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Oman’s new refinery gets into full project mode

The $7b joint venture will be a centrepiece for Duqm’s special economic zone

Gulf News

Congratulations to Oman as the long awaited Duqm refinery project is now well underway.

The joint venture partners — Oman Oil Co and Kuwait Petroleum International — has notified three successful bidders of its intent to award them contracts for engineering, procurement and construction of the refinery and associated facilities. The first package is for the process units (estimated at $3.3 billion (Dh12.1 billion)), the second for utilities and offsite facilities ($2 billion), while the third is for crude oil and natural gas pipelines, and crude and products storage terminals at Duqm port ($1.7 billion).

The award followed an intense pre-qualification, where seven applicants were shortlisted and tender documents handed out. The division into packages is the normal procedure in hydrocarbon projects of a major size such as this. Notice-to-proceed is expected later this year in conjunction with financial close.

The project was conceived in 2009 and the joint venture agreement with the Emirates’ International Petroleum Investment Company (IPIC) was signed in 2012. However, IPIC withdrew in November last to concentrate on projects within the UAE. This opened the door for KPI to step in and sign a memorandum to “cooperate on the development of Duqm Refinery & Petrochemical Complex” and explore “additional participation from strategic third-parties”.

The refinery, estimated to cost $7 billion, is the centrepiece in the Special Economic Zone (SEZ) at Duqm, 600 kilometres south of Muscat, and said to be a growth engine for new projects — directly and indirectly — interfacing with the refinery. The area is expected to have up to $15 billion invested over the next 15 years and generate 12,000 jobs.

Oman expects it to be one of the largest industrial zones in the Middle East. Site preparation works for the project — including roads, housing and site levelling — started late 2015 in anticipation of the main construction works, which are now expected to be completed in 2021.

Distillation capacity

The refinery will have a high degree of complexity to produce higher value products of naphtha, gasoline, diesel and LPG to European standards and little heavy products. Refinery crude distillation capacity is at 230,000 barrels a day with vacuum distillation, hydrocracking, hydrogen production, light products’ hydro-treaters, reforming, LPG, sulphur recovery and delayed cocking units to suit.

These process units are licenced by the most famous companies in the business. The joint venture partners agreed that a petrochemicals complex will be added “at a later phase” and that the door is still open for other parties to participate. The refinery is expected to be fed by 65 per cent Kuwait crude and the rest by Oman.

The partners are also reported to be seeking $4 billion to $5 billion in debt financing from local and international banks. Export-import banks of the countries of the contracting companies and others are said to be interested.

Oman’s first refinery at Mina Alfahel near Muscat was built in 1982 for 50,000 barrels a day and revamped and upgraded to its 106,000 barrels a day. The second refinery is Suhar in 2006 at a capacity of 116,000 barrels a day cost $1.3 billion and the plant is currently undergoing an expansion to take capacity to 200,000 barrels a day.

The plant is supplemented by a 350,000 tons a year polypropylene plant costing $312 million. In 2010, a $1.48 billion aromatics plant was added to produce just over a million tons a year of benzene and para-xylene. Additional petrochemical units are also expected.

The two refineries are joined by a product pipeline of 266 kilometres and another pipeline delivers excess heavy residue from Alfahel to Suhar for conversion. The last agreement and the ensuing procedures can serve as an excellent example of cooperation between countries in our region.

Competitiveness

Such investments are more secure and far easier and profitable than doing so in more mature markets.

The competitiveness of the Omani project forces me into one lingering thought. The Duqm refinery proper at $5.3 billion entails an investment cost per barrel of $23,044. This is close to the unitary investment cost of Alzor refinery in Kuwait, which is closely related in terms of the complexity.

Even if the cost of all other facilities outlined above is added, the investment cost per barrel would amount to $30,435 only. The Karbala refinery in Iraq at a capacity of 140,000 barrels a day and less complexity was awarded at $6.5 billion, making the unitary investment cost $46,429. Yet the project is almost at a standstill for lack of financing and the Ministry of Oil seeking of investors has been in vain.

When will Iraq learn from its neighbours where in refining it was among the best in the early 1980s and now is surpassed by most?

— The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.

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