After years of false starts, it seems Muscat will soon be working on a multibillion dollar refinery and petrochemicals project with an international partner. If the scheme, a joint venture with UAE fund International Petroleum Investment Company (Ipic), goes ahead as planned, it will end several years of waiting for the southern sultanate, which is keen to expand its industrial base. The project could also mark the beginning of a second wave of petrochemicals developments in Oman.

In 2007, Oman shelved its plans to build a new $4.5bn petrochemicals complex with the US’ Dow Chemical under the name Oman Petrochemical Industries Corporation. The scheme would have seen another state-run firm, Sohar Refining Company, expand the capacity of the refinery it had commissioned a year earlier. Those plans were also shelved.

Two years later, Muscat announced an initial agreement to work on another project to build a state-of-the-art, 400,000 barrels-a-day (b/d) $5bn refinery complex, with a view to adding an associated petrochemicals complex at a later date. But rising construction costs and the global financial crisis, which depressed demand and prices for petrochemicals, meant plans for the project were also put on ice.

Downstream plans rejuvenated

Now, the two projects are moving slowly ahead, albeit in a revised form. In June, Oman Refining & Petrochemicals Company (Orpic), a state-run vehicle formed in 2010 to oversee the country’s downstream hydrocarbons projects, contracted UK bank HSBC to act as its advisor on the expansion of the Sohar refinery. Just a few days later, Ipic and Orpic announced they had formed a new 50:50 joint-venture company, Duqm Refinery and Petrochemicals Industries, to work on the rejuvenated Duqm project.

These projects could lead to further growth in an industry that, as recently as 2006, did not effectively exist

Orpic is now planning to build the EBSM plant and may award a construction contract for the scheme in 2013

Neither scheme will lead directly to the development of new petrochemicals complexes, but industry sources in Muscat say they expect to see a slew of new downstream initiatives once these two projects are fully under steam. These schemes, says one source, are likely to be cleared from about 2015 onwards, with commissioning of major new petrochemicals projects probable before the end of the decade.

If the past 10 years are anything to go by, these projects could lead to further growth in an industry that, as recently as 2006, did not effectively exist in the sultanate, as part of the country’s quiet, yet remarkable, transformation into an industrialised logistics hub.

Before 2006, Oman had just one refinery, Mina al-Falhal in Muscat, which processes 106,000 b/d of oil and was commissioned in 1982.

It was not until the late 1990s that Muscat considered building a new plant and, in 2000, it awarded Japan’s JGC’s the front-end engineering and design (feed) contract to design a plant at the recently established Sohar port. In 2003, the newly formed Sohar Refinery Company – an 80:20 joint venture of the Omani Finance Ministry and state oil producer Oman Oil Company (OOC) – awarded JGC and another Japanese firm, Chiyoda, the $880m engineering, procurement and production contract to build the facility, which was connected to the Mina al-Falhal refinery via a 250 kilometre pipeline.

As the development of the refinery moved ahead, Muscat began looking for ways to extend its production capacity further downstream. In 2002, it was announced that the Ministry of Finance, OOC and South Korea’s LG International planned to build a polypropylene plant at a site next to the Sohar refinery, fed by propylene produced at the unit.

GS Engineering and Construction started work on the $320m plant in late 2002. It was commissioned at the end of 2006, producing 340,000 tonnes a year (t/y) of polypropylene and making the company Oman’s first petrochemicals manufacturer.

Naphtha cracker in Oman

Polypropylene plants are common in the Gulf, as are polyethylene facilities that use cheap associated gas generated at oil fields to produce a similar basic plastic. But Oman decided to take a bigger risk with its next downstream project; an aromatics unit that would crack naphtha, a fuel produced during the refining process, to make a series of important ‘aromatic’ chemical building blocks for more complex chemicals. Although Saudi Arabia, Qatar, and the UAE were pushing ahead with new petrochemicals schemes in 2006, few were using liquid feedstocks such as naphtha to make chemicals.

In the planning since 2004, OOC, Sohar Refinery Company and LG by 2006 had set up a 79:20:1 joint-venture company, Oman Aromatics, to build the new aromatics plant. GS was again appointed the main contractor on the scheme, under a contract worth $1.6bn. The plant was commissioned in 2010.

Muscat had planned to build more plants in the interim, including an ethylbenzene styrene monomer (EBSM) facility. However, the financial crisis led to weaker refining margins, lower demand for the aromatics facility’s products and higher construction costs, meaning the sultanate was forced to rein in its ambitions. Concerns were also raised about the efficiency of the government’s four downstream units.

In 2010, the decision was made to merge Sohar Refinery Company and Oman Refinery Company, the owner of the Mina al-Falhal refinery, into Orpic. A year later, Muscat decided to bring its aromatics and polypropylenes units under the same umbrella. According to the company, the integration of the four units created savings of $26m in the first year of operations.

Downstream deal cancelled

Orpic is now planning to build the EBSM plant and may award a construction contract for the scheme in 2013. However, OOC has permanently shelved another project that would have allowed even deeper downstream integration of the country’s petrochemical industry. In 2010, the oil producer announced that it had signed an agreement with India’s JBF Industries to build a polyethylene terepthalate plant. The scheme would have used paraxylene produced at the aromatics unit, along with imported acetic acid, to make PTA, which is a major building block in the production of polyethylene terepthalate (PET), better known as the clear plastic used for soft drinks bottles and packaging.

Orpic is now planning to build the EBSM plant and may award a construction contract for the scheme in 2013

Oman already has a PET producer, which lays claim to being the world’s biggest sheet PET manufacturer. Formed in 2006, Octal was Oman’s first major private sector petrochemicals company. Its PET plant uses PTA supplied by Saudi Arabian petrochemicals giant Saudi Basic Industries Corporation and monoethylene glycol purchased on international markets to make sheet PET, used in food and other packaging, and resin PET, utilised in food packaging and drinks bottles.

A first phase of production capacity came online in 2008, with an estimated output of 350,000 t/y. That was increased to 400,000 t/y after a debottlenecking project that began around the same time as the completion of the first phase of the plant.

Earlier this month, the company announced it was in the process of commissioning a second-phase plant that will bring overall production up to 927,000 t/y. This is a huge number given that Octal reckons it accounted for 10 per cent of the sultanate’s non-oil exports in 2011, worth some OR200m ($510m).

The Octal plant does not make use of the chemical feedstocks available in the sultanate, but rather the strategic location it offers in Salalah, the country’s southernmost town. Octal was one of the first companies to secure space at the new Salalah Free Zone, established as under plans to turn the area into an industrial hub with easy access to Africa and India.

In 2010, Octal was joined by Salalah Methanol Company, an OOC-run methanol producer that had spent $750m on a new plant to convert gas supplied by the Oil Ministry into 3,000 tonnes a day of pure methanol. A similar scheme was completed by Oman Methanol Company, a private firm, in Sohar in late 2007. The Sohar scheme was doubled in size in 2008.

To date, the industry has been focused on the production and export of basic chemicals or the processing of imported feedstocks to create finished plastics for re-export, leveraging the sultanate’s enviable geographic position. The question is, can it support major new petrochemicals projects?

Although the Sohar and Duqm projects look likely to go ahead after years of delays, industry executives remain tight-lipped as to whether they will be integrated into major new petrochemical schemes. In 2010, US consultancy KBC Advanced Technologies started work on feasibility studies for the refinery and petrochemicals scheme. The talks went well, according to a local engineering executive with knowledge of the scheme, but the key focus for the partners for now will be the refinery element of the project.

Limited ethylene in Oman

The same can be said for the Sohar scheme. The Dow project – which would have used ethylene produced at the refinery to produce the basic plastic polyethylene – was effectively cancelled in 2007 and industry insiders say the volume of ethylene manufactured at the refinery is too small for a new project to go ahead. Oman does not have natural gas to spare for new gas-fed projects.

Another engineering executive is quietly confident that a petrochemicals complex will be built alongside the Duqm refinery, which will process about 230,000 b/d of oil. “It’s a big part of the plan,” he says.

With a project manager expected to be on board soon following a September bid round, and the partners planning to start looking for a feed contractor by the end of the year, the scheme looks set to go ahead, which is great news for the industry. But if Muscat wants to match the growth it engendered in the first decade of the 2000s, it will have to get to work fast.