Ipic reviews Fujairah refinery plans

11 January 2009

Abu Dhabi-based company says scheme is no longer a priority as demand for refined products plummets.

The development of the Fujairah refinery planned by Abu Dhabi-based International Petroleum Investment Company (Ipic) is in doubt after the company launched a review of the project, saying it is no longer a priority.

The decision is based on falling demand for refined products around the world, as global economic activity slows.

“The venture is under study,” one senior source at the company tells MEED. “I would not anticipate a contract award for now. It is not a priority. The recent change in economic outlook and production demand outlook made people think that the fast-track process was not as necessary.”

It is the latest in a series of setbacks for the project. The planned refinery had already been downgraded from a 500,000 barrel-a-day (b/d) unit to 200,000 b/d in September 2008 because of lower demand projections. An associated petrochemicals plant was also shelved at the same time as the capacity cut.

In 2008, Ipic held talks with the US’ Occidental Petroleum and an unnamed European oil major to act as a potential partner on the refinery. Talks with both firms ended in December, after failing to result in an award. The European firm is still working on other projects with Ipic, according to the source.

Ipic had previously signed an agreement with the US’ Conoco-Phillips to carry out a feasibility study for the Fujairah refinery in 2006, following a front-end engineering and design study by US-based Foster Wheeler. But Conoco-Phillips pulled out a year later, citing rising construction costs.

Other large projects in the UAE could face similar difficulties as global demand for oil, gas and petrochemicals crumbles on the back of the global economic turmoil.

A source at one major contractor in the UAE says that while smaller projects to upgrade or reno-vate existing infrastructure are still in motion, larger new-build projects may become increasingly rare over the next 12 months.

“The feedback we are getting from our various clients is that the downturn has not affected their projects so far, especially for smaller works,” says the source. “Bigger projects may become less common in the future, though.”

One contractor involved in other Ipic projects in the UAE is less optimistic. “In the Middle East there is nothing new happening,” he says. “As many other companies slow down, so will we.”

Despite the reduced demand outlook for refined products, which has caused the Fujairah project to be held back, an award for the front-end engineering and design contract on Ipic’s $5bn Pakistan refinery project is now close, according to the company.

An engineering and procurement contract award is not anticipated before mid-2009.

Demand for refined oil and petro-chemicals products fell dramatically in late 2008 as fears for the global economy rose and customers used up their reserves rather than buy new supplies. This caused prices to fall, leaving new refinery projects facing lower prices and reduced demand for their output.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.