After much delay, the expansion of the Bapco Sitra Refinery in Bahrain is finally underway. The project was conceived in 2012 and with a launch date in 2017. But delays have now shifted the completion date to 2020.

At this time of uncertainties in the oil market, going ahead with a project that is expected to cost between $5 billion to $6.5 billion (Dh18.5 billion to Dh23.8 billion) is an indicator of the determination of Bapco and the Bahrain government to proceed with major projects not only in refining but other related projects.

The Sitra refinery is one of the oldest in the region, which followed the discovery of oil in Bahrain in 1929. The refinery was established in 1936 with a capacity of 10,000 barrels a day and expanded many times as demand grew and exports of petroleum products became viable. Therefore, in 1968, the refinery reached its current capacity of 260,000 barrels a day.

The modest and declining production of crude oil in Bahrain — currently at around 48,000 barrels a day — is augmented by crude oil imports from Saudi Arabia. A 54-kilometre sea pipeline was laid in 1945 between the two countries to supply the refinery with crude oil in a long-term arrangements between the governments.

The expansion of the refinery did not involve raising capacity only, but improving product quality by the addition of downstream processing units. Unleaded gasoline was produced in 2000 and in 2004 a contract was signed for the low sulphur diesel production facility that started in 2007.

Most complex

More horizontal expansion was achieved in 2011 with the commissioning of lubricating oil plant (400,000 tons a year) to produce more advanced base lube oil stocks of very high viscosity index, a first in the region.

The refinery is one of the most complex in the region as it housed the oldest fluid catalytic cracking (FCC) unit that converts the heavy end of the barrel into more in-demand and higher value light products such as gasoline and diesel. The FCC and its associated facilities are so old that the new expansion will bring in a more modern cracking unit.

The front end engineering and design (FEED) is already complete and engineering contractors from Asia, Europe and the US are shortlisted in addition to the appointment of project management consultants. Therefore, bids for the new engineering, procurement and construction (EPC) of the expansion are expected by October. The scheme aims to raise refinery capacity to 360,000 barrels a day by the addition of a new crude distillation unit.

Other features are the addition of 60,000 barrels a day hydrocracking unit, expansion of the mild hydrocracking unit from 54,000- to 70,000 barrels a day to minimise the production of fuel oil, and improve overall product specifications with sulphur level in the diesel down to 10 parts per million.

The complexity of the expansion is not only related to the modern conversion units to be installed, but to its integration with older processing units and the modifications of the latter to be compatible. The storage, utilities and other off-site facilities will be expanded proportionately as well.

Debt financing

The pipeline feeding the refinery from Saudi Arabia needs to be expanded to cater for the new capacity. In fact construction contracts were signed in September 2014 to reroute it and expand its capacity accordingly.

Bapco is expected to rely on debt financing for the expansion as it did for an earlier one. The government, like many in the region, is short of funds but has good credit ratings. It is already borrowing $655 million for the LNG terminal and associated facilities.

Petroleum product consumption in Bahrain is less than 30,000 barrels a day and therefore the refinery has been — and will always be — geared towards exports. Bahrain is one of the important trading hubs in petroleum products in the Gulf region and therefore, its product specification have to be compatible with market requirements and with the development of the refining industry in Kuwait, Saudi Arabia and the UAE.

Being the largest industrial enterprise in Bahrain, Bapco is also active in social and pioneering ideas in the country. Besides its hospital, library, schools and other social facilities, it recently sponsored a solar energy pilot project of 5MW capacity to support national initiatives and to enhance its environmental image. The solar energy project aims to create interest for further investment and enhance job opportunities in the new industry.

Given the importance of the refinery to the economy and government revenues, it will not be surprising to see other expansions, such as petrochemical units being added to improve overall profit margins.


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