UAE-based Al-Ghurair Investments is due to sign a joint venture agreement with state-owned National Oil Corporation to carry out the upgrade by early March, according to Zahid Muzaffar, chief executive officer of TransAsia Gas International, a subsidiary of Al-Ghurair (MEED 18:1:08).

The project will reduce fuel oil output from the 220,000-barrel-a-day refinery in favour of diesel. “We expect a rate of return of 12-16 per cent,” says Muzaffar. “The heavier oil will be converted to high-value product. That is where we will make the big gains.”

The claim comes despite pressure on profit margins at other major refinery projects. In Saudi Arabia, the expected rate of
return for a planned refinery at Yanbu is understood to be about 6 per cent, just half the 12-15 per cent typical for such projects in the past (MEED 11:01:08).

Such a high rate of return for Ras Lanuf may depend on whether the project can be executed within the $2bn budget. Cost estimates vary between $2bn and $3bn, and in the current climate, project costs are prone to escalation.

“The big risk will be the cost,” says Alan Gelder, upstream head of UK energy consultant Wood Mackenzie. “$2bn looks low in the current environment.”

Al-Ghurair accepts that it may need to spend more. “We will not stop short if the project requires more money,” says Muzaffar.

The first phase of the project, lasting 12-18 months, will involve improving the refinery’s output. The two to three-year second phase will include the installation of a delayed coker to upgrade fuel oil to coke and vacuum gas oil. The coke will be used for power production, while the vacuum gas will be converted to diesel for sale in Europe.

The company has assembled a 30-strong team of refining experts in India, though technology and engineering, procurement and construction services will be carried out by another company.

Al-Ghurair has not completed a refinery upgrade or construction to date, but is developing refineries in Sri Lanka and Pakistan.