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Iraq’s refinery projects can’t forever be in the pipeline

There has been a spate of projects announced, often for political considerations

Gulf News

The upstream side of the oil industry often receives more than its good share of media coverage. This is understandable since the highest investment in the oil industry is there, while the greater impact on prices comes from crude supply as well as the political and economic situation in producing countries.

Nevertheless, without the downstream side, it is not possible to serve the needs of consumers as crude oil by itself has very limited use. The news related to the refining industry in the Arab countries is plentiful, though not all is well.

In Kuwait, two projects costing close to $32 billion (Dh117.5 billion) are well under way. The Kuwait National Petroleum Co. (KNPC) just completed a multi-billion-dollar portion of financing to upgrade and expand the country’s Mina Abdulla and Mina Al Ahmadi refineries.

Ten international banks and many export credit agencies were involved in complex negotiations to provide $6.24 billion to complete the financing of the $15.7 billion Clean Fuels Project (CFP), with KNPC resorting to external financing for the first time.

The project involves upgrade, integration and expansion of the two refineries from 736,000 barrels per day (bpd) to 800,000 bpd in addition to replacing some of the old units and upgrading product specifications to be in line with that demanded by international markets, especially on low sulphur levels in gasoline and diesel.

The project was until now financed by local banks and resources and is about 80 per cent complete, with commissioning due to commence next year. In contrast, the 615,000 bpd Al-Zour refinery is fully financed by KNPC and costing about $15.7 billion is about 28 per cent complete and commissioning scheduled for 2019.

The refining news from Iraq, where the Ministry of Oil keeps changing plans, is rather confusing with little achieved by way of actual implementation and setbacks being the norm.

Bloomberg reported that “Iraq plans to triple refining capacity by 2021”, whereby “processing capacity will increase to 1.5 million bpd from just over 500,000 now”, it said quoting deputy oil minister Fayyad Al Nima.

Apart from the four major refineries — Karbala, Missan, Naseriysa and Kirkuk — announced in 2007, recent announcements envisages a refinery in each of Kut, Anbar, Samawa, Diwaniya and an additional refinery in Kirkuk. There is also “a second refinery in Basra, though the bidding deadline for the 300,000 bpd facility has been deferred by three months as additional companies expressed interest”, according to the same source.

On May 31, NewsBase reported “a fresh deadline for submission of proposals to bid — for an integrated downstream complex at the Al Fao export hub in Basra province.” The plant is said to be 300,000 bpd, and documents to be collected by June 15 and initial proposals due by July 31. No exact location or preliminary study is given except that product specification would be Euro V.

Different capacities for some of the announced plants were given in January by the then deputy minister of oil Dhiaa Al Mousawi.

The number and scattered nature of these refineries reminds one of rains on a summer day. There have been “glaringly unsuccessful” achievements since 2003 and nothing involving private investors have come to fruition. The majority of the announcements are said to appease local governors or political factions rather than serious strategic planning.

Only the 140,000 bpd Karbala refinery is under construction with government funding, and even here delays in payment are threatening the progress. While the government is paying by crude oil lifted by the contractor, rumours have it that the quantity has been reduced and made conditional on the Korean contractor obtaining an additional $2 billion in external financing.

Absent from all this is any serious consideration as to the fate of the 300,000 bpd Baiji refinery. The plant was heavily damaged during the war with Daesh, but was recaptured by government forces in October 2015. Additional damage was inflicted by the pillage of warehouses and equipment so as to render any repair doubly difficult.

There has been no serious effort to even suggest a rehabilitation and minister Al Luaibi said last September that a refinery with capacity of at least 200,000 bpd would continue to exist either at the existing site or nearby (whatever that means).

Meantime, Iraq continues to provide a bonanza to product exporters where almost 90,000 to 100,000 bpd of light products are imported on average since 2004, costing billions to completely renew and expand its refining industry.

Having spent the greater part of my career in the Iraqi refining industry, I wish to live long enough to see Iraq stop planning and start building refineries in earnest.