Syrian refining plans in doubt

26 May 2010

Estimated $4bn plus Al-Faraqlus refinery lacking finance

Syria’s plans to reduce its dependency on imported fuels could face severe delays, as the financing behind the Al-Faraqlus refinery project becomes increasingly uncertain.

The international partners lined up for the project are now unable to fund the scheme and Syria needs foreign investment in the scheme if it is to move ahead, say sources close to the project.

“With today’s project costs, this refinery would look like costing around $4bn before pipeline considerations”, says Stephen George, senior refining analyst at UK consultants KBC Energy Economics. “There are lots of MOUs [memorandums of understanding] being signed, but not many concrete signs of progress on the project”.

Contractors have also expressed doubts as to whether the project will progress. “The Malaysians have lost interest. Iran’s budget is limited, so investment from Tehran will be difficult,” says a contractor in Tehran.

Syria’s Ministry of Petroleum and Mineral Resources (MPMR) signed an agreement with an international consortium to build a 140,000 b/d at Al-Faraqlus in central Syria in October 2007. The Venezuela Iran Oil and Gas Company (Venirogc) was formed to develop the venture (MEED 2:11:07).

The MPMR and Iran’s Petropars both hold 26 per cent stakes, with Venezuela’s Petroleos de Venezuela holding 23 per cent and Malaysia’s Al Bukhari Group the remaining 15 per cent.

Engineering, procurement and construction (EPC) tenders are expected to be issued in late 2011 with contracts awarded in 2012. But these dates look increasingly unlikely as the financing for the project remains unclear and sources in Syria and Iran are now pessimistic about its prospects.

Iran’s Namvaran was awarded the feasibility study for the project in 2009, which is expected to be completed in the next few months.

The new refinery, 180 kilometres northeast of Damascus is intended to ease Syria’s dependence on imported refined products. Syria currently refines approximately 240,000 barrels a day (b/d) of crude oil at its two refineries, Homs and Banias .

Despite the signed agreements analysts have questioned the feasibility of the project as Syria will have to import half of its crude feedstock with Venezuela providing 42,000 b/d and Iran 28,000 b/d. Domestic crude will contribute the remaining 70,000 b/d.

The MPMR originally intended to dismantle the ageing Homs Refinery, which was built in 1959 upon the completion of the Al-Faraqlus refinery in 2016. But in 2006, the MPMR launched a series of tenders to upgrade the refinery to meet European standards for fuels in 2006. The front-end engineering and design was awarded to Tehran-based consultants Namvaran, which also bid for the EPC contract, along with Czech firm, Technoexport.

“I expect that if Homs starts to advance it is a good sign that the Syrians think Faraqlus will either not happen or will happen so late that they will still benefit from investing at Homs” says George.

Now sources close to the project say the tenders for the Homs project are being reviewed and contractors are still awaiting new specifications from the MPMR.

“The expanded project may not meet European standards now, or the scope of the expansion will be reduced”, says a source familiar with the project.

Syria also currently requires around six billion cubic metres (bcm) a year of gas. This figure is expected to rise to around 14 bcm by 2015, by which time Syria hopes to have switched fuel oil out of the electricity generation sector.  This is dependent on increasing gas supplies both domestically and from imports largely from Egypt, but will leave Syria with a substantial fuel oil surplus. “They can either upgrade [refining capacity] or export it,” explains George.

Given the age of its downstream infrastructure, Syrian refinery throughputs are expected to be well short of its design capacity of 240,000 b/d. KBC estimates that Syria will import about 130,000 b/d of total products in 2010, out of total demand of around 290,000 b/d.

This would imply only about 160,000 b/d is being supplied domestically.  In effect, they are exporting crude and importing products. George estimates that Syria imports some 70,000 b/d of distillates (diesel and heating oils). 

“They are long on crude and short on product, especially distillates, which should give them some room for building or modernising their domestic refining capacity”. 

Syria’s recent track record in getting downstream projects moving, however, does not inspire confidence. After signing a memorandum of understanding in 2007 a deal with Kuwait’s Noor Financial Investment Company to build a fourth refinery with a capacity of 140,000 b/d in the east of the country was cancelled in April.  

Government officials in Kuwait, however, say they may seek to revive the project. As such it is difficult to completely write off the prospects for sector. “But there has been a lot more talk than action in recent years,” says George.

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