North Africa Targets 1.3Mn B/D New Refining Capacity By 2012 Despite Cost Threats

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A number of new refinery projects across North Africa at different stages of planning and varying widely in scope, could raise the region’s refining capacity by as much as 1.3mn b/d by 2012, according to MEES estimates. With ample supplies of local and imported crude feedstock, and a geographical location that gives it direct access to the European market, North Africa has emerged as a hotspot for downstream investment. Even smaller oil producers such as Egypt and Tunisia have signed agreements this year aimed at dramatically boosting their refining output. However, the surging price of raw materials and the shortage of EPC capacity have already seen cost estimates rocket, which together with the global credit squeeze must inevitably raise questions about the viability of these projects.

Algeria and Egypt are most energetically pursuing their expansion plans, in an attempt to capitalize on high revenues from oil product exports while at the same time keeping pace with growing local demand, as their populations rise. In May, Algeria reaffirmed its commitment to a host of ambitious downstream projects, which are designed to double the OPECOPEC country’s refining capacity, from 22mn tons/year (470,000 b/d) to 44mn t/y, by 2012. This would be the outcome of a $10bn investment plan for Algeria’s refining and petrochemical sector that the country’s state-owned SonatrachSonatrach unveiled last year. Critical to Sonatrach’s target is the 300,000 b/d greenfield refinery which it is looking to build at Tiaret. The plant was due to be the first major downstream project in Algeria open to foreign investment. But in a discreet volte-face, following unsuccessful negotiations with China’s CNPC and France’s Total, Algerian Minister of Energy and Mines Chakib Khelil conceded at the end of last year that SonatrachSonatrach would build the plant on its own. Sources at Total indicated last month that the company gave up on the idea because of the plant’s inland location.

Other refining projects in Algeria include the expansion of the country’s largest refinery at Skikda, from 300,000 b/d to 360,000 b/d by 2010, and the expansion of the 50,000 b/d Arzew refinery to 87,000 b/d over the same period. The country’s refining capacity rose marginally with the completion of the integrated 12,000 b/d Soralchin Oil Refinery in the southwestern Adrar region in April (MEES , 7 May' The $350mn joint venture project between CNPC (70%) and SonatrachSonatrach (30%) supplies oil products to the regions of Adrar, Béchar, Tindouf and Tamanrasset. In 2005 the state-owned Chinese firm also won the tender to build a 5mn t/y condensate splitter adjacent to the Skikda refinery. The plant, which is due for completion in 2009, will produce up to 4mn t/y of naphtha and around 0.5mn t/y of kerosene and jet fuel for export, with another 0.5mn t/y of gasoil for export and domestic use (MEES , 4 April 2005)

Asian Interest In Egypt

Cairo has a number of plans to expand its refining and petrochemical production capacity, even though most of these are still in the very early or conceptual stages. The Ministry of PetroleumMinistry of Petroleum has been busy advocating Egypt’s strategic location and favorable investment climate to foreign companies interested in building new refineries. These could target European and US markets, and although Egypt is likely to become a net oil importer in the next few years, investors will look to the SumedSumed pipeline, which can supply 110-120mn t/y of crude from the Gulf to the Mediterranean.

Two private-sector Indian companies, Reliance and Essar have separately been in discussions with the ministry about constructing refineries in Egypt. Essar is looking to build a 300,000 b/d plant on the Mediterranean coast at an estimated cost of $3.4bn. Reliance has discussed the construction of a petrochemical and refinery complex for an investment of around $10bn, while the Saudi Alpha Group has expressed interest in something similar in size and cost to Reliance’s proposed plant, in the governorate of Kafr al-Shaikh.

But the more concrete proposals relate to the expansion and upgrade of existing facilities. The construction contract for a new hydrocracker and vacuum distillation unit at the 140,000 b/d Mostorod refinery near Cairo was awarded to Japan’s MitsuiMitsui and South Korea’s GS Engineering in August (MEES , 10 September' The hydrocracker will have an initial output of 1.5mn t/y of diesel, but will eventually have the capacity to produce 2.5mn t/y. A consortium led by the local private equity firm Citadel Capital is financing the project, which is valued at $2.25bn. The unit will convert heavy diesel into light products, and is due for completion in 2011. Separately, a $1.5bn contract for the construction of a fluid catalytic cracking unit (FCC) and 100,000 b/d fuel oil processor at 'Ain al-Sukhna in the Gulf of Suez is due to be awarded next month.

Libyan Refinery Plans Languish

Two decades of economic sanctions took their toll on Libya’s refining, petrochemical and gas processing facilities, which are producing below capacity as a result. Libya has the largest proven oil reserves of any African country, with 41.5bn barrels, and is far less politically volatile than Africa’s largest producer Nigeria, making it an obvious location for refining projects. But Libya’s complex bureaucracy and the string of upstream bid rounds over the past few years have delayed progress on downstream projects, while costs have risen. The plan to build a greenfield 200,000 b/d refinery at Mellitah appears to be gathering momentum, since it emerged that Tamoil, Libya’s European refining arm, had agreed to jointly develop the plant. Others in the consortium are thought to include a US firm, possibly OccidentalOccidental, which was the first to return to Libya after sanctions were lifted. But the estimated cost of the project has grown from $2.2bn early last year, to at least $3bn now and it remains unclear when construction is likely to begin.

The state-owned National Oil Corporation (NOC)National Oil Corporation (NOC) has been looking for foreign partners to renovate the dilapidated 120,000 b/d Azzawiyah refinery for more than five years. The company’s plan is to raise the plant’s light product yield from 50% to 95% and thereby reduce the amount of fuel that the North African producer needs to import. When the sale of Tamoil was being negotiated, one option was thought to have included the proviso that whoever bought the company would contribute to the refinery upgrade. But with Colony Capital buying 65% of Tamoil in June, this never happened, and NOC’s plan for Azzawiyah remains in limbo. Equally, there are few signs of any progress on the long awaited upgrading of the 220,000 b/d Ras Lanuf refinery, Libya’s largest.

Uncertain progress in Libya’s refining sector is offset by recent developments in the country’s petrochemical industry. NOC and Dow Chemical of the US announced the formation of a joint venture, on 18 April, to upgrade and modernize Libya’s petrochemical facilities at the Ras Lanuf refining complex (MEES , 23 April' The project, which will cost around $300mn according to Libyan sources, calls for the refurbishment and expansion of existing units built during the 1980s, followed by construction of an ethane cracker and additional polyethylene and polypropylene units. A final agreement was due to be signed at the end of September. Also in April, Norway’s Yara International signed a Heads of Agreement (HOA) with NOC to expand and upgrade the ammonia and urea plant at Marsa El-Brega.

Cost Inflation Hits Sudan’s Red Sea Project

After successfully expanding the Khartoum refinery in June 2006, Sudan is looking to more than double its refining capacity with the construction of a new 150,000 b/d plant at Port Sudan. But at $4bn, the estimated cost of the new plant is four times as much as the estimate for the 100,000 b/d plant that Malaysia’s state-owned Petronas agreed to build there two years ago (MEES , 5 September 2005)

CNPC carried out the $341mn expansion project, which raised the Khartoum plant’s capacity from 70,000 b/d to 100,000 b/d, to meet growing domestic fuel demand and boost the country’s gasoline exports (MEES , 17 July 2006) The new export refinery on the Red Sea is designed to process the heavy sweet, but highly acidic Dar Blend crude, that Petronas produces as a 40% stake holder in the PetrodarPetrodar consortium, and was originally due for completion in 2009. But the Rome-based engineering firm APS, which carried out the basic engineering design for the new plant, tells MEES that the project will take 40 months to complete from the time that construction begins, and that the EPC contracts have not yet been awarded. The Italian company has submitted an offer to carry out one of the three phases of the project, which include the construction of offsite pipelines and storage facilities, as well as a new harbor, and will add to the ageing 25,000 b/d unit already there. Petronas and Sudan’s Ministry of Energy and Mining each hold a 50% stake in the project.

In Tunisia, the Ministry of Industry, Energy and Small and Medium EnterprisesMinistry of Industry, Energy and Small and Medium Enterprises advanced plans to supplement its modest refining capacity, when it signed a memorandum of understanding with Qatar Petroleum (QP) on 26 May to build a 120,000 b/d refinery at La Skhira. The state-owned Qatari company will build, own and operate the refinery and have the responsibility of financing and arranging construction contracts for it, as well as organizing the crude supply. The refinery, whose production will be destined for both local and external markets, is due to be completed in 2011 at an estimated cost of $2bn (MEES , 4 June)

Refinery Expansion And Upgrade Projects In North Africa

* Expansion of existing refinery.

Finally, modernization of Morocco’s 130,000 b/d Mohammedia refinery is 33% complete, with commercialization of the new facilities set for the beginning of 2009. The upgrade includes the construction of a hydrocracker and catalytic cracker to bring the refinery products in line with European specifications, as well as increasing gasoline output. The work is now expected to cost between $850-900mn, compared with the initial estimate of $550mn when the construction contract was signed three years ago between the refinery’s owner Samir and the Italian-Turkish consortium Snamprogetti-Tekfen. A decision on whether to expand the Mohammedia plant will be taken after 2009.

Due to the rising local demand for oil products, Morocco’s Ministry of Energy and Mines has been discussing the construction of a new refinery with various parties for more than two years, including Spain’s Repsol-YPF and a number of UAE firms. Discussions seem to be progressing, and Kuwait’s Ministry of Oil said on 24 July that a Kuwaiti company was also interested in the project. The new refinery is to be built at the Jorf Lasfar port south of Casablanca, at an estimated cost of $3-4bn, with 200,000 b/d capacity, but the Minster of Energy and Mines Muhammad Bu Talib indicated that it would not be operational until 2015 at the earliest (MEES , 6 August)