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Algerian refining expected to double

North African country plans to build four or five refineries in the next five years

  • By Saadallah Al Fathi, Special to Gulf News
  • Published: 15:18 April 21, 2013
  • Gulf News

Official and media reports indicate that Sonatrach, the Algerian national oil company is to invest $80 billion to the year 2016 in the hydrocarbons industry to boost oil and gas reserves, production and downstream industries.

One of the important items in the above programme is Algeria’s intention to build four or five refineries in the next five years where $15 billion (Dh55 billion) is already budgeted.

Statistics are confusing with respect to the current Algerian refining capacity. While the Oil and Gas Journal reports capacity at 450 thousand barrels a day (kbd), the Organisation of the Arab Petroleum Exporting Countries (OAPEC) is probably more accurate in reporting a refining capacity of 583 kbd.

The largest of the existing refineries is at Skikda with a capacity of over 300 kbd and the others with lesser capacities are at Algiers, Arzew and the inland refinery at Hassi-Messaouad.

Theoretically, the existing capacity is sufficient for Algerian consumption of petroleum products of 326.5 kbd in 2011. Yet Algeria is reported to have imported some products in the last few years due to refinery outages or to balance the production of some products.

The large expansion planned in the refineries is therefore seen as a means to add value to Algeria’s crude oil and to produce liquid feedstock to its petrochemical industry in addition to satisfying the long term domestic demand for petroleum products. Yousuf Yousfi, the Algerian oil minister recently announced to the official Algerie Presse Service that “the increase in refining capacity will allow Algeria to meet its domestic needs until 2040 and develop petrochemical industries near the refineries.”

Exploration and development

If the proposed programme of doubling refinery capacity is implemented, Algeria may export very little or no crude oil in the future if its current crude oil production of 1.2 million barrels a day (mbd) is not increased by the current programmes of exploration and development. Algeria may be encouraged in this direction by the high quality of its crude oils with respect to its high API gravity and very low sulphur content. Only heavy naphtha product requires pretreatment for gasoline production while all other products do not need further treatment to meet marketing specification as the sulphur content is so low. Even the fuel oil sulphur content is close to 0.28 per cent where one per cent is considered the norm in the most sophisticated markets. Algeria exports all its production of fuel oil and buyers may be using it as a blend stock to improve other fuel oil streams.

The gravity quality of the crude oils yield on distillation 35 per cent naphtha or gasoline and almost 49 per of middle distillates (kerosene, jet fuel and diesel) without the need for any conversion units for the remaining fuel oil portion.

For these qualities, the specific investment for refining Algerian crudes may be among the lowest in the world due to the simple configuration needed to get the required products in quantity and quality.

Another feature in this programme is location of at least two refineries well inland and away from the seaside. Two identical refineries of 100 kbd each will be built in Biskra, South east of Algiers and in Tiaret, south west of Algiers. Construction of the Biskra refinery has already started last September. The two cities are population centres of 300,000 and 200,000 respectively and situated close to the oil and gas pipelines from the Sahara fields to the sea.

Optimistic

The refining plans of Algeria are very optimistic and while investment is foreseen by Sonatrach directly, the hydrocarbon law may be amended shortly to allow foreign partnership with Sonatrach. Investment in refineries does not generally attract foreign capital due to the low profitability in the refining industry where margins have been low and volatile especially in the last few years. However, it remains to be seen whether the low specific investment required and the quality of produced petroleum products will be sufficient to attract foreign investors with capital and technical ability to enhance the refining and petrochemical industry of Algeria.

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

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