late last year to re-instate free-zone status for oil refineries has so far come to nothing. We were not made aware of any changes to the current situation. Right now were not sure if this [proposal] is going to go through or not, the source said.

Libya Looks To Invest In Egyptian Downstream

Looking ahead, there have been positive signals coming from neighboring Libya about the construction of a third generation 250,000 b/d refinery on Egypts Mediterranean coast and the upgrade of the 47,000 b/d Asyut refinery in southern Egypt. A group of senior Egyptian officials, led by the countrys president Husni Mubarak, traveled to Tripoli in December, where the state-owned Egyptian General Petroleum Corporation (EGPC) signed a memorandum of understanding (MOU) with Libya Oil Holdings (LOHL), to develop the Egyptian downstream sector.

The projects identified for cooperation arguably have a better chance of succeeding than some of Egypts other refinery plans, given that LOHL is a subsidiary of the Libyan Investment Authority (LIA), a sovereign wealth fund set up in 2006 to invest Libyan oil and gas revenues abroad. As well as the construction of the new refinery, the MOU calls on Libyan help to install a unit to convert fuel oil into light petroleum products at the Asyut refinery, and to establish 500 new service stations. Egypts Ministry of Petroleum said in mid-January that the projects would together require an investment of around $5-6bn. A joint committee was due to begin studying the details of the new refinery project on 1 January, and is expected to submit its report in early March (MEES, 19 January).

Copyright MEES 2009.