Mideast refineries facing tough times

The Middle East's refineries are expected to face tough times in the near future as the European Union and the U.S., two of the biggest consumers of petroleum products, switch over to clean fuel.

For Gulf refiners the message is clear. This is the time to decide whether to upgrade the technology or perish.

Responding to call

According to a leading industry analyst in Dubai, most U.S., EU and Pacific Rim refiners have recognised the need to begin investing in new technology to meet ever tougher environmental guidelines. In fact, the second largest U.S. refinery, Pembroke refinery of ChevronTexaco, yesterday announced its decision to invest $140 million in technology upgradation to match European emission laws.

The U.S. Environmental Protection Agency (EPA), in its latest proposed regulations for diesel engine emissions and diesel fuel, has proposed that diesel fuel should have a sulphur content of no more than 15 parts per million.

EU deadline

The EU, on the other hand, has set a deadline of 2009 for its 238 refineries throughout the continent.

The current U.S. regulations allow up to 500 ppm of sulphur for diesel fuel used by trucks.
However Middle East diesel contains as much as 5,000 ppm.

The refiners in the Middle East currently export a large part of their products to the Asian and African markets.

Due to the relatively low level of environmental awareness and other economic and political problems, for the time being, most of the African nations are not concerned about clean fuel and environmental protection.

This trend is unlikely to continue for long, according to a market analyst.

In fact, many Asian countries like the Philippines, India and Thailand have responded to the call and started taking steps towards enforcing strict laws.

When this campaign gathers momentum, refiners in the Middle East will have problems, he said.

Likely loss

On the other hand, if the refiners of the region fail to upgrade their refineries to match the new clean fuel standards laid down by the EU and the U.S., these markets may slip out of their hands forever.

The environmental organisations spearheading the campaign for clean fuel may even go the extent of forcing the EU to ban Middle East petroleum products, especially diesel, if it has a high sulphur content.

Some EU countries have gone ahead of Brussels and set up their own sulphur limits.

These are far lower than the EU limit and would be difficult for Middle East refiners to match.

For example, Germany has set a sulphur limit of just 10 ppm for all types of diesel fuel.

Gestation period

The investment and gestation period required for such upgradation is another major issue which refiners will have to address in time, said an analyst.

It's time for the refiners in the region to consider the fast changing scenario on the environment front and act fast.