Business | Opinion
Brave new ideas for refiners
Consumption pattern in Egypt in general and the Cairo region in particular is moving rapidly towards light petroleum products such as diesel and gasoline
- By Saadallah Al Fathi, Special to Gulf News
- Published: 00:00 May 24, 2010
Last week I discussed in this column the idea of refinery and petrochemical integration to improve economics of upcoming large projects in the region.
The idea may be suited for large and new projects but some form of it could even be applicable to existing projects. With the exception of the UAE, Saudi Arabia, Kuwait and Bahrain, the majority of the Arab refineries are simple hydro-skimming plants producing a large portion of low value residue which is only directly usable as fuel oil.
In a recent conference organised by the World Refining Association in Abu Dhabi, a new idea of refinery upgrading was presented. The Cairo Oil Refining Company is the operator of a 150,000 barrels per day (bpd) refinery belonging to Egypt General Petroleum Corporation (EGPC). The refinery is simple and hence over 50 per cent of its product is heavy residue.
Light petroleum
The consumption pattern in Egypt in general and the Cairo region in particular is moving rapidly towards light petroleum products such as diesel and gasoline especially after Egypt increased use of natural gas in industry and power generation. Therefore it became necessary to think seriously of upgrading the Cairo Refinery to produce more light products at the expense of fuel oil.
The Egyptian Refining Company (ERC) is a joint venture between private investors (Citadel Capital) and EGPC established to independently utilise the atmospheric residue from the refinery as a feedstock for developing a refinery upgrading project. This will be done by essentially utilising the entire atmospheric residue or about 3.5 million tonnes a year supplied from Cairo Oil Refining Company to be converted to high grade light products of diesel and gasoline components.
Preparations for the project are well advanced and once financing is settled the project is supposed to go ahead and may take three years to complete at an estimated cost of over $3.5 billion (Dh12.8 billion).
A similar project is related to Libya's National Oil Corporation (NOC) as it seeks to upgrade the simple 120,000 bpd Azzawiya Refinery.
To encourage investors Libya's NOC is already modernising the refinery with respect to controls and measurements in addition to harbour expansion and improving current product's specification through revamping of existing units.
Private investment
While these preparatory steps are undertaken by Azzawiya Refinery, the conversion phase is still waiting for a private investor to form a joint venture with the refinery. The cost of the conversion phase and its duration are not clear but some have estimated the cost to be around $650 million.
Libya's NOC is seriously considering the privatisation of its refining sector. It is encouraged by the fact that a UAE-based consortium of Trans Asia Gas and Star Petro Energy has already agreed last year to take a 50 per cent stake in Ras Lanuf refinery, Libya's largest with 220,000 bpd capacity.
Therefore a model already exists which may make decision making easier for NOC and the prospective investors.
Refinery profitability is under pressure most of the time and margins are erratic and mostly on the low side especially for simple refineries. Conversion does improve margins and integration with petrochemicals may entail conversion and improve margins even further.
The private investors are often seeking a better deal by aspiring to obtain a discount on feedstock cost. It is well established that fuel oil demand worldwide is on the decline due to the increased use of natural gas, the cleaner, cheaper and easier to handle fuel.
Therefore, it is important for refinery owners to realise that exporting fuel oil may in the future bring lower returns and to maintain overall profitability conversion may become the only option. At the same time, it is important for any country to satisfy its fuel requirement by the minimum amount of crude oil and here again this means utilising fuel oil for conversion.
Fuel oil specification are also changing in the direction of lower sulphur content even in shipping and the fuel oil produced is some of the region's refineries will not find a buyer in the future unless it is desulphurised. The decisions to be made are complex and need careful consideration of well-established licensing and engineering companies in cooperation with owners or their representatives. But there is no escape from these decisions if a country is to maintain a healthy refining industry.
The writer is former head of Energy Studies Department in OPEC Secretariat in Vienna.
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