Investment needed in ageing Arab refineries

The Organisation of Arab Petroleum Exporting Countries (Oapec) have said that due to ageing Arab refineries, it is a struggle to cope with the rising local consumption. The main oil group stated that Arab countries need to make massive investments in an overhaul of their ageing refining industry, that can no longer meet the steady rise in local consumption.

Although new projects will add more than five million barrels per day (bpd) to existing Arab refining output capacity within the next five years, many regional hydrocarbon exporters could become net importers of petrol and other petroleum products because of inefficient refineries, the 10-nation Oapec said.

What complicates the problem is that most refineries in the region are owned by the government and this is discouraging initiatives and keeping profitability low. Another major obstacle is that the bulk of those refineries are relatively small units that were built nearly half a century ago and their operational costs are now nearly double that of refineries in industrial countries, Oapec said in a 100-page study on challenges that Arab refineries face.

Other problems and challenges the ageing Arab refineries are confronted with includes the high cost of operations and maintenance compared to refineries in other countries.

The report showed that more than 50 percent of the Arab world's 60 existing refineries are relatively small units, with an average production capacity of around 41,000 bpd. Nearly 26 percent of them are medium refineries with a capacity of 132,000 bpd while 24 percent of the units pump an average of 328,000 bpd.

Increasing production of the ageing Arab refineries

Oapec, which controls more than 60 percent of the world's recoverable crude resources, said new projects will boost total Arab refining output capacity by more than five million bpd, from around 7.4 million bpd to 12.42 million bpd in 2015.

But updating the ageing Arab refineries is beset with challenges in the form of, what it described as, persistent volatility in demand, fluctuating construction costs and other factors.

Consumption of fuel and loss of crude oil in Arab refineries are estimated at around six percent to nine percent, while it is around four percent to five percent in refineries in the developing world, the report said.

"The main reason for this high cost and consumption in Arab refineries is that most of them are old units that were constructed during the 1950s and 1960s... A bulk of these are small refining units, which have been excessively expanded over time to face a steady growth in demand," it said.

Oapec warned that in the absence of sufficient investments, which should cover new projects and the updating of existing units, Arab markets could face shortages in some refined products.

A breakdown showed demand for petroleum in the Arab region is projected to nearly double to more than two million bpd in 2015, while consumption of gas oil and diesel could surge from about two million bpd to more than three million bpd in the same period. LPG (liquefied petroleum gas) is also forecast to jump from less than 500,000 bpd to nearly 1.8 million bpd.

Oapec urged its members, which include the six GCC nations, to co-operate with local and foreign research institutes to develop the technology needed for upgraded refining operations, particularly conversion and hydro-treating processes, so that Arab refineries can produce oil products that meet local and international environmental requirements.

Refining capacity in the UAE

Oapec's figures showed Arab nations currently have 64 refineries that pumped nearly 7.39 million bpd at the end of 2008 compared with 7.2 million bpd at the end of 2006.

The increase in 2008 was mainly a result of expansion in refineries in some member states, including the UAE, where refining capacity grew to 798,000 bpd from 778,000 bpd in 2006.

The increase allowed the UAE to maintain its position as one of the largest refining producers, with its output accounting for more than 10 percent of the total Arab refining capacity of 7.3 million bpd. Its capacity is set to rise further in the next few years as new units come on-stream and expansion of existing refineries is completed.

 

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