Key fact

The Gulf states currently have a refining capacity of about 6.25 million barrels a day, through crude distillation units

Source: MEED

The downstream oil sector has traditionally developed in areas of high consumption simply because it is cheaper to transport crude oil than refined products. Proximity to consuming markets also makes it easier to respond to changes in demand and to gauge seasonal shifts. Consequently, while the Middle East is the largest crude oil producing region in the world, the bulk of refining takes place in the larger economies of the US, Europe and increasingly Asia.

But against a backdrop of a rapid growth in regional demand for refined products, such as gasoline, several countries in the Middle East have ambitious plans for their refining capacity.

According to a June report issued by the Kuwait-based 10-member Organisation of Arab Petroleum Exporting Countries, refining capacity among Arab oil producers is expected to increase by 5 million barrels a day (b/d) to 12.4 million b/d by 2014.

Iran’s plans have a history of delays, made worse by the reluctance of foreign firms pursuing work in the country

Much of this will come from the Gulf region, led by Saudi Arabia, the UAE and Kuwait, which together possess almost 40 per cent of the world’s crude oil reserves. Those additions are expected to exceed domestic requirements for refined products and the surplus will compete for a share of the Asian and European markets.

Many of the planned new refineries will have the ability to process heavy crude – a key consideration given that oil will become heavier as firms have to drill deeper for it.

Refining capacity in the Gulf

The Gulf states currently have a refining capacity of about 6.25 million b/d through crude distillation units (CDUs), the first step in the refining process. According to data from US consultants, KBC Process Technologies, the largest refiner is Saudi Arabia with 1.95 million b/d of capacity, followed by Iran with 1.66 million b/d.

Exisiting refining capacity (thousands barrels a day)
Iran 2,790,000
Iraq 700,000
Bahrain 250,000
Kuwait 936,000
Oman 293,000
Qatar 273,000
Saudi Arabia 2,282,000
UAE 732,000
Yemen 130,000
Source: MEED

According to MEED research, there is an additional 902,000 b/d of condensate splitting capacity. The UAE is the region’s largest in this area, with 440,000 b/d of capacity, followed by Qatar at 262,000 b/d and Saudi Arabia with 200,000 b/d. At present, there are $250bn-worth of projects planned or under way in the Gulf’s downstream oil sector, according to regional projects tracker MEED Projects.

Saudi Arabia has the most ambitious programme with $60bn-worth of projects planned or under way. Having completed phase one of the PetroRabigh integrated refining and petrochemicals project in 2009, the kingdom hopes to add another 1.2 million b/d of CDU capacity by 2016 across three sites in Jubail, Yanbu and Jizan. Each refinery will have a 400,000 b/d capacity.

In the UAE, Abu Dhabi Oil Refining Company is undertaking an upgrade of its Ruwais refinery, doubling its gasoline output to more than 400,000 b/d. Abu Dhabi is also planning to build a refinery in the emirate of Fujairah; the state-owned International Petroleum Investment Company (Ipic) started the front-end engineering and design (feed) process for the $3bn project earlier this year.

Ipic is also undertaking a feasibility study for an integrated refinery and petrochemicals complex in Duqm in Oman, a project it hopes to develop with Oman Oil Company. Ipic awarded the project management consultancy contract to US-based Shaw Group in April.

The state-owned investment firm stalled its refining ambitions as oil prices slumped during the global recession in 2009. But its interest in downstream projects has been rekindled now that oil prices have recovered and are currently above $100 a barrel.

Kuwait, meanwhile, plans to build two new refineries and to revamp two existing ones. The schemes are estimated to cost about $30bn but have languished on the drawing board for many years.

Progress has also been slow in Qatar. State-owned Qatar Petroleum’s (QP) planned $11bn Al-Shaheen refinery was put on hold indefinitely in early 2010. The 600,000 b/d refinery at Mesaieed would have been the third at the site. In 2008, QP planned to tender construction deals for the refinery to process heavy crude oil from the Al-Shaheen oil field, but the project has faced a series of delays since then.

Condensate focus in Qatar

The feed study for the main process units at the refinery was completed at the end of 2009 by France’s Technip, which was also the project management consultant for the feed phase of the project. Qatar has instead focused on developing its condensates and gas-to-liquids (GTL) capacity. QP and UK/Dutch Shell Group will in November inaugurate the first 140,000 b/d phase of the Pearl GTL project, along with a 120,000 b/d condensate splitter. By 2014, QP expects to add another 145,000 b/d condensate splitter at Ras Laffan.

State-owned Bahrain Petroleum Company (Bapco) and the US’ Chevron Lummus Global are studying an estimated $2bn upgrade of the Sitra Refinery. Bapco, however, is expected to scale back its development plans due to the high costs involved.

Bahrain’s refining capacity already exceeds its domestic oil production capacity – it supplements its crude output with imports of Arab light crude through a subsea pipeline from Saudi Arabia. Initial plans to raise capacity to as much as 500,000-600,000 b/d, from 262,000 b/d, are now considered too ambitious and it is expected the figure will be 350,000-450,000-b/d instead.

Elsewhere, growing international isolation has helped to push forward Iran’s plans to boost its refining capacity as it seeks to secure gasoline supplies.

Many of its normal suppliers have refused to continue gasoline delivery since the strengthening of US sanctions on Iran’s energy sector in early 2010. Iran says it is self-sufficient in gasoline production, but it is continuing to invest in new projects as demand increases. About 18 refining projects with a total value of $11.4bn are under construction.

Project delays in Iran

Most of Iran’s downstream plans are upgrades and expansions. At the Esfahan refinery alone, $3.5bn-worth of contracts have been awarded, which will add 120,000 b/d of capacity by 2014.

Another $5.7bn-worth of projects are under study, including the $4.7bn grassroot Caspian Refinery in the northern Golestan province, which is in the basic engineering phase. EPC contracts are expected to be awarded at the end of 2012, with commissioning planned for 2015. Iran is also planning a new $1bn condensate refinery at Qeshm Island, an economic freezone in the Gulf, which it hopes to complete by 2016.

But Iran’s plans have a history of delays, made worse by the reluctance of international engineering firms to pursue work in the country. State-owned National Iranian Oil Company is commissioning new CDUs at the Arak refinery in the Markazi province, adding another 80,000 b/d of capacity. Of the Iranian projects, at least one 120,000 b/d train of the Persian Gulf Star condensate splitter is making progress, with commissioning expected in 2014.

In Iraq, refineries at Basra, Baiji and Daura are being upgraded with additions of new fluid catalyst crackers. The government also hopes to attract private-sector interest in a $23bn grassroots refinery programme for four new refineries with a total capacity of 740,000 b/d.

With the huge programme of investments in new refineries, upgrades and expansions, the Gulf states are set to capture more value from their hydrocarbon resources. The projects will simultaneously help to cut the region’s dependence on imported refined products and boost exports. They will also make an important contribution creating new jobs in the Gulf.

MEED O&M (Operation and Maintenance): A new database will be launched at MEED’s Middle East Brownfield’s Forum on 15-17 November. The database is an extension of the MEED Projects offering and provides comprehensive details of operational facilities in the Middle East. For more information call: (+971) 4 367 1302 or email helpdesk@meed.com