Business | Analysis

Iraq refining industry revisited

Quest to rebuild country’s oil machine is still a quest, ten years on

  • By Saadallah Al Fathi
  • Published: 21:58 February 17, 2013
  • Gulf News

Ten years after the invasion and occupation of Iraq and billions of dollars spent, the refining industry in that country is still struggling to meet domestic petroleum products demand.

Just before the invasion Iraq, it was not only meeting local demand but actually exporting to neighbouring countries some products like fuel oil, gas oil, LPG and lubricating oils in spite of the difficult years of the embargo on Iraq, which started in August 1990.

The year 2003 may be considered a time for recovery in the aftermath of the invasion and a time of resupply with spare parts, chemicals, catalysts and general engineering materials. Yet refinery capacity utilisation has gone down since then drastically to 50 per cent sometimes and on average to not more than 60 to 70 per cent. Notwithstanding some improvement, capacity utilisation was only 70 per cent in 2012 where refinery feed was about 580 thousand barrels a day (kbd) out of a crude distillation capacity of 840 kbd.

This situation has forced Iraq to import substantial volumes of petroleum products over the years. In 2012 only, imports of LPG, gasoline, kerosene and diesel totalled almost 4.5 million tons costing over $4 billion. It will not be an overstatement if one says that petroleum products imports cost may have been over $20 billion since 2003. Even with this level of imports, shortages are often reported in many localities due to the fact that reserve stocks are limited and are not proportional to the expected demand.

Another episode in the refining industry in Iraq is the lack of care for its lubricating oil refineries, which used to be the oldest and most experienced in the region as its history dates back to 1957. The available capacity of lube oils production in the three major refineries adds up to 345,000 tons a year. Production in 2012 was only 20 per cent, which is in fact an improvement over previous years. Because trade in lube oils is in the hands of the private sector, statistics are not reliable with respect to imports. However, with due consideration of fuels consumption, I humbly estimate imports to be over 100,000 tons a year costing close to $150 million and adding to over a billion dollars over the years since 2003. Technically, there is no quality control over lube imports similar to the rest of petroleum products imports with the attendant damage that could come from using sub-standard products.

This situation is unlikely to change as refinery utilisation may not improve substantially due to the pressure of demand and the near impossibility of stopping refineries long enough for major maintenance, repairs and modifications.

Unfortunately, the plans for four new and complex modern refineries are still on the board where millions were spent on studies and designs but no action on sites yet. The quest of the Ministry of Oil for private investment is not yielding any positive results and unlikely to do so in the near future. The refining industry even in the best situation does not yield good profit margins for its investors and, therefore, national oil companies in countries like Iraq do shoulder the responsibility of building refineries not only to supply the domestic market and export surpluses but to reap the advantages of deep industrialiszation, employment and technology transfer in addition to safeguarding the energy security of the country.

Even the expansion of the existing refineries, which could go a long way of easing the situation, is on a slow burner. The plans exist for many years now and some of them go back to before 2003 but very little have been achieved in contracting for the conversion units in the major refineries that are to increase light products production at the expense of surplus residual fuel oil. Even the modest expansion of the last few years was only in crude distillation capacity without supporting process units to improve products quality.

There is indeed no easy solution or a quick fix for Iraq refining industry as long as the chase of private investment takes precedent over the role of the national companies and government budget. But a suggestion may be made if there are any listeners. Use government prerogative to contract speedily for at least one refinery that can be easily connected to the infrastructure for serving the consumption centres.

Similarly and at the same time contract for the conversion units in the major refineries and construct the additional units needed to upgrade products to an acceptable level.

The refining industry in Iraq and in many other countries was and continues to be a well-established example of technical excellence with its capabilities often flowing to other industries and this advantage must be kept in mind for a long time to come.

 

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

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