The final cost of the project to upgrade Ras Lanuf refinery,
Libya’s biggest export refinery, could exceed the initial budget in light of rising engineering, procurement and construction
(EPC) costs.

In mid-July, the Star Consortium, which is made up of two UAE firms - TransAsia Gas International and Star Petro Energy - finalised a joint venture agreement with the state-owned National Oil Corporation (NOC) to take a 50 per cent stake in the refinery (MEED.com 15:7:08).

As part of the deal, the facility will be upgraded to include new process units as well as having its capacity increased to 240,000 barrels a day (b/d) from 220,000 b/d.

The project will involve an investment of $2bn. However, the initial study for the project was carried out some time ago and costs have risen significantly. “This was an estimate done in 2006, so basically we will have to do a detailed project report which will come out with the current numbers,” says A Madhavan, director of projects at Star Petro Energy. “It [the cost] can come up, but so will the refining margins, so it is not a problem.

“The cost will not double because we already built in some contingencies as the consultants knew it might not be built in 2008 or even 2009. The price may even come down, because the EPC contractors may have reached their peak [workloads].”

The upgrade is aimed at changing the facility’s output to produce more middle distillate products, such as kerosene and diesel, for the European market.

Ras Lanuf’s output is mainly marketed in other North African states because it does not meet European standards.

“We are looking at euro-grade diesel and kerosene,” says Madhavan. “Most of the naphtha output will be used by the petrochemicals complex, so there is a limited use for gasoline beyond that. There could be a hydrocracker combined with diesel and kerosene units and a delayed coker plant.”

Sarir and Mesla light crude feedstock will be sold to the refinery at international commercial rates under a 25-year agreement, with a small discount reflecting the absence of handling and transportation costs. Naphtha output from the refinery will also be sold on at market rates to the associated petrochemicals complex, which is likely to be developed by a joint venture of NOC and the US’ Dow Chemical Company.

The project will require financing, which could be problematic in a country that does not have a sovereign rating. “It will not be a problem because there is an existing asset,” says Madhavan. “The banks are very excited about it so it is not a problem.”